March 2026 Market Update: Rotation, Resilience, and What Comes Next

by merhutchens | Mar 11, 2026 | Market Update

February handed portfolio managers something worth studying carefully. Beneath the headline volatility, a structural shift quietly unfolded across equity markets—one that challenges the concentration thesis many portfolios have leaned on for the past three years. The dominance of mega-cap technology stocks isn’t over. But the market is sending a clear, deliberate signal: the next chapter looks different from the last.

This month’s update breaks down the key forces at play—AI-driven rotation, the surprising resurgence of overlooked sectors, resilient macro data, geopolitical risks that demand measured attention, and a potential shift in Federal Reserve leadership that could meaningfully reset rate expectations heading into the second half of 2026. If your portfolio strategies carry significant tech exposure, now is the time to stress-test your positioning against a market that is actively broadening.

Here’s what the data is telling us.

AI Advances Triggered Rotation, Not Retreat

AI remains the defining investment theme of this cycle. February confirmed that—just not in the way many expected. New AI developments sparked sharp, short-term selling pressure across certain software names as investors reassessed stretched valuations and near-term growth assumptions. What followed wasn’t capitulation. It was rotation.

Capital moved out of overconcentrated software positions and into energy and value stocks. This distinction is critical for portfolio managers to internalize: rotation signals that investors remain constructive on AI’s long-term trajectory. They’re simply spreading that conviction across a wider opportunity set.

The companies best positioned to benefit from AI’s next phase aren’t necessarily the ones that led the last rally. Semiconductor manufacturers, networking equipment providers, data-center builders, and power generation companies are increasingly commanding institutional attention. These are the infrastructure layers that make AI scalable—and ultimately profitable at an enterprise level. For the better part of three years, the spotlight belonged to software and platform giants. The picks-and-shovels layer is now stepping forward.

The S&P 500 Crosses 7,000—and the Story Beneath the Surface

Despite early-month turbulence driven by AI-related selling and geopolitical uncertainty, major indexes rebounded. The S&P 500 crossed the 7,000 level a month ago—a milestone that reflects genuine underlying resilience, even amid a meaningful leadership rotation.

More telling than the index level was the relative performance of small and mid-cap stocks, which outperformed large-caps in the early part of the month. For years, the average stock has lagged the mega-cap names that carried the index. That dynamic is beginning to unwind, and for diversified portfolios, this is a significant development.

The S&P 500’s gains over the past three years were disproportionately driven by a small number of companies. That concentration created two interrelated risks: elevated portfolio exposure to a handful of names, and valuation sustainability concerns if growth expectations were even marginally disappointed. Energy and consumer staples sectors surged to all-time highs in February while recent leaders lagged. That’s institutional reallocation—deliberate, measured, and worth taking seriously.

Economic Indicators: The Resilience Trade Holds

The macro backdrop remained broadly supportive through February. U.S. economic growth continued to demonstrate resilience—positive job growth and retail sales that came in better than forecasted. These aren’t dramatic beats. But in an environment where recession concerns periodically resurface, steady data carries real analytical weight.

Strong employment figures suggest consumer spending has durability, which directly supports the sectors gaining momentum: consumer staples, healthcare, and domestically oriented industrials. Better-than-expected retail sales reinforce that the demand side of the economy hasn’t deteriorated, even as interest rate uncertainty persists.

The question heading into Q2 is whether this resilience holds if geopolitical risks escalate or if monetary policy expectations shift materially. For now, the data supports a cautiously constructive view—though “cautiously” deserves equal emphasis.

Geopolitical Risks: Price the Pattern, Not the Panic

No rigorous market analysis can sidestep the geopolitical overhang. February brought continued uncertainty around international tensions, including concerns over Greenland and ongoing instability in the Middle East. These pressures added to volatility early in the month and merit ongoing attention.

But here’s what history actually tells us about geopolitical shocks and equity markets: the pattern matters more than the headline.

Recent precedent is instructive. On June 23—the day after the U.S. and Israel attacked Iran’s nuclear and military sites—the S&P 500 reversed higher and closed with a 1% gain. Investors accurately assessed there was no long-term structural risk, even after Iran retaliated. The index found support at its 21-day exponential moving average and continued ascending. A similar dynamic played out in January when the U.S. capture of Venezuelan leader Nicolas Maduro barely registered—the S&P 500 rose 0.6% and the Nasdaq added 0.7% the following Monday.

The market’s message, repeated across multiple geopolitical events: assess the longevity and severity, not the spectacle.

That said, the current environment involving Iran does introduce specific sector considerations. Defense, gold, silver, and energy equities are likely to receive a short-term bid. A rotation out of higher-risk and small-cap names and into more stable, defensive positions is also a plausible near-term outcome. Portfolio managers should watch index price and volume action—particularly the S&P 500’s relationship to its 50-day moving average—more closely than geopolitical headlines themselves.

Fed Leadership: The Market Is Already Pricing the Transition

One of February’s most underappreciated developments was how the market reacted to shifting Federal Reserve leadership expectations. Kevin Warsh has emerged as a leading candidate to succeed Jerome Powell—a prospect that appeared to ease investor anxiety around future policy direction.

Warsh is widely regarded as a more market-oriented voice in monetary policy circles. His potential elevation could signal a shift toward greater policy flexibility, or at minimum, a more predictable communication framework. Whether that materializes is still uncertain. But the market’s sensitivity to even the speculation is telling.

Fed leadership transitions—real or anticipated—have historically influenced rate expectations, bond yields, and equity valuations in ways that extend well beyond the initial headlines. For portfolios with meaningful fixed income exposure, this narrative warrants close attention. A more accommodative Fed posture would reprice duration assets, compress credit spreads, and add fuel to the equity rotation already underway.

Watch this space carefully.

