Portfolio Manager Commentary

May 1, 2026

Economic Outlook

The Atlanta Federal Reserve currently estimates real GDP growth of approximately 3.5% for Q2 2026, suggesting continued underlying economic resilience. The U.S. Leading Economic Index declined 0.6% in March, indicating subdued forward growth expectations. The ISM Manufacturing PMI registered 52.7 in April, indicating continued expansion in factory activity. The Manufacturing Prices component rose by the fastest rate since 2021, reflecting renewed cost pressures. Consumer sentiment remains weak, with the University of Michigan Index posting a final April reading of 49.8. Forward inflation expectations have also edged higher, with the 5-year breakeven inflation rate at the highest levels since 2023 (2.67%). After several months of improvement, the NAHB Housing Market Index fell by 10% in April. The average interest rate for a 30-year fixed-rate mortgage was approximately 6.30% as of April 30.

Fixed Income

The Federal Reserve maintained the federal funds target range at 3.50%–3.75% at its most recent meeting on April 29, while emphasizing a data-dependent approach amid evolving inflation dynamics. Kevin Warsh has been confirmed as the next Chair of the Federal Reserve, succeeding Jerome Powell. The change comes as surging energy prices have introduced additional uncertainty into the inflation outlook, complicating the path toward policy easing. As a result, futures markets have modestly repriced the expected rate path, with no policy easing anticipated in 2026. Treasury yields have increased over the past month, particularly on the intermediate and long end of the curve, reflecting both renewed inflation concerns and persistent supply pressures.

Yield Curve

Current Generic Bond Yields

Equities

U.S. equities rebounded in April, with the S&P 500 rising approximately 10.4%, its strongest monthly gain since 2020. Technology stocks led the recovery, with the sector posting its best monthly return since October 2002. The Philadelphia Semiconductor Index surged more than 30% in April, reflecting renewed momentum in AI-related companies. Market participation improved meaningfully, with 10 of 11 S&P 500 sectors posting gains in April. Another sign of increasing market breadth, Small-Cap and Emerging Markets stocks have outperformed the S&P 500 since the recent market lows on March 30. Earnings expectations have surged higher in recent weeks, with consensus estimates for S&P 500 EPS growth in 2026 increasing from 14.6% at the end of February to 21.4% as of April 30.

In 2026, the best performing U.S. sectors have been Energy (+33.46%), Industrials (+12.91%), and Materials (+12.69%). The worst performing sectors have been Health Care (-5.31%), Financials (-3.48%), and Consumer Discretionary (1.47%). On a total return basis, the Russell 1000 Growth Index returned 0.96% year to date, while the Russell 1000 Value Index increased 10.43% over the same period.