Commentary from the Investment Committee of Coral Gables Trust
Q1 2026 – When Geopolitics Moved Markets
The first quarter of 2026 delivered a stark reminder that geopolitical risks remain one of the most powerful forces in financial markets. After the S&P hit all-time highs, peaking at 7,002 in January, U.S equities were hit by the escalation of the U.S.-Israel conflict with Iran, culminating in Operation Epic Fury on February 28th and the closure of the Strait of Hormuz. The disruption of roughly 20% of global oil supply sent crude prices surging for WTI hitting $119 per barrel, reigniting inflation fears and pushing the S&P 500 down -9.1% from its peak. Despite the drawdown, markets staged a dramatic rally on the final trading day of the quarter after Iran signaled a willingness to negotiate, with the Dow Jones, S&P 500, and NASDAQ gaining +2.49%, +2.91%, and +3.83%, respectively.
Beneath the surface, a significant rotation continued to unfold. The Magnificent Seven mega-cap technology stocks collectively lost over $2 trillion in market capitalization during the quarter, accounting for 89% of the S&P 500’s decline. Meanwhile, energy stocks soared roughly +40%, with Exxon Mobil posting its strongest quarterly gains since 1972. Small-cap equities, as measured by the Russell 2000, declined -1.5% for the quarter and value-oriented strategies and stocks outperformed growth by the widest margin in years. International developed markets were the standout performers once again, with the MSCI EAFE Index returning approximately -1.1%, extending the trend of non-U.S. outperformance that began in 2025.
Index
Q1 2026
2025
2024
15-Year Ann.
U.S. (S&P 500)
-4.3%
17.9%
25.0%
14.1%
Dow Jones Industrial Avg.
-3.6%
14.9%
15.3%
12.8%
NASDAQ Composite
-7.1%
21.2%
29.6%
15.9%
Russell 2000
-1.5%
8.4%
11.5%
8.6%
MSCI EAFE (Int’l Developed)
-1.1%
31.9%
4.3%
7.1%
MSCI Emerging Markets
-0.1%
34.4%
8.1%
4.2%
Source: Coral Gables Trust Research, 4/1/2026.
Economic Developments: From Solid Footing to Uncertain Ground
The U.S. labor market told a volatile story across Q1 2026. January added 126,000 jobs, February shocked to the downside with a loss of 133,000 positions, driven largely by a nurses’ strike in California and continued federal government cuts before March rebounded strongly with 178,000 jobs added. The unemployment rate finished the quarter at 4.3%, ticking down from February’s 4.4%, and wage growth came in at 3.5% year-over-year. On the surface, the quarter ended on a positive note. The broader picture remains one of a labor market that is slowing but not breaking. The three-month average through the quarter was just 57,000 jobs. Job openings have fallen by nearly half from their 2022 peak. Employers are holding onto their existing workers rather than adding new ones; a cautious posture that reflects uncertainty about the economic outlook.
Source: Bureau of Labor Statistics, 4/3/2026.
Beyond the jobs market, the broader growth picture deteriorated meaningfully as the quarter progressed. The Atlanta Fed’s GDPNow opened Q1 estimating growth near 3.0%. As the Iran conflict took hold in early March, that estimate was revised sharply lower, and by April 2nd it stood at just 1.6% less than half of where it began the quarter. The Blue-Chip consensus of professional forecasters, which tends to be more conservative, has similarly trended lower, converging toward the 2.0% range. Put simply, an economy that looked like it was carrying solid momentum into 2026 is now tracking at its weakest quarterly pace in over a year, and the full drag from $100+ oil has yet to fully work its way through the data.
Inflation, which had been one of the quarter’s genuine bright spots, now faces its most serious upside threat since 2022. Through February, headline CPI held steady at 2.4%, well below the 50-year average of 3.6% and close to the Federal Reserve’s 2% target. Core PCE, the Fed’s preferred gauge, ran slightly hotter at 3.1%. The encouraging trend, however, predates the oil shock. Brent crude’s near-doubling from $61 to over $119 per barrel flows directly into gasoline prices, airline fares, freight costs, and ultimately the goods and services our clients consume every day. Economists estimate that sustained oil at current levels could add 0.8 to 1.2 percentage points to headline CPI over the coming months, potentially pushing inflation back above 3.5%. This would complicate the Federal Reserve’s path toward rate cuts and place the U.S. economy in an uncomfortable position of slowing growth and rising prices simultaneously.