Sector Outlook: Manufacturing, Energy, and Healthcare Step Forward

Three sectors are demonstrating the kind of structural momentum that warrants genuine portfolio consideration.

Energy has been the month’s standout, combining geopolitical tailwinds with AI infrastructure demand. Data centers consume enormous power. As AI deployment scales across industries, energy generation companies become structural beneficiaries—not cyclical plays. The sector’s surge to all-time highs reflects both narratives simultaneously.

Manufacturing—semiconductor manufacturing in particular—sits at the intersection of AI demand and industrial policy. Domestic production incentives and ongoing supply chain reconfiguration are stacking tailwinds in ways that weren’t present 24 months ago.

Healthcare continues to benefit from demographic trends and medical technology innovation. As a traditionally defensive sector, it also provides portfolio ballast during elevated volatility—a characteristic that looks considerably more attractive now than when markets were trending smoothly upward.

The common thread: each sector serves as an enabler or stabilizer for the broader economic and technological transformation underway. They’re not competing with the AI trade. They’re extending it.

What February’s Signal Means for Portfolio Positioning

February underscores a key point: diversification is back, and concentration is risky.

Mega-cap tech remains strong but no longer guarantees outsized returns. The market now demands active choices in sectors, sizing, and geography. AI infrastructure—semiconductors, networking, and power—offers strong potential, while energy’s role as a geopolitical hedge and AI enabler is vital. Shifting Fed expectations could also reshape fixed income opportunities.

The Lesson of February 2026
AI-driven growth depends on infrastructure, energy, and networks—areas many portfolios overlook.

This is a call to reassess, rebalance, and prepare for the future, not replay the past.

Stay analytical. Stay diversified. Stay ahead

Why August’s Rally Reveals More Than Most Market Observers Realize

by merhutchens | Sep 2, 2025 | Market Update

August delivered something many seasoned investors thought was impossible four months ago: the S&P 500’s 20th record high of the year. But here’s what caught my attention—this wasn’t just another tech-driven surge. We witnessed something far more telling about the underlying health of our markets and economy.

The Broadening That Changes Everything

For the better part of 2024, we’ve watched a narrow group of mega-cap technology stocks carry the entire market on their shoulders. August flipped that script entirely. The equal-weight S&P 500 hit new all-time highs, signaling that the “average” large-cap stock finally joined the party. This isn’t just a statistical curiosity—it’s a fundamental shift that speaks volumes about investor confidence spreading beyond the usual suspects.

I’ve been watching markets long enough to know that sustainable bull runs require broad participation. When Health Care emerges as the month’s top performer while Utilities trail (a complete reversal from July), you’re seeing real rotation based on changing economic expectations. This isn’t momentum chasing; it’s smart money repositioning for what comes next.

The small-cap revival particularly caught my eye. The S&P 600 Small Cap Index surged roughly 7%, marking its best month of outperformance over the S&P 500 in over a year. Many hedge funds were caught short small caps—literally. According to CFTC data, non-commercial short positions in the Russell 2000 recently hit their highest levels since 2022. The resulting short-covering rally provided additional fuel, but the underlying fundamentals tell a more compelling story.

Reading Between the Fed’s Lines

Jerome Powell’s Jackson Hole speech marked a pivotal moment that many investors underappreciated. His shift from singular focus on inflation to balancing the dual mandate of employment and price stability represents the most significant change in Fed messaging since the post-COVID era began.

Here’s my take: Powell’s acknowledgment that “policy in restrictive territory” might need adjustment reveals a Fed increasingly concerned about labor market softening. The unemployment rate edged to 4.2% in July—still historically low, but the trajectory matters more than the level. With net immigration near zero, our labor supply constraints create a unique dynamic where unemployment won’t spike dramatically even as job demand slows.

This creates an interesting paradox. Lower labor supply should theoretically support wages and potentially inflation, but it also constrains economic growth. The productivity question becomes critical—can AI and technological advancement offset this demographic headwind? MIT’s recent finding that 95% of AI pilot programs deliver no measurable return suggests we might be waiting longer for that productivity boost than many expect.

Inflation’s Stubborn Reality Check

While markets celebrated relatively stable CPI data at 2.7%, I’m watching the details more closely. Core inflation’s uptick to 3.1% tells a different story than the headline numbers suggest. The price increases in furniture and other imported goods could signal tariffs beginning to filter through the economy, though it’s still early to draw definitive conclusions.

This presents a fascinating policy dilemma. One camp argues tariffs create only one-time price adjustments and shouldn’t influence monetary policy. The other warns we haven’t seen the full impact yet. I lean toward caution here. With goods like furniture—where the U.S. leads global imports while China dominates exports—we’re seeing exactly what economic theory predicts when trade barriers rise.

The Fed’s challenge intensifies when you consider labor market dynamics. Certain industries—construction, hospitality, agriculture—rely heavily on immigration to fill workforce gaps. Restricted labor supply in these sectors could drive wage inflation even as overall job growth slows. It’s a recipe for persistent services inflation that could complicate the Fed’s rate-cutting plans.

The Earnings Reality Check

Let me address the elephant in the room: earnings quality. Q2 earnings per share growth for the S&P 500 reached nearly 12%—more than double initial expectations. Over 80% of companies beat bottom-line estimates, with 50 issuing positive guidance. These aren’t just numbers; they reflect real business fundamentals that justify market valuations.

The earnings revision breadth for the S&P 500 climbed to its highest level since August 2021. This metric—net upward revisions minus downward revisions—strongly correlates with future market performance. When I see this kind of broad-based earnings momentum, it pushes back against bubble narratives that focus solely on valuations.

Even NVIDIA’s “disappointing” results need context. Yes, the AI darling saw its slowest revenue growth in years, but we’re talking about high double-digit growth from a company carrying 8% of the S&P 500’s weight. The market’s measured response—brief selling followed by recovery—demonstrates maturity in how investors process information.

