Last week continued March's roller coaster theme of one day up, one day down, then another day up, then another one down. We especially saw this pattern in the middle of last week with a negative Tuesday, positive Wednesday, followed by a negative Thursday.
These days coincided with initial “reports” leading into Wednesday's market open that a one-month ceasefire was being prepared between the U.S. and Iran (that would be a major positive development). But then leading into Thursday's open, further “reports” began to leak that Iran refused the U.S. proposal and countered with its own terms.
Investors are typically wary about war developments as we’re understandably all caught in the “fog of war.” The most important takeaway from these reported developments is that markets clearly reacted to these headlines.
For example, following the initial ceasefire reports, the S&P 500 opened up 35.53 points last Wednesday. Subsequently, on the news of the counter proposal, markets opened Thursday morning down 36.43 points, almost the exact same as the market went up the previous day.
These two days exemplified how the market has been reacting, whipping up and down seemingly every other day throughout the month of March. It’s causing most investors to feel more anxiety than what they’d normally feel from the relatively small overall move down for the S&P 500 over the last month.
In short, it feels worse than has actually been so far.
The back-and-forth headlines had the same effect on the crude oil futures market. The initial report quickly dropped the futures price to right around $86 and then subsequently brought it back up to over $94 on the counterproposal news.
For Cornerstone, this is important market reaction data. It shows the current quarterly volatility of market weakness isn’t evidence of fundamental structural weakness, but merely short-term, risk-off volatility due to geopolitical events.
That said, I'm certain in the near term we will continue to hear conflicting reports from different factions. But realistically, we view reports of this kind overall as a positive development that can possibly lead to some level of de-escalation.
If there's further evidence that this is the case, we can begin to focus on the fact that valuations are as attractive as they've been over the last decade, especially in the most important growth-focused sector – technology:
Current macro uncertainty remains high, but the reality is that no one truly knows how long it will take to end this conflict. It’s important as long-term investors to navigate through the noise to see the opportunities amid the turmoil. This is especially important for us at CFS as we analyze where we will focus our allocation attention in advance of our second-quarter portfolio rebalancing and reallocation we'll be executing in two days (April 1).
Negative Narratives Debunked
In advance, let’s address two popular negative macro narratives. The first is the cost of energy. It's impossible to predict precisely how or when energy uncertainty became a significant equity headwind.
If we zoom out, it's important to realize that gasoline consumption, while a popular talking point, represents just 2.5% of U.S. consumer spending. For perspective, consider that shelter is 35% of consumer spending.
But let’s talk about what really matters. Going back to the beginning of the conflict on March 5-6, WTI oil futures logged daily gains of 8.51% and 12.21%, respectively. Since 1990, the historical average of the S&P 500 three- and six-month market gains after two consecutive days of 5% spikes in crude oil is a healthy 4.3% and 8%, respectively.
Even better, the 12-month forward average gain is almost 22% with an 83% positivity rate.
This sort of data is indicative that oil volatility is almost always short-term emotional reaction. Over the long term, it’s not a risk to derail stock market fundamentals.
The second emotional macro reaction that we want to address is the CBOE Volatility Index (VIX), known as the VIX and referred to as the market’s fear gauge. More specifically, let’s analyze the relationship between equity stress (VIX) and credit stress (high yield spreads) because that relationship provides significant insight into what's ahead for stocks.
As you can see in the chart below on the far-right, fear is far outpacing credit spreads:
This matters because the bond market is often thought to be “smarter” and more objective than the VIX, which all too often is merely a reflection of short-term emotional fear. Historically, when the bond market fails to panic alongside a surging VIX, it signals that the equity market's panic is significantly overdone.
There’s even a very recent example of this same divergence last April (red arrow in the above chat). Tariff “terror” turned out to be nothing more than an emotional red herring.
For further perspective, since 1990 the S&P 500 has averaged 15%-20% gains per year after relative equity and bond market risk divergence like we're seeing now:
This historical precedent can provide a level of comfort that surging volatility also does not derail stock market fundamentals without a coinciding widening of credit spreads.
Rebalance
So, taking all this into account as we transition into Q2 and our scheduled quarterly rebalance, how does this begin to help guide our portfolio allocations? As we've discussed previously, going into 2026 we began focusing overweight positions on equities that are considered are considered “HALO,” or Heavy Asset and Low Obsolescence.
These are the kinds of stocks found in like sectors like energy, materials, industrials, semiconductors, and utilities. This strategy has clearly played out well so far this year:
Those exact sectors were 2025 laggards. They’re all up year-to-date, even as the S&P 500 has chopped lower.
Thematically, we believe this leadership will remain in the near term. Thus, we will lean even heavier into those allocations as we go into the next quarter. It's clear that markets are rewarding real-world physical capacity, networks, infrastructure, and engineering complexity assets that are difficult to replicate.
For example, things like energy, mining, defense, aerospace, power generation, critical machinery, and semis are attracting institutional inflows. The sectors leading the rankings were near the bottom compared to the last two years:
If all this data isn’t convincing enough, let’s keep it simple and just follow the money. Since the beginning of the year, inflows into these HALO-heavy sectors have been the clear 2026 preference of smart money capital allocation:
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