Federal Reserve: Caught Between Inflation and Growth
The Federal Reserve stayed patient during the first quarter, holding the federal funds target rate at 3.50%–3.75% at both its January 28th and March 18th meetings. The rate has remained unchanged since the December 2025 cut, which concluded a series of three consecutive 25 basis point reductions. At the March meeting, Chair Powell acknowledged the difficult policy environment, noting that core PCE of 3.0% over the twelve months ending December represented “no progress” on inflation relative to a year earlier. He pushed back on stagflation comparisons but conceded that the Iran-driven oil shock introduces new risks to both sides of the Fed’s dual mandate.
The updated March dot plot revealed a hawkish shift in the committee’s outlook. The median year-end 2026 projection remained at 3.4%, however, 14 of 19 participants now project zero or one cut for the year, compared to just seven participants in December. The Summary of Economic Projections raised the 2026 core PCE forecast to 2.7% (from 2.5%) and nudged GDP growth up to 2.4%. Markets, which began the year pricing in two to three cuts, have repriced significantly—CME FedWatch now shows only a 9% probability of a June cut and roughly 60% odds of one cut by December.
Source: JP Morgan, Guide to the Markets, FOMC forecasts as of 4/1/2026.
Fixed Income Markets: Yields Rise, Returns Compress
Fixed income markets delivered a broadly flat quarter, with the Bloomberg U.S. Aggregate Bond Index returning −0.03% for Q1 2026, as rising yields weighed on price returns across most segments. The 10-year U.S. Treasury yield ended the quarter at 4.33%, up from 4.18% at year-end, while the 2-year yield rose more sharply from 3.47% to 3.81%, a 34-basis point move reflecting hawkish repricing of near-term Fed expectations driven by the oil shock. Importantly, the yield curve steepened meaningfully over the quarter and is now firmly positively sloped, with the 20 and 30-year Treasuries yielding 4.9% a return to a more normal curve structure after years of inversion. Investment grade corporate spreads currently sit at 85 basis points, well below their long-run average of 145 basis points and in just the 7th percentile of historical readings, meaning credit markets remain remarkably calm relative to history. High yield spreads widened to 301 basis points, with a yield-to-worst of 7.2%, offering the most attractive entry point in high yield in a few years. Among the quarter’s standout performers, convertibles returned +3.04%, MBS returned +0.43%, and ABS gained +0.70%. Looking ahead, we believe elevated yields across the curve present a genuine opportunity for income-focused investors.
Source: JP Morgan Asset Management, 4/1/2026.
Beyond Borders: International Resilience Amid Global Conflict
For the fifth consecutive quarter, international developed markets outperformed U.S. equities. The MSCI EAFE Index returned -1.1% in Q1 2026, while the S&P 500 declined −4.3%, a gap of more than three percentage points that continued to reward clients with global diversification. Japan was the quarter’s standout major market, returning +1.5% in dollar terms and +3.0% in local currency, driven by corporate governance reforms, improving wage growth, and a competitive yen. The UK gained +2.0% in dollar terms. Emerging markets returned −0.1% in dollar terms for the quarter, Korea surged +16.7% in USD and Brazil gained +19.2% in USD, while India was the quarter’s worst-performing major market at −18.1% in dollar terms, a direct consequence of its heavy crude oil import dependence and the oil price shock. Within Europe, Germany declined −8.4% and France −5.4% in dollar terms, as energy-intensive economies felt the full weight of surging oil prices, while China fell −8.9% in dollar terms as geopolitical uncertainty and weak domestic demand weighed on sentiment.