Geopolitical Noise Versus Market Signal

One of the most telling aspects of August was how markets shrugged off potential volatility triggers. From trade tensions to the attempted firing of Fed Governor Lisa Cook, any of these events could have sparked significant turbulence. Instead, we saw the VIX trade at 52-week lows.

This resilience reveals something important about current investor psychology. Either markets have already priced in political uncertainty, or investors increasingly separate policy noise from economic fundamentals. The dollar’s weakness to 52-week lows while Treasury yields remain relatively stable suggests the latter.

Here’s what I find particularly interesting: for all the talk about declining U.S. exceptionalism, our equity markets continue outperforming globally. Yes, the dollar has weakened, but that follows years of strength and could actually benefit U.S. exporters and multinational corporations.

September’s Challenge and October’s Promise

As I write this, we’re entering September with the market at short-term overbought levels and little margin for error. September’s historical reputation for turbulence is well-earned, but context matters. When markets trend higher into September, seasonal weakness often fails to materialize.

The key variables I’m watching: continued earnings growth, Federal Reserve policy clarity, and whether the recent broadening of market leadership sustains. If we do see a September pullback, October historically provides strong tailwinds—potentially amplified by an actual rate cut rather than just expectations.

The Bottom Line

August’s rally wasn’t just about prices going up; it revealed fundamental strength in the U.S. economy and corporate sector that many observers missed. The broadening of market leadership, combined with robust earnings revisions and Fed policy flexibility, creates a foundation for continued gains.

Yes, inflation risks remain, and seasonal headwinds loom. But when I look at the totality of evidence—from small-cap revival to earnings quality to market resilience in the face of uncertainty—I see an economy and market structure capable of navigating these challenges.

The real question isn’t whether we’ll see volatility ahead—we will. It’s whether investors can maintain perspective on the underlying fundamentals that made August’s broad-based rally possible in the first place. Based on what I’m seeing, that foundation remains remarkably solid.

May 2025: Markets Defy Expectations

by merhutchens | Jun 3, 2025 | Market Update

Trade Tensions:

a TEMPORARY RESPITE

BACK TO FORTIS PRIVATE WEALTH

May was a turbulent month for the U.S. stock market. Trade tensions with China threatened to derail the bull market, but stocks staged an impressive comeback. The Dow Jones rose 4.16%, the S&P 500 shot up 6.29%, while the Nasdaq rocketed up 9.65%. For a moment, it seemed like nothing could shake Wall Street’s confidence, as if the bull market was unstoppable. But the story is far from over.

Mid-May brought a glimmer of hope as U.S.-China trade talks appeared to make progress, calming investors and pushing stocks to fresh highs. The easing of levies and reduced tensions sparked a rally, fueling optimism that the good times might continue.

But the optimism was fleeting. By month’s end, President Donald Trump reignited tensions through a series of TruthSocial posts accusing China of violating the agreement.

Understanding Why

Market Performance: Highs, Lows, and Everything in Between

In May, the markets reflected the ebb and flow of trade tensions, with some sectors thriving while others faced challenges. Technology took the lead, followed by impressive gains in communication services, consumer discretionary, and industrials. In contrast, healthcare, energy, real estate, and financials struggled to keep pace.

Sector Returns for May 2025

The table below is for the time period of 4/30/2025 – 5/30/2025 as measured by ETF in corresponding sector

Technology (XLK) 9.97% 9.97%
Industrials (XLI) 8.84% 8.84%
Consumer Discretionary (XLY) 8.38% 8.38%
Communication Services (XLC) 6.24% 6.24%
Financial (XLF) 4.51% 4.51%
Materials (XLB) 2.92% 2.92%
Energy (XLE) 1.28% 1.28%
Real Estate (XLRE) 1.04% 1.04%
Health Care (XLV) -5.57% -5.57%

Fortis

Stock Strategy

Overview

May 2025

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Amid market turbulence in May, corporate America provided an unexpected lift: S&P 500 companies reported an impressive 12.5% growth in Q1 earnings. However, this optimism was tempered by cautious projections, with many companies warning that tariffs could weigh on future profits.

By maintaining a strategic focus and cutting through the noise, our emphasis on value stocks has successfully reduced portfolio volatility. At the same time, a balanced allocation to higher-risk stocks allowed us to seize the dramatic market rebound in May.

A Cautious Outlook: Reducing Equity Exposure

Although the bull market held its ground in May, the latest developments in trade and monetary policy suggest choppy waters ahead. Investors are bracing for increased volatility, with the mood on Wall Street more subdued than broader market gains might suggest.

In response, we’ve reduced equity exposure to capture what appears to be a short-term rally. This decision stems largely from concerns about the comments during the FOMC Minutes and lack of demand in the U.S. Treasury auction:

^

The Fed maintained interest rates at 4.25%–4.50%, citing inflationary pressures and a weakening labor market.

^

The May 22 FOMC Minutes highlighted concerns that progress on inflation had stalled, while job market softening raised additional risks.

^

A $16 billion 20-year Treasury bond auction saw very little demand, forcing higher yields to draw buyers—a troubling sign for safe-haven assets.

The Ripple Effects of Weak Treasury Demand:

The disappointing bond auction signals more than just a market hiccup—it reflects a fundamental shift in how investors view Treasuries as a safe asset. Confidence is eroding, with institutional investors and everyday traders alike shifting capital away from long-duration assets. The implications of this shift could reshape the financial landscape, as higher yields and dwindling demand alter the dynamics of “safe money.”

