Webcast: Market Views 1Q26

A quarter that began with the broadening we anticipated, and ended as a one-variable market defined by geopolitical disruption. Westfield CEO and CIO Will Muggia reviews Q1, explains why the underlying thesis remains intact, and outlines where we see opportunity from here.

View the Webcast Slides

Overview

A Tale of Two Halves

Q1 2026 played out in two distinct acts. January and February delivered the cyclical broadening Westfield anticipated at year-end: the ISM broke above 50 for the first time in three years, the Russell 2000 outperformed the Nasdaq 100 by more than 10%, and equal-weight trounced cap-weight by the widest margin in years. Equities hit new all-time highs before the conflict started.

Then, on February 28, Iran closed the Strait of Hormuz, triggering the largest energy supply shock in recorded history. March became a one-variable market. Equities moved in near-lockstep with energy prices. Dispersion beneath the headlines across sector, size, and style was enormous.

Macro Backdrop

Underlying Economic Improvement Remains Intact

The ISM’s break above 50 was a meaningful signal, not noise. Equal-weight beat cap-weight by the widest margin in years, small caps outpaced mega-cap tech, the Bloomberg LEI Surprise Index was at its highest level in years. These reflected genuine improvement in the underlying U.S. economy.

The Iran conflict interrupted the thesis but did not invalidate it. The broadening trade — capital-heavy over capital-light, cyclicals over secular, the broader market over the Mag 7 — played out as anticipated in January and February. The conflict changed the equation temporarily. The thesis remains intact, and in our view, the market — as the ultimate discounting mechanism — will begin pricing resolution before the headlines confirm it.

Source: FactSet as of 4/9/2026

Macro

Iran and the One-Variable Market

The Strait of Hormuz closure is the largest energy supply shock in recorded history. Energy prices surged dramatically before partially retracing, and equities moved in near-perfect lockstep throughout. That dynamic remains operative today. Forward markets are pricing in eventual resolution, but uncertainty remains elevated.

Source: Goldman Sachs GIR.

Themes

AI: From Disruption Panic to Selectivity

Before February 28, AI was the dominant market narrative. Each new model announcement triggered cascading selloffs across software as if every company in the sector faced imminent obsolescence. Some of those reactions were justified. Many were indiscriminate.

The picture is shifting. Earnings for quality software companies held up through Q1, and management checks suggest Q2 looks similarly solid. The narrative is maturing from “everything gets disrupted” to “who are the real beneficiaries” — precisely the environment where rigorous fundamental analysis adds value.

Private Credit: Cracks Starting to Show

Our outlook on private credit and private equity has been cautious for some time. Those concerns are beginning to materialize: CDS spreads are widening — particularly in software — redemption requests are stacking up behind withdrawal limits (predominantly from retail investors), and lenders are beginning to mark down software-related loans. PE vintages from 2021 with significant software exposure may see portfolio companies down 80–90%.

The core vulnerability is concentrated exposure to software loans originated under 2021–22 lending standards. The big banks remain clean and well-capitalized. But roughly one-third of U.S. life insurer assets sit in private credit, and retail investors and insurance policyholders face real risk as writedowns accumulate. Private credit returns are likely to come down significantly.

Source: (From right) Wolfe Research, JP Morgan Private Bank as of February 2026 & Wolfe Research, Bloomberg, as of March 2026 (Bank loans include C&I loans)

Technicals

Sentiment Got Washed Out — That’s Constructive

Market sentiment deteriorated sharply in March, with hedge fund selling and de-grossing approaching Liberation Day levels and CTAs moving in lockstep. Breadth collapsed briefly into deeply oversold territory, put/call ratios reached historically predictive levels, and the VIX touched 30 — a threshold that has historically marked a compelling entry point for equities. The technical picture that emerged was consistent with the kind of sentiment washout that tends to precede durable recoveries.

A more complete flush would have created a more aggressive buying opportunity. That didn’t happen. But the combination of signals that did materialize is consistent with a near-term bottom and with the setups that precede durable recoveries.

Conclusion

Q1 2026 was defined by two forces pulling in opposite directions: a broadening recovery that confirmed our year-end thesis, and a geopolitical shock that interrupted, but did not invalidate it. The underlying economic improvement is genuine, the dispersion is real, and the setup for active management is as compelling as it has been in years. Westfield enters Q2 constructive and patient, with conviction in a quality-first approach that is built to perform in either scenario.