February 2026 edition

Hello, this is Keith Lerner. Thanks for tuning in for our first, market monthly update of 2026. And with that, it's only just past January, and it feels like it's been a much longer period, especially with the pace of headlines that we're seeing. So the key theme for this month is shifting, position amid a shifting backdrop. So with that this key, three points that I'm going to really focus on, today. So the first one is despite, all these different curveballs that we're seeing in the market, we're seeing the stock market relatively resilient. And that's really anchored on stronger earnings trends that we're seeing. The second part, which is important, is we did act on a shift in the weight of the evidence. In late January, we upgrade our view of emerging markets from less attractive to neutral. And then we also downgraded gold from attractive to neutral. You know, ahead of this recent sell off. And in the third theme I'm going to touch on is just this kind of broadening in market leadership. So let's hit the first one as far as, you know, the market resiliency, despite all these different curveballs that we're that we've seen. That's some we noted in a midterm election year, you tend to see more curve balls. And that kind of intensifies. And we've seen those from the very beginning as far as a discussion around, you know, Greenland rhetoric, you know, a fed investigation, Venezuela. We also have a new fed chair who was nominated as well. The reason why I think the market has held up despite these headlines is I think investors are more have adapted to these changes in Washington. Remember we had shocks last year. So, you know, investors aren't being as reactive because they knew last year folks had sold in April. That was the wrong decision. And also, again, the underlying fundamentals, remain, you know, you know, relatively healthy. And listen, headlines change quickly, but trends take more time as well. I think that's something to just to keep in the back of your mind. And we are seeing that kind of that buffer of, of an economy that sees a little bit of an uptick and earnings that are still strengthening as well. So that's a little bit more of where we're at. Let's let's dive in, dive a little bit more into our shifts in our house views. I'll start with emerging markets. As you may recall we flagged emerging markets. That was that we had it on upgrade watch at the end of last year. We got the confirmation this year that we were looking at to actually follow through. So the question is why now? Well, the first thing is, we still think this catch up potential emerging markets have had a good period over the last year. But if you zoom out, really, since they peaked in 2007, emerging markets are up only about 15%, just 15% since all the way back in 2007. That compares to the S&P 500, which is up more than 350%. So they really lagged. A lot of, you know, bad news has been discounted into that area of the market. So then what's changed from a mac condition is, well, we've seen a relative, breakout on a technical basis, on a price basis. And we've seen on an absolute basis emerging markets break out of this long sideways range. That's a positive. That's part of our process. But then on a fundamental view, we've also seen earnings. Earnings have started to hook up after being stagnating for some time. We put that all together. That suggests somewhat more positive view of emerging markets. Okay. So let's now pivot to gold. As you may recall, we have been, positive on both all last year, but more recently, in late January, we started to see things move to an extreme as an example, gold had moved, about 40% above its 200 day moving average. The simple way to think about that is the rubber band got extremely stretched. One of the most stretched positions we saw since the 1980s, and our work that just suggested the near-term risk reward had become, less favorable. That's why we downgraded to neutral for more of a long term structural perspective. We still think there's, it makes sense to have a position in a portfolio. But in the near-term, we just think we're going to be in a much choppier period as you kind of reset this big move that we've seen as well. Okay, let's move to the the third point, that I wanted to highlight, which is this broadening theme. You know, if you think about the last couple of years, it was really about tech and everything else. What we've seen early into this year, we've seen some money rotated out of tech, concentrated areas into almost everything else. So, you know, why is that happening? One, I think what's important is that in the US, we're seeing this economic uptick. There's some questions being raised on the on the AI and tech side. So money is not leaving the market is just rotating to areas that could benefit from this kind of, uptick in the economy. From a sector perspective, in our work, you know, last December we had upgraded industrials, energy and materials. It was a lot more leveraged to this, economic uptick. But I think what's also important is it's not just a US story. We are seeing, you know, a global bull market. Meaning if you look, beyond the US, we're seeing international developed markets at a fresh high, emerging markets at a fresh high, Japan at a fresh high, the UK at a fresh high. So I think it's important. The context is we have this global bull market and other backing that are supporting that is earnings. Again just like I mentioned we had earnings growth really last couple of years concentrated in tech in AI. And now we're seeing you know stronger earnings from small caps from Mid-caps and from emerging markets in other parts of international as well. So in our outlook we talked about you know, longer term we still have a positive view of tech. We think we're going to be this kind of reset period. But we also said we thought it was very important to have some balance and, and exposure to things like small caps and Mid-caps because of the potential for sharp rotations. And small caps are off to a really good start as well. So I think all in all, I think it's healthy that we're seeing a broadening out. I think it's healthy that, the market is, you know, looking ahead for this economic uptick as well. Doesn't mean there's not risk out there. You know, the things we’re really focus on is still earnings were in the earnings season right now. And interest rates interest rates so far have been well behaved. We start to see the ten year Treasury for example, move now well above like 450. That would be more concerning, but so far so good. I certainly expect the the policy noise to intensify because we are in a midterm election year. But here's the bottom line. You know, despite, you know, the headline risk and potential pullbacks that we get almost every year based on those earnings and that broadening as far as participation, we still think, our work suggests that this bull market still deserves the benefit of the doubt. As always, we'll continue to follow the weight of the evidence and keep an open mind. And with that, well, we'll, chat with you next month. Thanks so much.