The valuation case for international equities has only grown more compelling. As the JPMorgan data shows, the U.S. currently trades at a forward P/E of 19.7x — down from 22.0x at the start of the year, but still meaningfully above its 20-year average. By contrast, Japan trades at 15.5x, the Eurozone at approximately 14.9x, Emerging Markets at 11.3x, and China at just 11.4x, representing discounts of 20% to 40% relative to U.S. equities depending on the region. The U.S. still commands 63% of global market capitalization, an extraordinary concentration that history suggests is unlikely to persist indefinitely. Every prior period of prolonged U.S. dominance has eventually given way to a sustained cycle of international outperformance, typically coinciding with a weakening U.S. dollar. The Investment Committee remains constructive on international diversification and will continue to monitor geopolitical developments, particularly as the Iran conflict’s impact on oil-importing nations such as India and Japan evolves into Q2.
Source: JP Morgan Asset Management. Cycles of DM ex-U.S. Outperformance 4/1/2026.
Thoughts on Asset Allocation
The first quarter of 2026 was a powerful validation of the diversification principles we have consistently advocated. While U.S. equity markets declined sharply under the weight of geopolitical disruption and rising oil prices, our balanced approach across asset classes, geographies, and investment styles helped cushion the impact for our clients. International developed markets outperformed U.S. equities for the fifth consecutive quarter, inflation protection through commodities and TIPS proved its worth as Brent crude surged above $100 per barrel, and high-quality fixed income provided stability as equity volatility spiked. The quarter served as a reminder that concentration — whether in a single country, sector, or style — carries risks that only become visible when conditions change quickly.
The Trust Investment Committee remains confident in our active managers, who have delivered strong performance across asset classes. Their disciplined approach emphasizing company fundamentals, valuation rigor, and prudent risk management, has been instrumental in driving results. Above is a selection of our equity and fixed-income managers who have notably outperformed their mandates.
Investment Manager
*Q1 2026 Return
Manager Benchmark
Federated International Strategic Value
9.79%
6.99% MSCI World ex U.S. NR USD
Schafer Cullen High Dividend Value
3.82%
1.34% Russell Value TR
Victory Sycamore Established Mid Cap
2.86%
1.09% Russell midcap Value TR
Lazard International Dynamic
1.43%
-1.01% MSCI EAFE TR
Diamond Hill Core Bond Fund
0.36%
-0.03% Bloomberg Barclays Aggregate
*Returns are from actual portfolio results. Results may vary. Past performance is no guarantee of future returns.
We look forward to speaking with each of you about our investment philosophy and strategies and your portfolio’s performance.
For additional information, please contact Mason Williams, Chief Investment Officer/Managing Director at 786-497-1214, or Michael Unger, Senior Vice President/Investment Officer, at 786-292-0310.
RESOURCES
Quarterly Report: Q1 2026
Q1 2026 – When Geopolitics Moved Markets
The first quarter of 2026 delivered a stark reminder that geopolitical risks remain one of the most powerful forces in financial markets. After the S&P hit all-time highs, peaking at 7,002 in January, U.S equities were hit by the escalation of the U.S.-Israel conflict with Iran, culminating in Operation Epic Fury on February 28th and the closure of the Strait of Hormuz. The disruption of roughly 20% of global oil supply sent crude prices surging for WTI hitting $119 per barrel, reigniting inflation fears and pushing the S&P 500 down -9.1% from its peak. Despite the drawdown, markets staged a dramatic rally on the final trading day of the quarter after Iran signaled a willingness to negotiate, with the Dow Jones, S&P 500, and NASDAQ gaining +2.49%, +2.91%, and +3.83%, respectively.
Beneath the surface, a significant rotation continued to unfold. The Magnificent Seven mega-cap technology stocks collectively lost over $2 trillion in market capitalization during the quarter, accounting for 89% of the S&P 500’s decline. Meanwhile, energy stocks soared roughly +40%, with Exxon Mobil posting its strongest quarterly gains since 1972. Small-cap equities, as measured by the Russell 2000, declined -1.5% for the quarter and value-oriented strategies and stocks outperformed growth by the widest margin in years. International developed markets were the standout performers once again, with the MSCI EAFE Index returning approximately -1.1%, extending the trend of non-U.S. outperformance that began in 2025.
Source: Coral Gables Trust Research, 4/1/2026.