This year, prioritizing high-quality corporate debt has proven to be a more effective safe haven than U.S. Treasuries. At the same time, short-term U.S. Treasuries and Treasury Inflation-Protected Securities (TIPS) have played a key role in stabilizing our bond portfolio. We remain focused on closely monitoring this trend moving forward.

Looking Ahead

Key Events to Watch

All eyes are on the data this week. The upcoming nonfarm payrolls report is projected to show 128,000 new jobs, with unemployment holding steady at 4.2%. However, a rise in jobless claims could weigh on economic sentiment.

Meanwhile, trade developments out of Washington will be key to watch, especially as earnings season wraps up. On June 20, we’ll see “triple witching” options expiration and S&P Index rebalancing—two events that could shake up market liquidity. Looking ahead, June 27 marks Russell Reconstitution, historically one of the busiest trading days of the year.

Looking at the bigger picture, Bespoke Investments noted that as of May 27, the S&P 500 closed the first 100 trading days of 2025 with a modest year-to-date gain of 0.11%. What’s even more impressive? This happened despite it being the 7th most volatile start to a year in over 70 years. It’s a reminder that big market swings don’t always translate to big gains or losses.

So, how do we stay consistent in such a wild market? It boils down to discipline, research, and adaptability. Early 2025’s volatility highlighted why sticking to a structured strategy beats reacting to short-term noise. By focusing on evolving trends, strong fundamentals, and a long-term outlook, we’ve been able to navigate the uncertainty.

American Exceptionalism in the Morning After

by merhutchens | May 13, 2025 | Market Update

Global Markets Surge

BACK TO FORTIS PRIVATE WEALTH

Rooted in a unique historical journey, American exceptionalism reflects the belief that the United States holds a singular and unmatched position on the global stage. Amidst the turbulence of global trade and a storm of uncertainty, a surprising development emerged: global stocks delivered an unexpected victory. In April, the ten best-performing country indexes were all outside the U.S., each achieving returns exceeding 5%. (Table 1)

It’s no surprise that the U.S. and China had the worst-performing stock markets in April, given they’ve been hit hardest by the ongoing trade war.

U.S. stocks have returned -5.1% year-to-date while non-U.S. stocks, including emerging markets, have returned 9.0% in U.S. dollar terms. The weakening dollar added about 6.5% to non-U.S. stock returns. In other words, in local currency terms, non-U.S. stocks returned 2.6% year-to-date.

!

Table 1

Monthly Net Returns for the Period Ending April 30, 2025: (MSCI data)



Germany

+ 7.52%



Latin America

(Emerging Market)

+ 6.91%%



Australia

+ 6.77%



Japan

+ 5.23%

Understanding Why

U.S. Stocks are Underpeforming

This disparity in performance between U.S. and non-U.S. stocks can be attributed to several key factors.

A key factor is the fluctuation in currency values, particularly the decline of the U.S. dollar. A weaker dollar increases the returns of non-U.S. stocks when converted to U.S. dollars, adding approximately 6.5% to their performance.
Different economic conditions and monetary policies across regions have also created varied market dynamics. For example, emerging markets might experience stronger growth opportunities or more favorable trade conditions compared to the U.S., which is dealing with challenges like the ongoing trade war.
Finally, technical trading signals, such as U.S. stocks falling below their 10-month moving average, can intensify selling pressure and heighten short-term market volatility, further impacting performance differences.

The U.S. is feeling the heat of the trade war more than China, or at least that’s what the markets are signaling. While China’s stock market has still managed to climb 10% this year (even after a 5% dip in April), U.S. stocks are struggling. Small-cap stocks, in particular, are in meltdown mode with a brutal -10% return so far this year.

Why the steep drop for small caps? These companies just don’t have the wiggle room that big corporations do. They can’t easily shift production or suppliers away from China, and many are stuck with inventory in transit that’s now slapped with 145% tariffs. For some, these tariffs are a business killer, forcing price hikes just to stay afloat.

investment strategy

Portfolio Positioning

Given U.S. economic headwinds and above-average stock market valuations, a continued underweight to U.S. large-cap stocks is warranted, and reflected accross the board in our ETF Strategies. Fortis broad asset allocation is:

Global Stocks

Global Bonds

Real Assets



Stocks

We do not believe that further reducing stock allocations is necessary at this time. As trade wars are fundamentally political in nature, a swift resolution could prompt a significant shift away from non-U.S. stocks. Although we have invested in the growth of non-U.S. markets, particularly in Europe and Emerging Markets, our primary focus remains on targeted opportunities within U.S. markets. These include value stocks, high-dividend-yield companies, mid-cap firms, and stocks with strong positive momentum.



Bonds

Our bond allocation strategy continues to emphasize corporate bonds. To complement our portfolio, we are focusing on short-term bonds and Treasury Inflation-Protected Securities (TIPS) to round out our allocation to government bonds.

Given current economic challenges and below-average credit spreads, we remain cautious about increasing exposure to non-investment-grade bonds. Similarly, U.S. longer-term bonds present above-average risk, with rising yields defying the typical pattern seen in periods of slowing economic growth.



Real Assets

Real assets continue to anchor the portfolio effectively, with solid contributions from real estate and commodity allocations. Year-to-date, real estate investments have delivered steady performance, supported by resilient demand across key markets and sectors. Despite broader economic headwinds, specific segments like industrial and multifamily properties have shown exceptional returns.

Gold, acting as a dependable hedge, has provided strong positive returns amid ongoing inflation concerns and heightened market volatility. Similarly, the broader commodity markets have recorded impressive gains, fueled by supply constraints and robust demand for critical resources such as energy and agricultural products.

These results underscore the critical role of diversification in our real assets strategy, reinforcing their value in delivering stability and resilience in a dynamic market environment

NEXT STeps

The Morning After

|

The morning after is defined as, "The unpleasant results of an earlier activity, especially overindulgence in alcohol."

