Q1 2026 Market Review & Outlook

AIQ Asset Management • May 20, 2026

Executive Summary



  • Geopolitics on a knife edge. U.S.–Iran ceasefire on life support after Trump rejected Iran's response as "totally unacceptable"; talks stalled, combat resumption back on the table. WTI above $100, Hormuz heavily disrupted.


  • Inflation is re-accelerating in the data. April headline CPI 3.8% (hottest since May '23), core 2.8%; April PPI hotter still at +1.4% MoM / +6.0% YoY, with stage-2 intermediate demand at 11.1% YoY. Energy pass-through bleeding into core.


  • Labor market cooling, not cracking. April NFP +115K (vs +62K consensus), unemployment 4.3%, AHE +3.6% YoY. "No-hire, no-fire" environment persists.


  • Fed pricing has shifted hawkish. Fed held at 3.50–3.75% in April. The Dot Plot was not updated and still shows one cut by YE while markets price ~50% odds of a hike by year-end, >90% by mid-2027. 10-Year near 4.5%, term premium rebuilding. Warsh confirmed as next chair.


  • AI and cloud are carrying the index. Hyperscaler beats across the board (AWS +28%, GCP +63%, Azure +40%); 2026 capex revised to ~$820B. S&P 500 ex-AI margins fell to 11.0% since 2022 while headline hit 14.1% — the full expansion is AI-driven. Equal Weight lags cap-weighted by 340 bps YTD.


  • Our scenario framework has evolved. Reframed from January's three-scenario view (60/30/10) to a four-quadrant rate-path × growth framework: Higher-for-Longer with Growth Holding ~40% (base), Soft Landing ~25%, Goldilocks Redux ~20%, True Stagflation ~15%. Stagflation has roughly doubled.


  • Risks we are watching. Hormuz re-escalation has materialized; inflation re-acceleration is in the data, not a forward risk to flag; the Fed's reaction function is unsettled under new leadership; long-end rates may pressure equity multiples; equity leadership remains narrow.
Read More Q1-2026 Market Review

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