Portfolio Management Update Spring 2026

I expect the economy to expand this year at a slower pace, but not fall into recession, as I anticipate oil prices will ease in the second half. Iran-related geopolitical risk should gradually wane, the inflation impulse appears transient, and the labor market is treading water with 4.3% unemployment. Recent instability has pushed markets into a “risk-off” posture, which I view as a longer-term buying opportunity—particularly in economically sensitive areas where valuations have improved, including parts of Technology. Capital Group notes that historically, equity markets have been higher 12 months after regional conflicts end.

Asset Allocation Strategy

I continue to hold more equities than bonds, investing in economically sensitive equity sectors but keeping investment-grade bonds for stability. I did adjust equity allocation by trimming some economically sensitive areas such as Financial, Consumer Discretionary, and Large cap Growth stocks. While adding exposure commodities, reflecting a temporary slower economy and inflation. I am buying Cyclical stocks versus Defensive ones. The highest growth potential for the cheapest price can be found in cyclical stocks and small caps due to their sensitivity to economic growth.

I am taking advantage of the energy shock by investing high-quality equities in cyclical sectors (value stocks) and Technology stocks and companies that benefit from AI infrastructure rollout. I have begun to buy more stocks that have physical assets, need capital plants & equipment, and low obsolescence, which cannot be replaced by AI. Industrial sector has these types of companies. For example, tractors, trucking, railroads, and aerospace and defense companies. I am also looking at defense stocks that have sold off due to profit taking because of a secular tailwind on greater worldwide government defense spending.

US Mid-to-Small-caps

Maintaining exposure to US Mid- and small-cap equities that typically benefit from a low-interest rate environment due to reduced costs of operational financing. Earnings estimates among Small-cap firms should improve as the economy regains steam. Small caps continue to offer compelling absolute and relative valuations. Lastly, owning Mid-to Smalls caps provides diversification to AI stocks and my overweight in Large-cap Technology sector.

Sector Positioning

Analysts are most optimistic about Information Technology, Communication Services, Healthcare, Materials, and Energy sectors – most are economically sensitive. While Consumer Staples, a defensive sector, has the most Sell ratings (FactSet). Asset-heavy sectors like Materials and Industrials have recently seen multiple expansion and stronger earnings. Multiple expansion drove gains in Energy amid heightened geopolitical tensions in the Middle East leading up to the war in Iran. Meanwhile, Tech has seen a valuation reset: forward P/E compressed even as earnings expectations improved.

Technology

I reman overweight in Technology sector. Although the asset-light Tech sector has been volatile recently, it may still be a long-term winner as AI continues to mature, driving higher AI-earnings. Technology is projected to lead in 2026 with 37% EPS growth, 23% revenue growth, and a sector price target 38% above current levels. Technology sector is subject to disruptive innovation making these stocks in the sector vulnerable to corrections. Higher market yields are a risk factor as higher rates and yields cause multiple compression. The current correction in Technology stocks has erased the premium for their higher sales growth and profitability. Future profits and sales are supported by AI spending.

Communications

Added to communications based on valuations and growth prospects.

Industrials & Aero-Defense

I continue to incrementally add to industrial and aero-space and defense. Strong demand for defense from countries around the world makes earnings growth more dependable and visible. Geopolitical risks are rising in the Pacific and Eastern Europe. Defense and aerospace spending is in secular growth tailwinds. Major players have order backlogs stretching years out and growing.

Health Care

Health Care continues to be supported by robust long-term growth drivers, including an aging global population, increased demand for managed care, and rising pharmaceutical consumption. The Government recently increased its Medicare Advantage payment to 2.5% from zero. The sector is an AI-beneficiary that will help with drug innovation and profit margin expansion. The sector’ forward price-to-earnings ratio stands at approximately 17.3 versus 19.8 for the S&P 500 Index. FactSet forecasts a 21.9% price appreciation for the latest analyst target price.

Utilities

Utilities provide current income and some growth potential, serving as a hedge against heavy tech exposure. Independent utilities powering AI are showing growth characteristics, unlike traditional regulated firms. Rising US energy demand—especially for AI—and grid improvements support long-term sales growth. Lastly, Utility dividends become more appealing in a low-rate environment as economic activity increases. The sector is expected to grow revenue at 6.7%. Analysts estimate a 10.91% sector gain in price to analyst’s target price.