Economic Developments: From Solid Footing to Uncertain Ground
The U.S. labor market told a volatile story across Q1 2026. January added 126,000 jobs, February shocked to the downside with a loss of 133,000 positions, driven largely by a nurses’ strike in California and continued federal government cuts before March rebounded strongly with 178,000 jobs added. The unemployment rate finished the quarter at 4.3%, ticking down from February’s 4.4%, and wage growth came in at 3.5% year-over-year. On the surface, the quarter ended on a positive note. The broader picture remains one of a labor market that is slowing but not breaking. The three-month average through the quarter was just 57,000 jobs. Job openings have fallen by nearly half from their 2022 peak. Employers are holding onto their existing workers rather than adding new ones; a cautious posture that reflects uncertainty about the economic outlook.
Source: Bureau of Labor Statistics, 4/3/2026.
Beyond the jobs market, the broader growth picture deteriorated meaningfully as the quarter progressed. The Atlanta Fed’s GDPNow opened Q1 estimating growth near 3.0%. As the Iran conflict took hold in early March, that estimate was revised sharply lower, and by April 2nd it stood at just 1.6% less than half of where it began the quarter. The Blue-Chip consensus of professional forecasters, which tends to be more conservative, has similarly trended lower, converging toward the 2.0% range. Put simply, an economy that looked like it was carrying solid momentum into 2026 is now tracking at its weakest quarterly pace in over a year, and the full drag from $100+ oil has yet to fully work its way through the data.
Inflation, which had been one of the quarter’s genuine bright spots, now faces its most serious upside threat since 2022. Through February, headline CPI held steady at 2.4%, well below the 50-year average of 3.6% and close to the Federal Reserve’s 2% target. Core PCE, the Fed’s preferred gauge, ran slightly hotter at 3.1%. The encouraging trend, however, predates the oil shock. Brent crude’s near-doubling from $61 to over $119 per barrel flows directly into gasoline prices, airline fares, freight costs, and ultimately the goods and services our clients consume every day. Economists estimate that sustained oil at current levels could add 0.8 to 1.2 percentage points to headline CPI over the coming months, potentially pushing inflation back above 3.5%. This would complicate the Federal Reserve’s path toward rate cuts and place the U.S. economy in an uncomfortable position of slowing growth and rising prices simultaneously.
Federal Reserve: Caught Between Inflation and Growth
The Federal Reserve stayed patient during the first quarter, holding the federal funds target rate at 3.50%–3.75% at both its January 28th and March 18th meetings. The rate has remained unchanged since the December 2025 cut, which concluded a series of three consecutive 25 basis point reductions. At the March meeting, Chair Powell acknowledged the difficult policy environment, noting that core PCE of 3.0% over the twelve months ending December represented “no progress” on inflation relative to a year earlier. He pushed back on stagflation comparisons but conceded that the Iran-driven oil shock introduces new risks to both sides of the Fed’s dual mandate.
The updated March dot plot revealed a hawkish shift in the committee’s outlook. The median year-end 2026 projection remained at 3.4%, however, 14 of 19 participants now project zero or one cut for the year, compared to just seven participants in December. The Summary of Economic Projections raised the 2026 core PCE forecast to 2.7% (from 2.5%) and nudged GDP growth up to 2.4%. Markets, which began the year pricing in two to three cuts, have repriced significantly—CME FedWatch now shows only a 9% probability of a June cut and roughly 60% odds of one cut by December.
Source: JP Morgan, Guide to the Markets, FOMC forecasts as of 4/1/2026.
Fixed Income Markets: Yields Rise, Returns Compress
Fixed income markets delivered a broadly flat quarter, with the Bloomberg U.S. Aggregate Bond Index returning −0.03% for Q1 2026, as rising yields weighed on price returns across most segments. The 10-year U.S. Treasury yield ended the quarter at 4.33%, up from 4.18% at year-end, while the 2-year yield rose more sharply from 3.47% to 3.81%, a 34-basis point move reflecting hawkish repricing of near-term Fed expectations driven by the oil shock. Importantly, the yield curve steepened meaningfully over the quarter and is now firmly positively sloped, with the 20 and 30-year Treasuries yielding 4.9% a return to a more normal curve structure after years of inversion. Investment grade corporate spreads currently sit at 85 basis points, well below their long-run average of 145 basis points and in just the 7th percentile of historical readings, meaning credit markets remain remarkably calm relative to history. High yield spreads widened to 301 basis points, with a yield-to-worst of 7.2%, offering the most attractive entry point in high yield in a few years. Among the quarter’s standout performers, convertibles returned +3.04%, MBS returned +0.43%, and ABS gained +0.70%. Looking ahead, we believe elevated yields across the curve present a genuine opportunity for income-focused investors.
