Quarterly Market Commentary: April 2026

Core Bond: Overweight

• Higher rates provide new opportunities. We favor core bond funds with higher credit quality since spreads for riskier bonds don’t reflect recession risks. We prefer IG intermediate term duration bonds given higher yields plus the opportunity for price appreciation.

High Yield: Underweight

• The higher risk from potential economic weakness is not reflected in credit spreads making the group less attractive from a risk/reward perspective.

Floating Rate: Underweight

• Deterioration in underlying asset values, used to secure higher floating rate loans, is a risk.
  

Government & Agency: Neutral

• Opportunities have improved with higher rates. Reduction of prepayments will extend maturities. Agency mortgage bonds remain at historically low valuation levels.

International Fixed: Neutral

• While valuations in certain emerging market bonds are attractive, the US war with Iran can negatively impact global and especially emerging market economic growth.

Real Estate: Neutral

• Fundamentals are mixed both from a geographic and segment perspective.  Retail has soft demand and office demand is location sensitive.  Data centers have strong demand and warehouses have also positive trends. Continued high interest rates are a headwind.

Commodities: Positive

• We are positive on gold and silver as good inflation hedges, and we are positive on copper. We have turned positive on energy as supply disruptions and the need to rebuild inventories should support the oil price for the next 12-18 months.  Middle East supply disruptions should also support agriculture and aluminum prices.

Value: Neutral

• We increased our weight in value on attractive relative valuation.

Growth: Neutral

• We have raised growth to neutral as the tariff issue has had much less impact than expected on growth while AI capital spending has been stronger and more widespread than initially thought, lifting growth and growth expectations.

International Developed: Overweight

• Increased defense and infrastructure spending and potentially easing of regulation should improve the outlook combined with lower valuation.

International Emerging: Neutral 

• China’s growth has slowed, burdened by a real estate bubble, and stricter regulation.  While SE Asian countries have delivered stronger growth by manufacturing the components used in AI and data centers, they are more dependent on imports from the Middle East that will hurt their economies. 

Geopolitical unrest and the risks to global growth:

• After reaching relative calm in 2H25 as several conflicts agreed to truces including in Gaza, the Middle East erupted in flames again as the US and Israel attacked Iran to eliminate their nuclear and missile/drone capability and manufacturing facilities.

• Iran responded by firing missiles and drones at Israel and neighboring Arab countries.  Iran attacked and threatened commercial vessels in the Persian Gulf, essentially shutting traffic through the Strait of Hormuz.

• The removal of Maduro as president of Venezuela brought hope of stabilization to the country and a reduction of crime and refugees to surrounding countries.  Already, the country has raised oil production bringing much needed foreign currency to pay for the import of vital goods such as medicine. This is a positive.

• The US and Iran have signed a ceasefire and agreed to meet in Pakistan for negotiations.  The ceasefire is fragile and the Strait of Hormuz remains essentially closed.

• As the world depends on energy imports and other goods such as helium for semiconductor manufacturing, the openings of the Strait will be key to the outlook for economic growth for 2026 and 2027.

• Since many Middle East facilities have been damaged, and concerns remain regarding threats to shipping, we think it will take a while before traffic through the Strait returns to normal.

• Higher US tariffs have had less impact on global trade than feared.

• The Cold War 2.0 with Russia, China, Iran, and North Korea on one side, and the “West” on the other side got warmer.  Russia and China are helping Iran with satellite pictures and intelligence reports. 

• As the Cold War 2.0 suddenly got hot, the West and its allies are increasing defense budgets. 

• Economists are revising down 2026 economic growth due to the war in the Middle East.

• The political wind in Europe has changed as the continent realizes they have to pay for their own defense and historical ruling party coalitions are losing support among populations.  

Economic Growth, Unemployment, and FED Action:

• The US economy remained strong in 4Q25, boosted by spending on AI and AI infrastructure.  Expectations for 2026 is real GDP growth of 2.3% followed by real GDP growth of 2.0% both in 2027 and 2028, but this could change depending on the outcome of the Iran war. 

