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United Asset Strategies Quarterly Letter: 4Q2026
After three strong years, markets retreated in the first quarter on AI-related
and geopolitical concerns. Paradoxically, software and hyperscale cloud
stocks traded lower: the former on fears AI would eat into profit pools, the
latter on doubts AI returns would justify rising capex. Geopolitical tensions
added to the uncertainty, with the conflict in Iran extending market pressure
beyond tech. Against this backdrop, as seen in Exhibit 1, it’s no surprise that
the S&P declined 4% and the tech-heavy Nasdaq fell 7% in the quarter.
Bonds were also lower, as the Iran oil shock added to inflation worries and
reduced rate-cut expectations. Resilience for the typical stock was notable,
however, reflected in the 1% gain for the S&P equal-weight index. Though
a small share of the cap-weight index, old-economy sectors outperformed
as investors bid up heavy-asset, low-obsolescence (HALO) businesses to
shelter from AI disruption. These stocks also benefited from supportive tax
policy, onshoring trends, and geopolitical tensions in energy and defense.