This expression originated in the late 1800s as a synonym for a hangover (and was often put as the morning after the night before). For example, A headache is just one of the symptoms of the morning after.

Dictionary.com

Our hangvoer lies in the profound impact the ongoing trade war could have on global markets, as outcomes remain heavily dependent on the trajectory of tariff negotiations. Capital Economics predicts that if tariffs on China rise to 60%, existing tariffs remain unchanged, and additional tariffs are indefinitely delayed, the U.S. effective tariff rate could surge to 16%—a sharp jump from just 2% last year.

While Congress could alleviate some of the headache pressure by implementing tax cuts to reinvest tariff revenues into the economy, those funds might instead be allocated to reducing the federal budget deficit. If that’s the case, the risk of a recession could rise substantially. Consequently, we’re holding off on rushing to “buy the dip” in undervalued market sectors for now. At Fortis, we’re staying cautious—and keeping the aspirin close.

We will continue to keep you informed about our insights and actions in the market. If you have any questions, please don’t hesitate to reach out.

Sincerely,

Meridith L. Hutchens

Much Ado About Nothing

by merhutchens | Feb 10, 2025 | Market Update

Much Ado About Nothing?

The recent tariff announcement appears to have had little impact, aside from its effect on U.S. automakers. On February 1, President Trump introduced new tariffs: 25% on Canada and Mexico, and 10% on China. However, the tariffs on Canada and Mexico have since been paused. Today, President Trump is set to formally announce a 25% tariff on all steel imports, as he mentioned yesterday aboard Air Force One. In the coming days, additional tariffs on aluminum and reciprocal tariffs on all countries are expected, raising concerns about a potential global trade war.

But what’s the bigger picture here?

These tariffs appear to be a “carrot and stick” approach to negotiations, particularly with Mexico and Canada, targeting issues like border security, illegal immigration, and the flow of drugs like fentanyl into the U.S. The goal? Cooperation could lead to these tariffs being reversed.

Understanding Tariffs

What's at Stake?

Tariffs aren’t new—they were the U.S. government’s main source of revenue before 1913 and are often used in trade disputes. One famous example? The “Chicken Tax.”

In the 1960s, cheap U.S. chicken exports upset European markets, so countries like West Germany responded with tariffs. The U.S. retaliated in 1964 with tariffs on potato starch, dextrin, brandy, and light trucks. That last one—targeting Volkswagen’s beloved VW Bus—ended up reshaping the U.S. auto industry.

While most tariffs faded, the 25% tax on light trucks stuck around, encouraging foreign automakers to adapt by building in the U.S. or finding creative loopholes. Meanwhile, U.S. automakers dominated the truck market for years.

The Chicken Tax shows how a single tariff can ripple through industries, sparking debate on whether such measures protect domestic industries or hike prices and disrupt economies.

Your wallet

Canada and Mexico



Food and Agriculture

Tariffs on imports from Mexico and Canada could lead to increased prices for fruits, vegetables, grains, and meat, affecting grocery costs significantly.



Energy and Fuel

With Canada being the top supplier of oil and gas, tariffs could raise fuel prices, particularly impacting Midwest states where Canadian oil is refined.



Automotive Industry

Tariffs on car parts from Mexico and Canada could result in higher vehicle prices, as manufacturers face increased production costs.

Future Risk

China

If President Donald Trump follows through with his proposed tariffs of up to 60% on all Chinese imports, American consumers could face significant price increases on everyday goods.

China is a critical supplier to the U.S. market, leading in categories like toys and sports equipment, providing 40% of U.S. footwear imports, and accounting for roughly a quarter of electronics and textiles.

Imposing a 60% tariff on these products would disrupt international trade and sharply increase costs. For instance, toys and sports gear, currently taxed at less than 10%, could become significantly more expensive. While it might seem possible for other suppliers to fill the gap, China’s unparalleled ability to produce materials that meet strict U.S. safety standards secures its dominant role.

Markets are holding steady—for now. U.S. automakers are down 6%, but history reminds us: trade wars shake things up fast. The 2018-2019 US-China trade war is our closest guide. It disrupted supply chains, spiked prices, and created uncertainty that stalled investments and hiring. Volatility ruled the markets, with stocks reacting to every twist in trade talks.

In 2018, the S&P 500 dropped 4.38%. By 2019, after the Phase I trade deal, it surged 31.49%. Chinese stocks mirrored this pattern, falling 30.16% in 2018 and rebounding 36.40% in 2019. The lesson? Tariffs bring short-term pain, but markets adjust once clarity returns.

The real danger lies in prolonged tariffs. They suppress demand, risk global retaliation, and slow growth—potentially triggering higher inflation. Already, U.S. consumer sentiment is dropping, and fixed investment spending is down.

Bottom line: Tariffs won’t derail the business cycle immediately, but the clock is ticking. The longer they last, the greater the risk.

Equity Performance Following Trade Announcement (2/1/2025 – 2/6/2025)

Your Investments

Financial Market Implications

While daily volatility might make headlines for the stock market, it’s important to zoom out. On a weekly scale, bullish trends remain intact, and money continues to flow into equities. That said, risks remain on the table: high valuations, policy uncertainties, and markets straying above long-term trends are all concerns we’re looking at closely.

W

Two Technical Indicators to Watch

Table #1: Percentage of Stocks Trading Above 50-day and 200-day Moving Average

Table #2: Earnings Revision Ratio

Table1 :Currently, 56% of S&P 500 stocks are trading above both their 50-day and 200-day moving averages—an indicator that has historically signaled strong bullish momentum. The table below highlights the average historical returns over the past decade when more than 50% of S&P 500 stocks surpass these key moving averages.

