Perspectives
Quarterly Market Newsletter
First QUarter, 2026
“May you live in interesting times!” Is this a Chinese curse? Whatever it is, it does seem to apply to our year so far. The tariffs were on, then they were off. The Federal Reserve was projected to lower interest rates, then it wasn’t. Artificial intelligence would eat other software companies’ business. Private credit firms suddenly appeared fragile. Then there was war! Any one of these would be plenty to contend with, but all four is a lot. Despite this, the stock market has held up surprisingly well. Even with the war, the stock market has still only just entered correction territory. Volatility, as expected, increased.
This year started with a shift in stock market leadership. Actually, this started last October. The old, concentrated tech leaders became sources of funds as money was increasingly redeployed to a wider number of sectors and stocks. This has been widely predicted and welcomed. It became more difficult to push the same few stocks higher and higher. The magnificent 7 lost luster.
Since the first of the year, interest rates have increased. The culprit has been that inflation has remained stuck around 3%. There are fears that if the war with Iran drags on and energy prices stay high, more inflation is inevitable. Remember, the Federal Reserve only controls the very short-term Fed funds rate. Longer-term interest rates are set by the market. If investors believe inflation is likely to rise, they demand higher rates. Consequently, bond prices have declined.
The only real winner from the current environment is the energy sector. If you haven’t noticed, fuel prices have climbed substantially. This is good for this sector but bad for many others. Transportation stocks have been hit especially hard. Less directly, so have many others. The longer energy prices stay high, the greater the impact all across our economy. Read what we at Riverplace Capital see coming in our Forecast section of this letter.
Forecast
Economy
This war is not likely to last long. The history of Middle East wars is that they are common, but most are relatively short. There is no reason to believe this one will be different. Both sides need a quick resolution. Whether our aims are achieved is another matter. Usually, no one gets everything they hope to. Accommodation is made until the next time. This should happen in a number of weeks. A few months are not out of the question either.
Oil and its allied products are too important to all of the protagonists. Once hostilities wind down, world energy prices should also gradually decline. Interest rates can then follow. So, look for some slowing of the U.S. economy over the near-term, but improvement later.
Expect energy prices to decline more slowly than they rose. So, inflation should also stay elevated for a while yet. A slowing economy will not result in lower interest rates if inflation remains a problem. However, in time, rates will decline along with energy prices. GDP growth should follow.
Equities
Profit margins have been at all-time highs. Recently, analysts have even been raising their profit estimates for this quarter and year. With good and growing profits, the prospects for our stock market are good. Despite the war with Iran and the understandable volatility, we expect good returns this year.
Since the peak for many growth stocks last October, there has been a shift to sectors and categories that have been left behind for years. The stock market leadership and participation broadened out. Riverplace Capital has long advised investors to greater diversify their portfolios to benefit from this. Remember, diversification works to capture more opportunities, not just avoid too much risk.
Expect this broadening trend to continue. Technology stocks are not dead, but investors have become much more selective. Those that continue to grow will do fine. The new sector winners are Financials, Industrials, Materials, Energy, Discretionary, and select Technology. This is quite a different pattern from the old magnificent seven dominating everything.
Fixed Income
Investment Strategy
Equities
With a broader market to work with, our strategy has been to focus on bringing a greater variety of stocks into portfolios. We have also reduced outsized weightings of the previous winners to give more capital to a broader array of companies. Small amounts of other categories have been included in portfolios to capture new opportunities. Examples are a small weighting of an international index in our large-cap strategy and inclusion of two small-cap indices in our mid-cap strategy. Both these categories have big potential in the current environment.
During the recent sell-off over the war with Iran, Riverplace Capital took the opportunity to upgrade a few positions with some attractively priced alternatives. We are always looking for new opportunities. Since each strategy has a fixed limit as to the number of individual holdings, a new position must knock out a weak holding in the portfolio. It is a Darwinian approach to constantly seeking to improve performance.
Fixed Income
Wealth Management
Talk With Us
The Lonely Bull and his partners noted when private credit firms wanted to begin offering participation to the public, it was a bad sign. This usually happens when institutional investors begin to see problems and diminished opportunities. So, “let’s offer it to the public. They will let us continue to grow and provide an exit for insiders.” This happened in the past with oil and gas and real estate deals. The early money got a way out at peak prices and the new money was left holding the bag as the cycle turned.
It has become apparent that the loan portfolios of some private credit firms have some problems. Consider that the types of borrowers that would pay the high interest rates that these firms demanded were probably a little desperate. Otherwise, if their prospects were that good, they could obtain cheaper loans from banks or insurance companies.
Now, some private credit companies and their funds are awash in redemption requests. They cannot possibly meet all of these. The money has been lent for longer periods and can’t be turned back into cash quickly. In short, investors in these funds are stuck. If some of these portfolios have some bad loans, then they will participate in the consequences. Hopefully, the high interest rates charged will offset some level of losses. If the losses go beyond this, then the losses will be shared with all the fund holders.
Riverplace Capital saw through this game and never participated. Our experience told us that this outcome was likely. Quality is always important. We only invest in high-quality credits. You should, too. If you ever have questions about new or exotic deals that seem very attractive, call us. We may be able to help you.
A New Chapter
Long-term investing is one of the guiding principles Riverplace Capital has used since its founding. We have never strayed from this. Despite more than a few dramatic ups and downs in the stock market over the years, we have kept faith. We and our clients have also been richly rewarded for this discipline. This approach will not change as the firm enters a new chapter in its history.
Along the way, Riverplace Capital has been very careful in its selection of employees. Quality and commitment to our clients have been most important, along with intelligence and temperament. That will continue as our founding Chairman and CEO steps back into more of a consulting role. Retirement is still a ways off, but reduced load is contemplated.
Scott Wohlers and Mark Ross serve as Co-Presidents. Scott is President of Investment Services, and Mark is President of Wealth Management and Family Office Services. Our clients are in their good hands.
as of 03/31/2026
-4.6%
Dow Jones Industrial Average
-3.6%
Mid Cap Stocks (S&P 400)
2.2%
NASDAQ Composite
-7.1%
Small Cap Stocks (Russell 2000)
0.6%
MSCI EAFE
-1.87%
Barclay Aggregated Credit Index
-0.5%
Inflation
3.0%
(Equity indices are three-month returns excluding dividends)
"Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well."
- Warren Buffet
Notice
Are you ready to take a serious look at your financial prospects?
Riverplace Capital is offering a free financial plan (value $1500) for anyone, not just for our clients. Information is powerful, and knowing how well your needs are being covered can help you make better decisions during this time of heightened uncertainty and stress. You may want to analyze a variety of “what ifs.” Can you be more aggressive with your investments, or should you be more conservative? If you get sick, how well can you manage through the illness? Other questions may come to mind that cold, rational analysis can help you see through the fog of the moment.
Free is free, and no one is under any obligation to Riverplace Capital. The Bull and his partners want to help investors make the correct decisions. In other crises, we have seen too many people do great harm to their financial futures. This can be avoided with proper analysis and counsel. It is important to stay on a disciplined path. You may need to make changes; just do them as part of a rational plan. Let us help you.