First quarter 2026 earnings were stronger than expected and we think that there might be continued strength in the second quarter, unless there is a major macro shift. On the global front, emerging market stocks have experienced a rebound recently, largely driven by the growth of artificial intelligence (AI) use and infrastructure buildout. For fixed income, we think preferred securities, or preferreds, might offer value to income-driven investors during market volatility, but they come with high-interest rate risk and potential volatility due to the ongoing conflict in the Middle East.
Here are the month's highlights from our experts:
U.S. stocks and economy: First quarter 2026 earnings
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First quarter 2026 earnings momentum is materially stronger than expected. S&P 500 earnings growth is tracking near 28% year over year with beat rates above historical medians, supporting expectations for potential continued strength into the second quarter absent a major macro shift.
- Revisions are concentrated rather than broad-based: Technology and Communication Services (plus select Consumer Discretionary drivers) account for a disproportionate share of upside, and the "Magnificent 7" (Mag7) continue to outgrow the other 493 S&P 500 companies by a wide margin, delaying the long-anticipated "convergence trade."
- Risk is rising even as the scorecard looks good. Miss penalties are unusually severe and margins are near cycle highs, leaving less cushion if growth slows or costs reaccelerate—conditions that also increase rotation and mean-reversion risk across sectors.
Read more: Preferreds Might Offer Value Amid Volatility
Global stocks and economy: AI and emerging market stocks
- The Iran war and resulting energy shock introduced both growth risks and inflation pressure, disrupting the supportive environment for emerging-market (EM) economies. However, EM stocks have rebounded to new highs. Despite some industry-specific growth opportunities, we believe it's not the time to be overweight EM.
- Market performance has tended to favor a narrow set of sectors and companies. Although the MSCI Emerging Market Index is expected to show rapid earnings growth in 2026, it seems to be attributable to an outsized impact of a few semiconductor companies.
- The growth in the use and buildout of AI infrastructure could continue to drive earnings, but there are market and economic slowdown risks associated with dependence on the performance of a narrow group of companies.
Fixed income: Can preferreds offer value amid volatility?
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Yields for preferred securities, a type of hybrid investment that shares characteristics of both stocks and bonds, have risen recently, which might make them more attractive to income-oriented investors.
- Preferreds in the ICE BofA Core Plus Fixed Rate Preferred Securities Index tend to have higher credit ratings than high-yield bonds, but lower credit ratings than investment-grade corporate bonds.
- Preferreds can also potentially offer tax advantages. Many, but not all, preferred stocks pay qualified dividends that are subject to lower tax rates than traditional interest income. But it's important for investors considering preferreds relative to other investments to consider what type of account they'll be held in—taxable or tax-advantaged.
- Preferreds tend to be a bit more volatile than corporate bonds, so investors need to be prepared to ride out the potential ups and downs to earn those high-income payments.
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