S&P 500 Moving Average Analysis (2/1/2025 – 2/6/2025)

S&P 500 average return when 51% or more of both the 50Day and 200Day. Forward return average for 3 months, 6 months, and 12 months

3 Months

6 Months

12 Months

Table 2: The earnings revision ratio is another key metric we’re tracking, showing how analysts feel about stocks. It’s calculated by dividing the number of upward estimate revisions by downward ones—basically a snapshot of analyst sentiment. A ratio above 1? That’s a sign of optimism, with more upgrades than downgrades. For investors, this ratio helps spot trends, gauge market sentiment, and pinpoint sectors or companies analysts believe have strong future earnings potential. Currently, this ratio is just below 1. We are keeping a close eye on this metric at the sector level

S&P 500 Composite Index

Number of Estimates With 12mo forward EPS Mean Up Since Last Month. Source: LSEG/Fortis

Navigating the Balance Between Protection and Progress

Tariffs are meant to protect American industries—whether it was helping poultry farmers fend off European competition in the 1960s or supporting automotive jobs and supply chains today. But they’re a double-edged sword. On one side, tariffs can strengthen domestic industries, secure supply chains, and bring in government revenue. On the other, they drive up consumer prices and can make companies less motivated to innovate.

There’s no one-size-fits-all answer to whether tariffs work. Economics isn’t black and white; it’s more like a balancing act. Take the Chicken Tax, for example. It started as a way to protect U.S. poultry but stuck around to shape the auto industry for decades. Today’s tariffs could have similar long-term effects—impacting everything from what we pay at the store to how jobs in manufacturing evolve.

At their core, tariffs are more than just taxes on imports. They’re a strategic tool that reflects the U.S.’s priorities—balancing economic goals, national security, and politics. As the debate over new tariffs on Canada, Mexico, and China heats up, one thing’s for sure: the ripple effects will be felt across the economy for years. In the wild world of trade policy, the only certainty is that we’ll have to wait and see how it all unfolds.

Navigating Optimism and Unseen Risks in a New Political Era

by merhutchens | Dec 1, 2024 | Market Update

America has voted, and Donald Trump will serve another four years in office. This decision may evoke mixed reactions, but it indisputably impacts the market in significant ways. In recent events, stock markets responded with a sharp increase, known as a “relief rally,” not attributed to either candidate’s victory, but due to the conclusion of the election process.

During election cycles, corporations, businesses, and individuals often delay major decisions, waiting for clarity on policies shaped by the prevailing party. Financial sectors such as banks, consumer lending, and cryptocurrencies are performing well in this stock market environment due to expectations of regulatory flexibility. This possible leniency might encourage mergers and reduce capital regulations, incentivizing investors to place bets on private prison stocks, anticipating stricter immigration enforcement.

We’re also witnessing performance variations at the stock level, not uniformly across entire sectors or industries. Competitors in the electric vehicle space face potential setbacks amid speculation about reduced subsidies for electric vehicles, though standouts exist, notably involving Elon Musk. Meanwhile, import-dependent retailers and consumer goods firms grapple with challenges, and trends show dollar stores and homebuilders struggling amidst rising interest rates. Similarly, solar stocks are declining due to anxieties over potential changes in healthcare policies and energy initiatives.

Recently, the U.S. Treasury’s sale of 30-year bonds presented mixed results, influenced by inconsistent past performances, yet the latest auction drew numerous bidders. While international interest waned, direct domestic investment exhibited considerable growth.

Cheerfully, the markets rallied further after the Fed’s announcement of an additional 0.25 percent interest rate cut, stimulating an already upbeat economy. Lowering interest rates often leads to increased borrowing, prompting businesses to invest in expansion and consumers to consider significant purchases like homes and cars. This cycle of activity boosts economic demand, potentially enhancing employment rates. Technology stocks, known for their volatility, are expected to gain advantage from these reduced rates, as they benefit from environments that encourage long-term growth. Despite concerns over global trade tensions and policy uncertainties, the outlook remains cautiously optimistic, with numerous market players looking to capitalize on these promising conditions.

It’s critical to acknowledge that economic transformations take time to manifest. There’s no instantaneous solution for inflation. Historically, it takes about 18 months for the positive effects of a rate cut to permeate through the economy. Amidst these developments, investor sentiment remains robust, though we are cognizant of stock valuations as they venture into elevated positions.

While optimism endures among investors, it’s essential to address any underlying risks that might be less evident in the current market scenario. Geopolitical tensions and trade policy shifts could unexpectedly alter economic forecasts, influencing sectors dependent on global supply chains. Additionally, although reduced interest rates provide immediate economic stimuli, they could lead to asset bubbles if leveraged excessively without significant economic growth.

Market analysts are keenly observing corporate debt levels, as companies could increase borrowing and risk overextending themselves. As markets adjust to new fiscal environments and regulatory frameworks, striking a balance between pursuing growth opportunities and managing risks will be vital. It is our responsibility to stay informed and agile, ready to adapt strategies in response to evolving data and trends.

Elephant in the Election Room

by merhutchens | Nov 1, 2024 | Market Update

With the S&P 500 witnessing a remarkable surge of nearly 21% year-to-date, one might wonder, “What role do elections play in shaping market trends?” As we approach another election, it’s crucial to explore how these political shifts influence economic landscapes and investment strategies.

Unpacking Market Trends During Elections

The impact of elections on market trends is a topic rife with complexity and varying opinions. Analysts often debate the significance of presidential party affiliations on the market, but the evidence is far from conclusive. Historical data indicates that under Democratic presidents, the S&P 500 has averaged a 14.78% annual return compared to 9.32% under Republicans. Yet, since its inception, the S&P 500’s median CAGR has been higher under Republican presidencies—10.2% versus 9.3% with Democrats.

What does this tell us? Not much on the surface. The real story lies not in who occupies the Oval Office, but in the broader dynamics affecting market sectors. This is where the election’s real influence unfolds.

