2026 Q1 Investing Insights

WF Insights Transcript

Investing Insights — Through March 31, 2026

Host: Bill Woodruff, CAIA

Introduction

Hello, this is Bill Woodruff. Welcome to this quarter’s Investing Insights, reviewing the data and outcomes through March 31, 2026.

As always, my goal is to provide an evidence-based perspective—free from speculation and centered on fundamentals—to support sound, enduring investment decisions.

Important disclosures

Before we begin, a quick word for compliance purposes: what I’m sharing here reflects my views and is intended for informational purposes. These views are subject to change and involve risks and uncertainties—some of which are significant in scope and entirely outside our control.

There’s no guarantee these views will prove accurate, and actual outcomes may differ materially. Past performance doesn’t predict future results, and nothing in this presentation should be considered personalized investment advice.

Equity markets overview

We’ll start with a review of the quarter’s results across major asset classes. The first quarter of 2026 was a difficult one for equity markets, with meaningful divergence beneath the surface.

The S&P 500 declined 4.3% in Q1. Non-U.S. equities, measured by the MSCI All Country World ex-U.S., fell 0.6%. Within U.S. large caps, the divergence was pronounced: large growth dropped 9.8%, while large value rose 2.1%.

That’s nearly a 12 percentage point gap between growth and value in a single quarter. After three consecutive strong years for the S&P 500 the Q1 pullback is a reminder that extended runs of outperformance in growth-heavy, cap-weighted indexes don’t continue indefinitely.

The value tilt was the clear bright spot. For clients where we’d positioned portfolios to reduce concentration in the largest growth names, that positioning was rewarded.

Magnificent 7: performance in the S&P 500

The Magnificent 7—Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla—were the primary source of the S&P 500’s Q1 decline. The remaining 493 stocks in the index held up materially better than the index as a whole.

Dispersion within the group widened further. Some names held up reasonably well, while others experienced drawdowns exceeding 15–20%. The chart on this slide illustrates how concentrated the index’s return attribution has been—and how that concentration cuts both ways. When a small group of stocks drives the index higher, they can also be the primary source of drawdowns.

This is exactly why we’ve emphasized broader diversification and equal-weight approaches—to avoid having portfolio outcomes determined by the fortunes of a handful of companies.

Returns by size and style

This slide gives us a fuller picture of Q1 across the size and style spectrum. Value outperformed growth at every capitalization level. Small value led with a 5.0% gain, and large value 2.1%. On the growth side, every segment was negative.

The pattern is clear: the further you moved from large, concentrated growth, the better the outcome.

Looking at longer time frames, 10-year annualized returns still favor large growth at 16.8% versus 10.6% for large value. But since the January 2022 market peak, the gap has narrowed considerably—large value has returned 39.0% cumulatively versus 43.2% for large growth. The dominance of growth is not as permanent as recent headlines might suggest, and Q1 was a useful reminder.

Artificial intelligence: capabilities and adoption

This slide looks at AI from two angles: capability and adoption.

On the left, data shows that the length of tasks AI agents can complete autonomously—with 80% reliability—has been doubling approximately every seven months over the past six years. These are multi-step tasks in software engineering, cybersecurity, and general reasoning. The pace of improvement is significant and worth tracking.

On the right, Census Bureau survey data shows that business adoption of AI across industries continues to increase, though it remains uneven. Professional and scientific services lead, while other sectors are still in earlier stages.

From an investment standpoint, these trends reinforce that AI is a real and accelerating technological shift. The challenge—as with any major technology cycle—is that the investment implications depend heavily on valuation. Significant long-term developments don’t always translate into superior near-term investment returns, especially when expectations are already elevated.

Fixed income returns

Fixed income results were essentially flat for the quarter. The Bloomberg Aggregate returned negative 0.1%, and 5-year Treasuries also returned negative 0.1%.

This was a quarter where bonds neither helped nor hurt—they held their ground while equities pulled back. That’s a reasonable outcome in a period of yield volatility, and it underscores the stabilizing role that high-quality fixed income plays in a balanced portfolio.

Fixed income yields

This slide shows yields across the major fixed income sectors. Current yields remain attractive relative to 15-year ranges. U.S. Treasuries are offering yields in the low-to-mid 4% range, investment-grade corporates around 5%, and high yield above 7%.

The starting yield on a bond portfolio is one of the best predictors of its future return over the holding period. At these levels, investors are being compensated reasonably for taking interest rate and credit risk—a meaningful improvement over the near-zero yields of just a few years ago.

Our positioning continues to emphasize high-quality, short-to-intermediate maturity bonds—Treasuries and investment-grade securities—where the income generation and risk-reduction benefits are most reliable.

Yield curve

The U.S. Treasury yield curve as of March 31, 2026 shows a normal upward slope, with short-term rates around 3.7% at the 3-month maturity and the 10-year at 4.3%. The 20-year and 30-year maturities are at 4.9%.

Compared to year-end 2025, the curve has shifted modestly higher at intermediate and longer maturities while remaining relatively stable at the short end.

This normalization of the curve—moving away from the steep inversion of 2023–2024—is broadly a healthy development. An upward-sloping curve means investors are being compensated for taking duration risk or the risk of fixing a yield for longer.

Summary

In summary, Q1 2026 provided a clear illustration of why we emphasize diversification, valuation discipline, and not relying on the continued outperformance of a narrow group of stocks.

The quarter saw large U.S. growth stocks decline meaningfully while value stocks across all capitalizations delivered positive results. Non-U.S. equities were roughly flat, and high-quality bonds held steady. For portfolios positioned with broader diversification Q1 was a constructive quarter relative to the cap-weighted benchmarks.

AI capabilities continue to advance rapidly, but elevated valuations in the technology sector remind us that recognizing a real trend and finding an attractive investment entry point are two different things.

Fixed income yields remain attractive by historical standards, and the normalizing yield curve supports a simple, high-quality bond allocation.

The portfolios we’ve built are designed to navigate exactly these kinds of environments—not by predicting which corner of the market will lead, but by ensuring broad exposure across styles, geographies, and asset classes. Sticking to a disciplined, evidence-based process remains the most reliable path to long-term success.

If you’d like to discuss any of these observations further or review how they relate to your own portfolio, please feel free to reach out. Thanks for listening.