Quarterly Updates

EWA Stock Market and Portfolio Commentary Q4 2026

1. Portfolio Adjustments:

• Maintained the 1% equity overweight and highest conviction positions, but tempered the magnitude, harvesting gains and reducing risk concentration after this year’s rally pushed several top performers to outsized weights.
• Reset regional equity positioning to neutral, trimming the prior U.S. overweight as earnings strength broadens beyond American companies into Europe and other regions.
• Reshaped thematic exposure by exiting the standalone momentum position, trimming core AI and global defense stocks, and adding to U.S. large caps benefiting from AI adoption, while keeping duration modestly short and broadening the bond sleeve with active mortgages, global sovereigns, convertibles, and liquid alternatives.

2. Economic Indicators:

• The Fed raised rates a quarter point in September to a target range of 3.75 to 4.00 percent, but bond markets had already priced in the move months in advance, making the hike far less disruptive than prior cycles.
• Earnings have outrun prices all year, with S&P 500 forward EPS up about 30 percent year to date versus an 11 percent gain in price, meaning valuations have actually become cheaper even as markets advanced.
• Energy prices rose meaningfully, and historical patterns around midterm elections point to a difficult late September and October window, though performance has typically improved in the months that follow.

3. Strategic Focus:

• AI investment remains a cornerstone of the portfolio, with hyperscaler capital spending projected to rise from 413 billion dollars in 2025 to roughly 743 billion in 2026 and surpass 1 trillion annually in 2027 and 2028, reflecting a multiyear buildout rather than a short term spending burst.
• Momentum exposure is being reined in ahead of the November basket reconstitution, a forward looking move to control which companies the strategy would own next rather than a reaction to underperformance.
• European and broader international earnings have strengthened substantially, giving global diversification a firmer fundamental footing and supporting a more balanced, selective approach to regional positioning.

1. Portfolio Adjustments:

• Trimmed equity overweight from 3% to 1%, reducing total portfolio risk and active risk after a strong market rally while keeping highest-conviction exposures intact.
• Maintained U.S. large cap and AI-driven growth as the biggest equity emphasis, while increasing U.S. overweight versus international stocks through active country selection.
• Introduced bond-funded multi-strategy liquid alternatives to create more resilient shock absorbers as traditional bonds have become less reliable diversifiers.

2. Economic Indicators

• WTI Crude rose from $65 to $95 and the 10-year yield climbed from 3.9% to 4.5%, creating a meaningful tightening impulse alongside inflation pressure.
• Fed expectations shifted from 2.5 cuts to one hike in 2026, a major reversal in easy-policy assumptions, while recession odds moved only modestly from 22% to 20%.
• Core PCE sits at 3.2% while new Fed Chair Kevin Warsh’s preferred trimmed mean PCE reads 2.4%, creating policy uncertainty around the timing and pace of any easing.

3. Strategic Focus:

• Earnings, not multiple expansion, have driven the rally, with AI infrastructure consensus 2027 EPS estimates up 32% year to date and energy up 19%.
• Global dispersion at the country level is unusually wide, making active country selection critical as broad regional buckets become internally inconsistent.
• The traditional stock-bond hedge has become less dependable in an inflation-driven environment, making liquid alternatives a key tool for portfolio resilience.

1. Portfolio Adjustments:

• Maintained a 3% equity overweight while reducing concentration and taking profits in areas that led the rally.
• Trimmed U.S. and emerging market overweights, eased international underweights, and shifted toward a more balanced, diversified allocation.
• Reduced mega-cap exposure, broadened equity positioning, added to defense, and upgraded fixed income by rotating into higher-quality bonds.

2. Economic Indicators

• Growth remains resilient, earnings are holding up, and inflation continues to trend in the right direction.
• Economic data has surprised to the upside, supported by improving productivity and a stable macro backdrop.

3. Strategic Focus:

• AI remains a key long-term theme, with increasing focus on companies successfully deploying it to drive real earnings.
• Market leadership is broadening, creating more opportunities beyond mega-cap stocks.
• Defense continues to stand out as a structural growth theme, while fixed income is positioned to better stabilize portfolios during volatility.

1. Portfolio Adjustments:

• Increased equity overweight by 1%, leaning further into U.S. growth, emerging markets, and high-conviction AI exposure.

• Added national resilience beneficiaries in defense, cybersecurity, and infrastructure.

• Balanced risk with convertible bonds and a modest increase in precious metals.

2. Economic Indicators

• Labor market softening with unemployment and jobless claims at four-year highs and a major BLS downward revision of 911,000 jobs.

• Inflation moderating toward 3.5%, supported by disinflation in services and shelter despite tariff-related pressures.

• Fed expected to begin rate cuts in September, creating a more supportive environment for risk assets.

3. Strategic Focus:

• U.S. earnings remain strong with broad-based growth and 82% of companies beating expectations, while international markets lag.

• AI viewed as both a growth catalyst and defensive hedge, with infrastructure spending expected to exceed $500B by 2026.

• Rising global defense spending underpins exposure to national security and resilience themes.