The Sector Shuffle

While the presidency can sway market sentiment, it’s the sectoral shifts that offer a more accurate reflection of market dynamics. Post-election, sectors typically undergo a reshuffle based on anticipated policy changes. For instance, a Republican leadership might boost sectors like energy, defense, and financial services, while a Democratic victory could invigorate clean energy, healthcare, and infrastructure.

Election Outcomes and Potential Sector Impacts

Oil and Gas: Expect growth from companies like ExxonMobil and Chevron under favorable Republican policies. However, long-term declines in crude prices might mitigate these gains.
Defense: Firms such as Lockheed Martin and Northrop Grumman may thrive with supportive policies.
Financials: Deregulation could benefit banks like JPMorgan Chase and Goldman Sachs.

Fortis Portfolio Strategies and the Past Year

Observing market dynamics over the past year reminds us that slow and steady often wins the race. At Fortis, we’ve strategically shifted our investments, allocating 25% of our strategies to short-term cash positions. This prudent move enabled us to capitalize on the “great rotation” from big tech to value and small-cap stocks, yielding impressive results.

*Performance Overview (9/30/2023 – 9/30/2024):

Fortis Active/Passive Global ETF gained 17%
Fortis Active/Passive US (SIMPLE) achieved an 18.6% increase
Fortis Alpha 40 Stock Portfolio rose by 21.6%
Fortis Leaders 50 Stock Portfolio reached 22%
Fortis Marathon Stock Portfolio attained 22.6%

These figures highlight opportunities within the market without taking extreme risks. Our belief remains firm—you can achieve respectable returns with less volatility than the S&P 500.

* Past performance is not guaranteed future performance

* Calculation methodology furnished upon request.

Navigating the Political Landscape

Understanding the balance of power in the Senate and Congress is crucial. This balance determines policy implementation effectiveness and impacts sectors from healthcare to environmental reforms. We are keeping a close eye on these dynamics, as they shape legislative priorities and influence financial markets.

Looking Ahead

Despite challenges, optimism prevails. Lower inflation, strong corporate profits, and a supportive macroeconomic environment bolster the ongoing bull market. However, political uncertainties and high stock valuations warrant caution. Understanding how elections affect different sectors and leveraging this knowledge is out key focus for the remainder of the year.

With the S&P 500 witnessing a remarkable surge of nearly 21% year-to-date, one might wonder, “What role do elections play in shaping market trends?” As we approach another election, it’s crucial to explore how these political shifts influence economic landscapes and investment strategies.

Unpacking Market Trends During Elections

The impact of elections on market trends is a topic rife with complexity and varying opinions. Analysts often debate the significance of presidential party affiliations on the market, but the evidence is far from conclusive. Historical data indicates that under Democratic presidents, the S&P 500 has averaged a 14.78% annual return compared to 9.32% under Republicans. Yet, since its inception, the S&P 500’s median CAGR has been higher under Republican presidencies—10.2% versus 9.3% with Democrats.

What does this tell us? Not much on the surface. The real story lies not in who occupies the Oval Office, but in the broader dynamics affecting market sectors. This is where the election’s real influence unfolds.

The Sector Shuffle

While the presidency can sway market sentiment, it’s the sectoral shifts that offer a more accurate reflection of market dynamics. Post-election, sectors typically undergo a reshuffle based on anticipated policy changes. For instance, a Republican leadership might boost sectors like energy, defense, and financial services, while a Democratic victory could invigorate clean energy, healthcare, and infrastructure.

Election Outcomes and Potential Sector Impacts

Oil and Gas: Expect growth from companies like ExxonMobil and Chevron under favorable Republican policies. However, long-term declines in crude prices might mitigate these gains.
Defense: Firms such as Lockheed Martin and Northrop Grumman may thrive with supportive policies.
Financials: Deregulation could benefit banks like JPMorgan Chase and Goldman Sachs.

Fortis Portfolio Strategies and the Past Year

Observing market dynamics over the past year reminds us that slow and steady often wins the race. At Fortis, we’ve strategically shifted our investments, allocating 25% of our strategies to short-term cash positions. This prudent move enabled us to capitalize on the “great rotation” from big tech to value and small-cap stocks, yielding impressive results.

*Performance Overview (9/30/2023 – 9/30/2024):

Fortis Active/Passive Global ETF gained 17%
Fortis Active/Passive US (SIMPLE) achieved an 18.6% increase
Fortis Alpha 40 Stock Portfolio rose by 21.6%
Fortis Leaders 50 Stock Portfolio reached 22%
Fortis Marathon Stock Portfolio attained 22.6%

These figures highlight opportunities within the market without taking extreme risks. Our belief remains firm—you can achieve respectable returns with less volatility than the S&P 500.

* Past performance is not guaranteed future performance

* Calculation methodology furnished upon request.

Navigating the Political Landscape

Understanding the balance of power in the Senate and Congress is crucial. This balance determines policy implementation effectiveness and impacts sectors from healthcare to environmental reforms. We are keeping a close eye on these dynamics, as they shape legislative priorities and influence financial markets.

Looking Ahead

Despite challenges, optimism prevails. Lower inflation, strong corporate profits, and a supportive macroeconomic environment bolster the ongoing bull market. However, political uncertainties and high stock valuations warrant caution. Understanding how elections affect different sectors and leveraging this knowledge is our key focus for the remainder of the year.

Mid-Year Outlook 2024

by merhutchens | Jul 19, 2024 | Market Update

Haywire !

What a fascinating time we find ourselves in! The headline I selected a few weeks ago feels particularly relevant today, especially in light of the “largest IT outage in history.” Following the close of the second quarter in June 2024, we felt compelled to reflect on our positive performance and refine our strategies after observing several disconnects in the financial markets, both technically and fundamentally.

