March started with a literal bang—but we’ll get back to that in a moment. First, let’s focus on how the second month of the year ended in the markets. We closed February with the S&P 500 up 1.7% and bonds up 1.4%. And those were the laggards.

We continued to see the non-U.S. markets build on the 30% plus returns from 2025 with emerging markets up over 12% and the MSCI EAFE up 9.2% in the first two months of 2026.

While the markets continue to move forward, we face many of the same questions:

• What direction will the Fed go?
• How will AI impact the economy and the markets?
• What resolutions will we get with the current geopolitical risks and what might we face next?

Fed Moves to AI Trends

Let’s talk about the Fed. The Fed’s dual mandate of full employment and targeted (2%) inflation often feels at odds with one another. Right now, we’re experiencing a “low hire, low fire” job market. For job seekers, it likely feels “soft”, as unemployment dipped in January only to tick back up in February. If the job market continues to soften, the Fed may lean toward cutting rates more aggressively. Inflation showed improvement through February, bolstered by positive news from the Supreme Court’s decision to remove tariffs from 2025. However, as we fast forward into March, the inflation question gets more complicated with the surge in oil prices. Not an easy time to be on the Fed.

What we should probably expect is more conflicting viewpoints on the outcome for investors on the impact of AI. As technology and its adoption accelerate, the lack of clarity around which industries and companies will benefit—or become obsolete—creates a challenging environment to navigate.  On the job market front, we see more companies announcing cuts with the rationale of AI. The reality is that broader investment in AI is undeniably fueling the economy and helps support economic growth, even as the long-term winners and losers remain unclear. This is why we need to maintain the discipline of diversification now more than ever.

U.S.-Iran Conflict

As we were preparing to publish this commentary at the end of February, things quickly changed on the geopolitical front. The onset of combat in Iran has taken center stage, particularly with its immediate impact on oil prices becoming a key concern. The pressing questions now are: How long will this last? And is there long-term permanent damage done to the energy infrastructure in the Middle East? As investors, patience may be the greatest benefit we have. If we can maintain discipline and weather the energy volatility brought on by these combat operations, there’s potential to emerge on the other side and see the possibility of relief from the higher energy prices.

There’s plenty of factors that can be perceived as negatives weighing on the market. But on the flip side, the opposite is also true. It’s often hardest to recognize the innovations, growth, and adaptability that businesses demonstrate in seizing new opportunities brought about by change.

To navigate this dynamic environment, we continue to seek diversification, broadening the lens we look through beyond the S&P500. This includes exploring mid- and small-cap stocks, AI opportunities outside of the Mag 7, foreign stocks, bonds, and if appropriate, opportunities outside of the publicly-traded markets. By maintaining this wide lens, we aim to position ourselves to capture growth wherever it emerges.

We are excited to be by your side as we journey through 2026 and beyond.

Tim