Financials and Consumer Discretionary

I trimmed Financial stocks due to projected slower economic growth and flatter yield curve. Homeowners need mortgage yields to modestly fall to function as catalyst to refi and buy new homes. That depends on the Ten-Year Treasury falling back towards 4% - that may not happen anytime soon. I also sold position in Consumer Discretionary ETF that is extremely sensitive to consumer spending. There is growing risks that consumer spending could lessen this year as higher energy prices function as a tax on spending. Although current energy prices should not be a major drag on overall spending, it may reduce spending from other consumer categories because energy may grow within household budget. I am redeploying proceeds to aerospace and defenses and AI technology beneficiaries.

Energy

I am holding onto my investment in energy stocks for the long term because they can help protect against inflation, geopolitical risks, and capitalize on increasing energy demand fueled by AI growth in the U.S. economy. The world needs more energy to run their economies and deploy AI. Energy stocks not only diversify your portfolio and offer appealing yields, but also often move independently from the overall market. Additionally, they can benefit from rising oil prices and function as a strong hedge against inflation.

Commodities

Accounts have some exposure to materials and commodity investments such as gold, copper, rare earth materials, etc. due to their role as a potential hedge against inflation, geopolitical risk, national security, and fiscal uncertainty. The demand backdrop is also favorable.

Gold has corrected as profit taking by investors like China, Russia, Turkey, etc. to fund economies and defense spending. Moreover, the rise in the dollar and real yields make gold less attractive. It is now a good entry point for investors. Global central banks are issuing debt thereby devaluing their currency. They have been selling gold to prop up their currency. Furthermore, countries seeking a new world order under China seek to undermine the US Dollar as a global reserve – sellers of US dollar. Cheaper US dollar supports higher gold prices from here. I am maintaining gold allocations as a strategic position, as gold continues to serve as an effective portfolio diversifier and a hedge against various economic uncertainties. Investors are choosing gold over the U.S. dollar as a defensive strategy against inflation, currency depreciation, expansive global fiscal policies, and heightened geopolitical tensions. Currently, gold constitutes 18% of global official reserves, up from an average of 11% between 2014 and 2023 and has overtaken the Euro as the world's second-largest reserve asset according to State Street Global.

International Equities

Holding onto international equities as a portfolio diversifier. The US economy is far more dynamic and resilient than other developed markets and developing market economies. Overall, I favor quality US stocks in a world that is de-globalizing because of geo-political risk and risk to supply chains.

Bond Allocation Update

Bonds continue to serve an essential role in portfolio diversification by mitigating equity market risks. With yields now at normalized levels, bonds present decent risk-adjusted returns. A tactical overweight in investment grade short-to-intermediate-term corporate bonds is advisable, while long-duration exposures should be underweighted unless recession risks intensify. These segments help protect against inflation and typically perform well during periods of economic expansion. Long-term bonds are less favorable. The short-to-intermediate segment of the curve offers an improved balance between yield potential and duration risk.

Whereas there are risks to buying Long term bonds due to growing national debt, inflation pressure, and given the expectation that the Federal Reserve will implement fewer rate cuts amidst inflation concerns. I trimmed exposure to non-investment grade Senior loans in accounts. Private credit concerns were causing credit contagion fears and selling in non-investment grade fixed income. I invested proceeds in investment grade Mortgage Back Securities.

Historically, short-term-to-intermediate bonds have outperformed cash during periods when the Federal Reserve has maintained or reduced policy rates. Preference is given to high-quality short-term credit instruments, particularly investment grade corporate bonds. Securities with maturities of one to ten years offer attractive yields coupled with limited interest rate sensitivity, providing portfolios with resilience against selloffs impacting longer-dated maturities.

Bond Sectors

I tactically favor Mortgage-backed bonds for enhanced income and price stability, supported by the Reserve’s accommodative stance, tighter but elevated spreads, and improving market technicals. Notably, the recent announcement of a $200 billion mortgage-backed securities purchase program by Fannie Mae and Freddie Mac significantly strengthens the outlook for the sector.

I also like Treasury Inflation-Protected Securities (TIPS) which have historically provided effective hedges against unexpected inflation increases. Allocations to TIPS have been increased as they currently appear oversold due to declining inflation trends and can serve as a safeguard against inflation surprises. Furthermore, TIPS may offer meaningful diversification benefits when included alongside intermediate investment-grade bonds in a portfolio.

Cash Equivalents

Reduce cash equivalents. Cash purpose monies used for liquidity and expenses are being invested in investments in offering current income and price stability. I favor investing cash purpose monies in Investment-grade floating rate notes with minimal duration risk (0.02). Offer higher income that is adjusted for increases in inflation.

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