• The FED’ s dual mandate of stable prices and employment have become more challenging having to deal with tariffs and the new war with Iran.  We believe the war has put the FED on hold as they are looking for the exit ramp to determine the impact on the economy. 

• The corporate sector remained strong as the profit margin for the S&P 500 reached a new high of 14.1% in 4Q25.  According to JP Morgan, EPS for 2026 is currently projected at 17% growth, and 2027 EPS is projected to increase 16%, followed by 11% EPS growth in 2028. 

US Government Budget Deficits:

• The US continues to run large budget deficits despite robust tax revenues.  The fiscal 2025 deficit was ~$1.7 trillion, or 5.9% of GDP, and the CBO projects a fiscal 2026 deficit of ~$1.9 trillion, or 5.8% of GDP.   

US Government Debt:

• US Federal debt-to-GDP has risen to 125% versus 57% in 2000.  The Congressional Budget Office (CBO) projects US Federal debt to rise by ~$20 trillion in the next decade even in the most positive scenario to ~$57 trillion.

• Continued large budget deficits will make this worse and eventually force harsher changes when the music stops.

• Projected Federal interest payments for 2026 are expected to exceed $1 trillion, or more than projected fiscal 2026 defense spending prior to the Iran war.

• As the interest in the Federal debt will consume a higher, and higher percentage of the government’s budget, it will crowd out other spending, making it harder to make changes the longer we wait.

Emerging Market Growth and China:

• South-East Asian countries such as South Korea and Taiwan have benefited as component manufactures used for the development of AI and AI infrastructure such as data centers, but are heavily dependent on imports from the Middle East for energy, fertilizer, and helium used in semiconductor manufacturing.

• China has gone from an economic growth machine pre-covid to requiring government stimulus to force growth.

• China’s economic population has peaked, requiring less infrastructure and housing spending, slowing growth.

• Poor top-down economic policies from the communist party helped to create a real estate bubble and an overhang of bad debt from large real estate developers. 

• Wages in China have become less competitive, and China has become very assertive to its neighbors in the South China Sea.  Combined with tariff threats, it has led companies to move or establish new production away from China to diversify risks. 

• India has been a beneficiary as the country’s economic growth surpassed China, but India is dependent on imports from the Middle East.  

• Mexico has benefited from near-shoring to the US.

• Higher demand for key raw materials used in the energy transition will benefit select EM economies such as Brazil, Chile, and Indonesia that have these resources. 

Economic Growth, Corporate Earnings, and Financial Markets:

• Putting it all together, we are getting cautious on the 2026 outlook.

• While economic growth both in the US and globally has been resilient, the closure of the Strait of Hormuz will negatively impact global economic growth.  Both duration and magnitude matter.  Prolonged closure will be inflationary and could lead to a recession. 

• US equity valuations remain elevated supported by strong AI infrastructure spending and a resilient consumer.

• Analysts expect the S&P 500 to deliver double digit EPS growth for the next few years.  Achieving this will support equities, but should the Iran war lead to negative EPS revisions, equities could face a correction. 

• We think the FED will be on hold awaiting an exit ramp for the Iran war.  The tariffs and Iran war have complicated FED’s calculations as both add to inflation.

• We favor intermediate IG corporate bonds due to a combination of strong balance sheets and attractive yields.

• We recommend long-term investors to stay invested despite bouts of volatility as market timing has not been effective historically.  Ultimately, fundamentals drive markets in the long-run despite negative headlines in the short-run such as the current war with Iran.

These are the opinions of Ascend Wealth Planning, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing in securities involves risk of loss. Further, depending on the different types of investments there may be varying degrees of risk Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. Diversification and asset allocation strategies do not assure profit or protect against loss. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results. Registered Representatives offering securities through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC and Investment Advisor Representatives offering advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Ascend Wealth Planning, LLC are not affiliated.