CAISSA Q1 Economic Update

As we moved through the first quarter of 2026, the environment presented a familiar combination. Headline-driven uncertainty paired with underlying economic resilience.

Our role is to help interpret what matters, what does not, and how these dynamics fit in with a long-term investment framework. So today, we’re going to walk through several key charts touching on markets, geopolitics, energy, the U.S. economy, and interest rates to provide clarity and context.

Here’s our disclaimer. Read them pretty quickly.

Okay, let’s start with the year-to-date asset class performance. What stands out immediately is this dispersion in here between all sorts of different markets. Large-cap equities right now are modestly negative to start the year, down about 4.3%.

Small caps held up slightly better, with a positive of a little bit under 1%, but we were overweight that going into the year, so that’s been a nice attribution to portfolios.

International is mixed, and then the fixed income market has been relatively flat. Now, this is not an environment that’s defined by a broad market stress, but rather one of differentiation.

From our perspective, this type of backdrop often reflects a market that is processing multiple crosscurrents. We have geopolitical developments, we have interest rate shifts, and evolving economic data, rather than a market that’s reacting to one really dominant force.

If we look at geopolitics, the Iran conflict has been the primary source of recent headlines.

As outlined on this slide, while a ceasefire has been announced, retracted, announced again, and extended, many of the underlying issues remain unresolved. From a market standpoint, what is notable is not just the event itself, but the reaction of the market.

Equity markets have experienced a relatively modest drawdown, while bond markets initially moved lower in yield before reversing back up on inflation concerns.

So this tells us something really important. Markets are acknowledging the risk, but they’re not extrapolating it into a prolonged disruption, at least at this stage.

What this next chart provides is an important behavioral insight. When surveyed, many people in the United States believe that oil imports, or at least U.S. oil imports, are heavily dependent on the Middle East, particularly Saudi Arabia.

In reality, it is quite different.

So the perception is that it’s coming from Saudi Arabia and Canada, but the reality is different. Canada and Mexico account for the majority of U.S. oil imports. Saudi Arabia really only represents a small fraction of what we import. And the disconnect between this perception and reality is often what drives emotional reactions in the markets among investors.

So understanding the actual structure of the energy supply helps ground that conversation and reduces the tendency to overreact to different headlines.

Expanding on that energy market theory, this chart is illustrating oil flows through the Strait of Hormuz.

If you look at the next dark blue heading, we have China represented in green, India in dark blue, South Korea in light blue, Japan in orange.

The remaining gray represents more of Asia.

The negligible portions represent Europe, the U.S., Saudi Arabia, etc. The key takeaway here—what’s moving through the Strait of Hormuz—is that much of this oil is destined for Asia, not the United States. This distinction really matters, because while disruptions in this region can influence global prices, the direct impact on U.S. energy supply is more limited than often assumed.

Again, this reinforces the importance of separating global narratives versus domestic economic realities.

Okay, so crude oil—what’s going on there? In a first-quarter twist, crude oil is in backwardation. What that means is that futures are trading at levels that imply oil prices will come down in the future, and actually quite near in the future.

Current futures are pricing in that they think this oil spike is quite transitory. If you look at the spread between this next month and 12 months out, there is a massive spread there. What this compares is the front month to 12 months out, and the spread between them. What we’ve seen recently is a significant gap in near-term versus longer-term pricing.

As noted here, this is one of the largest disconnects observed in decades, where near-term prices are so elevated. In the front month, we’re hitting the $90 to $100 range, but if you go out 6, 8, or 12 months, we’re getting back to that normalcy of $75 to $80 per barrel.

This helps explain why broader markets are relatively stable despite geopolitical tension.

So we’re watching the futures market quite closely.

If we shift to the U.S. economy, this chart tracks economic data relative to expectations. The Bloomberg Economic Surprise Index is near the highest level seen since 2023, suggesting that economic momentum remains reasonably strong.

While there has been some moderation, the broader trend indicates that the economy continues to come in at or slightly above expectations. This aligns with what we’re seeing more broadly—an economy that’s slowing at the margin but still demonstrating upward momentum.

If we think about the U.S. consumer, despite a slowing job market, we have not yet seen a deterioration in consumer spending activity, even when adjusted for inflation. This graphic highlights real consumer spending compared with retail sales growth—they are moving in concert, which is a positive sign.

Despite ongoing concerns, the consumer has remained resilient.

Economic strength, particularly in earnings and spending, continues to support overall growth. This resilience is one of the key pillars supporting the current economic environment. We’ll continue to watch the trajectory of retail versus consumer spending.

If we switch to manufacturing and look at activity there, it is picking up. U.S. manufacturing activity has accelerated in recent months and has now posted three consecutive months of expansion for the first time since 2022.

Services activity has been healthier in recent years and has also shown recent acceleration. After a period of softness, manufacturing is beginning to stabilize and improve, while services remain in expansion territory.

Taken together, this suggests a more balanced economic backdrop rather than one that is broadly deteriorating.

Sticking with geopolitical events, this chart provides historical context on how equity markets have responded to major geopolitical events over time. The pattern is consistent: initial volatility followed by stabilization and, over time, recovery.

This is not about minimizing risk, but about understanding how markets have historically processed uncertainty. The recent Iran conflict, shown in red, is following a similar pattern—orderly, measured, and without excess dislocation.

We are currently in that early stabilization phase and will continue to monitor how it develops.

Finally, we turn to interest rates.

This chart shows the U.S. Treasury yield curve. In normal conditions, the curve is upward sloping. Previously, we experienced an inverted yield curve, but now we are beginning to see normalization, particularly at the front end.

The short end is still somewhat distorted, but the curve is gradually returning toward a more typical shape.

At the same time, inflation concerns—particularly tied to energy—have contributed to upward pressure on yields. For example, the 10-year yield has moved up toward 4.3%, while shorter-term rates are near 3.8%.

This creates a more complex backdrop for the Fed. Economic growth remains solid, inflation has edged higher, and the labor market is showing some signs of softening. This combination places the Fed in a more nuanced position as it looks ahead.

Looking at fixed income, bonds have shown elevated correlation to equities in recent weeks due to inflation pressures. However, this is not a repeat of 2022, when the aggregate index declined significantly.

Today, the yield—or coupon income—provides a meaningful cushion. The U.S. Aggregate is yielding around 4.6%.

If rates were to rise by 25 basis points, yields would remain around 4.66%. While price movements may fluctuate depending on rate changes, that income provides a strong baseline return.

As we step back, a few themes emerge:

Geopolitical events are influencing headlines, but market reactions remain measured.
Energy markets are reflecting short-term disruptions rather than long-term structural change.
The U.S. economy continues to show resilience, particularly through the consumer and earnings.
Interest rates are adjusting within an evolving inflation environment.

Our focus remains on interpreting these developments within a disciplined, long-term framework.

We recognize that periods like this can feel uncertain, but our role is to provide clarity, context, and consistency in how we navigate them.

As always, we welcome the opportunity to discuss how these dynamics apply to your individual plan. We also value your feedback on these videos and any ideas for future topics. If you write in, I’ll be sure to cover them in an upcoming update.

Thank you for your time.