Starting in early July, we raised our cash exposure to 25% across all portfolios. In the upcoming sections, I will highlight key technical and economic indicators that we are closely monitoring as we navigate this dynamic landscape.

Current Financial Landscape

The Base Case Scenario

The U.S. economy is showcasing remarkable resilience, fueled by a combination of powerful forces:

Unstoppable consumer spending: A surge in service expenditures has created a formidable shield against potential downturns.
Unrelenting government spending: Recent legislative measures have unleashed a torrent of capital, invigorating the economy.
Soaring corporate earnings: Robust corporate performance continues to elevate the overall economic landscape.
Wealth effect phenomenon: Skyrocketing asset prices in the stock and housing market have ignited a wealth effect, driving a wave of consumer spending and investment.

Amidst this dynamic backdrop, we believe that more relaxed financial conditions have a good chance of offsetting the impact of any unexpected Fed rate hikes for the next few quarters and the party in the equity market can continue. The much-anticipated decrease in interest rates has yet to be seen, but widely forecasted.

Stock Market Overview

Overbought Signals

At the beginning of July, the equity markets began indicating a likely pullback. Considering the impressive rally since October 2023, it is prudent to protect our gains while seeking new opportunities..

Our move to 25% cash over the past month makes room for this strategic adjustment.

Below is our rationale:

Technical indicators, are signaling extreme overbought conditions.

Example 1: RSI

The S&P 500 14-day relative strength index (RSI) surged above 81 on Wednesday, July 17th.
This coincided with the S&P 500 surpassing 5,600 for the first time in history.
An RSI above 70 signals an asset is overbought, hinting at an impending pullback.
Conversely, a reading below 30 suggests oversold conditions, typically preceding a rebound.
The RSI ranges between zero and 100, with extremes often heralding market reversals.
The performance of a select few stocks may be skewing our perspective.
Technical indicators are going haywire, and the signs are too strong to ignore.
An RSI above 81 for the S&P 500 is rare, witnessed only 12 times in the past 40 years.
Historically, these moments have been the calm before the storm, often followed by dramatic market plunges.

Example 2: Market Breadth and Performance

The last few trading days showed positive mean reversion in market breadth.
The preceding six months were a bloodbath.
Market ascent driven by a handful of mega-cap stocks.
The average stock plummeted 4-5% in Q2.
The S&P’s cumulative A/D line has lagged behind the price all year.
Only two sectors have outperformed the broad S&P in the past year.

Example 3: Buffet Indicator

Warren Buffett’s cherished market valuation metric: the ratio of total stock market cap to GDP.
US stocks now have a combined market cap exceeding $56 trillion.
GDP lingers at $28.3 trillion, creating a staggering ratio of 2 to 1 (200%).
This ratio surpasses its peaks in 2000 and 2021.
According to this metric, the stock market teeters on the brink of a pullback.

Economic Indicators are Showing Cracks

Despite the resilient facade of the U.S. economy, there are underlying indicators revealing potential vulnerabilities. Here’s what we’re observing:

Example 1: Job Growth Remains Steady, But Unemployement is Concerning

Job growth remains steady, but rising unemployment is concerning:
Historical trends show increasing unemployment rates often accelerate.
The Sahm Rule (recession indicator) hasn’t triggered yet but is close.
The time it takes for workers to secure jobs is increasing.

Example 2: Housing Market Shows Resilience, But is Slowing

Housing market shows resilience but is slowing:
Housing affordability is worsening when considering income and financing costs versus home prices.
At current mortgage rates and wages, it takes 72 hours of work to make a monthly payment.
If mortgage rates were 5%, it would still take 58 hours.
A 20% down payment requires 2,696 hours of work at current wages, near record highs.

Example: 3 Small business sentiment has slightly improved but remains very low:

Sentiment levels are comparable to those during the Financial Crisis.
Capital expenditures, crucial for growth, continue to decline.
Contrasting sentiments between consumers/small businesses and investors:
Consumer and small business sentiment is bleak.
Investor optimism is high, a potential red flag.
Investors Intelligence survey shows a low percentage predicting market corrections.
AAII Bullish sentiment’s 12-month average is at its highest since November 2007.

Example 4: The U.S. Manufacturing Purchasers Index has been stuck in contraction for most of the last two years, signaling a decline in goods production.

The global outlook doesn’t fare much better, with contraction gripping every month from September 2022 to February 2024.
This points to at least a recession in manufacturing activity.

Shifting Towards Bonds

Too early?

The momentum in bonds is beginning to surge in anticipation of interest rates decline, signaling a pivotal shift in the financial landscape. Our instinct tells us that current rate levels are temporary. We are seeing a significant shift back into bonds and have adjusted our portfolios accordingly. The appeal of these yields allows us to adopt a patient approach.

Even if we’re slightly ahead of the curve, we embrace the risk of being early over the peril of being late. Moving away from overinflated equities might mean missing out on some exuberant gains, but such is the calculated sacrifice we make as prudent stewards of wealth.

Closing Thoughts

As we observe the widening economic cracks, it’s essential to stay vigilant and adaptable in our investment strategies. Our bolstered cash position equips us with the flexibility needed to navigate potential market upheavals effectively. The landscape is constantly evolving, and while we maintain a cautiously optimistic outlook, we are prepared to adjust our approach as new data and trends emerge. In the second half of 2024, our aim is to balance caution with opportunity. By increasing our cash allocation, favoring bonds, and closely tracking economic indicators, we intend to protect our gains while exploring new avenues for growth. Although political and geopolitical uncertainties may not directly influence our decisions, they do prepare us for the unexpected—such as the tech outages we experienced today. We encourage you to join us on this journey. If you have questions or need tailored advice, please reach out.