Small gains overcome doom-and-gloom headlines
February’s equity market gains, though moderate, were impressive considering the onslaught of negative business headlines. While technology names did decline, performance improved across most sectors.

Bonds were up a solid 7.3% for the year. The CBOE Volatility Index (VIX) landed above 20 for several days in February, peaking at 22 before closing at 18.5. A reading of 20 is generally considered stable. Volatility may increase throughout the year while staying within an acceptable range. Markets can continue to perform well even in higher-volatility environments.

The Federal Reserve Board will meet on March 18. Markets are expecting one or two more rate cuts in 2026, depending on CPI trends and labor market strength. The current federal funds rate stands at 3.5%–3.75%.

Another successful earnings quarter
Earnings growth has been the primary driver of strong markets over the past few years, and recent numbers have been encouraging. Roughly 74% of companies have reported positive earnings surprises, contributing to an aggregate earnings growth rate of 13.2%. We are now in the sixth consecutive quarter of double-digit earnings increases.

On a more cautious note, only 55% of companies provided positive guidance, down from 70%–80%. Earnings growth estimates remain in the 13%–15% range for the year.

AI-related disruption in certain technology sectors has led to spiraling concerns about private credit and equity markets, particularly in software investments. While disruption will likely continue as AI evolves, we believe there will also be positive benefits. Overall, broader markets have absorbed the negative news well.

Summary

We expect volatility to increase alongside periodic concerns about software equity valuations. Additionally, midterm elections could contribute to market swings. Despite these factors, our 2026 outlook remains positive with anticipated growth in the 8%–12% range.

Investment opportunities remain across a broad spectrum, expanding into undervalued and underappreciated assets while continuing to grow in private markets. Dividend stocks have stood out, and we expect that trend to continue.

Market valuations stand at 21.5 times forward earnings. The economy remains relatively strong, and leading U.S. companies continue to demonstrate strong management, profitability, and innovation.