Source: JP Morgan Asset Management, 4/1/2026.
Beyond Borders: International Resilience Amid Global Conflict
For the fifth consecutive quarter, international developed markets outperformed U.S. equities. The MSCI EAFE Index returned -1.1% in Q1 2026, while the S&P 500 declined −4.3%, a gap of more than three percentage points that continued to reward clients with global diversification. Japan was the quarter’s standout major market, returning +1.5% in dollar terms and +3.0% in local currency, driven by corporate governance reforms, improving wage growth, and a competitive yen. The UK gained +2.0% in dollar terms. Emerging markets returned −0.1% in dollar terms for the quarter, Korea surged +16.7% in USD and Brazil gained +19.2% in USD, while India was the quarter’s worst-performing major market at −18.1% in dollar terms, a direct consequence of its heavy crude oil import dependence and the oil price shock. Within Europe, Germany declined −8.4% and France −5.4% in dollar terms, as energy-intensive economies felt the full weight of surging oil prices, while China fell −8.9% in dollar terms as geopolitical uncertainty and weak domestic demand weighed on sentiment.
The valuation case for international equities has only grown more compelling. As the JPMorgan data shows, the U.S. currently trades at a forward P/E of 19.7x — down from 22.0x at the start of the year, but still meaningfully above its 20-year average. By contrast, Japan trades at 15.5x, the Eurozone at approximately 14.9x, Emerging Markets at 11.3x, and China at just 11.4x, representing discounts of 20% to 40% relative to U.S. equities depending on the region. The U.S. still commands 63% of global market capitalization, an extraordinary concentration that history suggests is unlikely to persist indefinitely. Every prior period of prolonged U.S. dominance has eventually given way to a sustained cycle of international outperformance, typically coinciding with a weakening U.S. dollar. The Investment Committee remains constructive on international diversification and will continue to monitor geopolitical developments, particularly as the Iran conflict’s impact on oil-importing nations such as India and Japan evolves into Q2.
Source: JP Morgan Asset Management. Cycles of DM ex-U.S. Outperformance 4/1/2026.
Thoughts on Asset Allocation
The first quarter of 2026 was a powerful validation of the diversification principles we have consistently advocated. While U.S. equity markets declined sharply under the weight of geopolitical disruption and rising oil prices, our balanced approach across asset classes, geographies, and investment styles helped cushion the impact for our clients. International developed markets outperformed U.S. equities for the fifth consecutive quarter, inflation protection through commodities and TIPS proved its worth as Brent crude surged above $100 per barrel, and high-quality fixed income provided stability as equity volatility spiked. The quarter served as a reminder that concentration — whether in a single country, sector, or style — carries risks that only become visible when conditions change quickly.
The Trust Investment Committee remains confident in our active managers, who have delivered strong performance across asset classes. Their disciplined approach emphasizing company fundamentals, valuation rigor, and prudent risk management, has been instrumental in driving results. Above is a selection of our equity and fixed-income managers who have notably outperformed their mandates.
*Returns are from actual portfolio results. Results may vary. Past performance is no guarantee of future returns.
We look forward to speaking with each of you about our investment philosophy and strategies and your portfolio’s performance.
For additional information, please contact Mason Williams, Chief Investment Officer/Managing Director at 786-497-1214, or Michael Unger, Senior Vice President/Investment Officer, at 786-292-0310.
Index of Commentary
Q1 2026
Q4 2025
Q3 2025
Q2 2025
Q1 2025
Q4 2024
Q3 2024
Q2 2024
Q1 2024
For additional information, please contact:
Mason Williams
Managing Director
Chief Investment Officer
Michael J. Unger, CFP®
Senior Vice President
Investment Officer