Bruce Murray, CFA, CEO & CIO
Why market volatility, earnings growth and global conflict are shaping investor strategy in 2026
This commentary reflects market conditions and available information as of Tuesday, April 7, 2026. Given the pace of recent geopolitical and market developments, some data points or events may have evolved since the time of writing.
Equity markets continue to demonstrate a clear underlying bias toward growth. However, geopolitical conflict and uncertainty surrounding artificial intelligence are creating hesitation among investors. The challenge is not a lack of opportunity, but a lack of clarity around outcomes.
Since the market bottom during the COVID period in March 2020, equities have delivered substantial gains, with the S&P 500 tripling to its recent peak in January of this year. Current fundamentals remain supportive. Earnings for the S&P 500 are expected to grow by approximately 13 percent, while the forward price-to-earnings ratio remains just under 20 times. These are not the characteristics of a market in structural decline.
Volatility Creates Opportunity, Not Risk
Market performance continues to trend upward over time, while volatility spikes have historically presented opportunistic entry points for long-term investors
The relationship between market performance and the VIX Index provides important context. The VIX measures expected market volatility and serves as a proxy for investor sentiment. Lower levels typically reflect confidence, while elevated levels indicate uncertainty or fear.
Periods of heightened volatility have consistently created opportunity. As noted in our prior commentary, one of the highest spikes in the VIX occurred during the introduction of U.S. tariffs, which was followed by a 40 percent return in the S&P 500 within nine months. These moments tend to reward disciplined investors.
More recently, the VIX reached a low in December 2025 before rising again as concerns grew around the scale of capital required to fund artificial intelligence and the broader implications of its adoption. This was followed by a sharp increase tied to the escalation of conflict involving Iran, particularly around the strategic importance of the Strait of Hormuz.
Since that peak, volatility has declined by approximately 22 percent, and the market has responded with a roughly 5 percent recovery. Investors are beginning to look beyond the immediate disruption. That said, volatility is likely to persist until there is greater clarity on geopolitical developments.
Earnings Continue to Tell a Different Story
Morgan Stanley’s Chief Equity Strategist, Michael Wilson, has suggested that the market is still emerging from a multi-year rolling recession tied to the COVID shutdown period. We broadly agree with this assessment.
Importantly, the market has already undergone a meaningful valuation reset. The forward price-to-earnings multiple has declined by approximately 18 percent, driven by a combination of stronger earnings expectations and recent market weakness. This adjustment provides a more stable foundation for future growth.
Forward earnings expectations continue to rise even as equity markets experience short-term declines, reinforcing the strength of underlying corporate fundamentals.
Despite recent market volatility, earnings continue to trend higher. This divergence between price movement and earnings growth is a critical signal. It suggests that current weakness is driven more by sentiment and external factors than by deterioration in corporate performance.
A Strong Foundation Beneath Short-Term Noise
We continue to see strong structural drivers supporting the market over the medium term. Investment in artificial intelligence remains significant. Economic activity is strengthening as industries move beyond the residual effects of COVID. These are constructive forces that should support growth over the coming years.
At the same time, rising bond yields present a counterbalance. Ongoing geopolitical tensions and commodity constraints are contributing to inflationary pressure. Yields have increased by approximately 10 percent and are now in the range of 4.35 percent. While not destabilizing, this shift reduces the likelihood of near-term central bank rate cuts.
What Matters Now
In the near term, market direction will be influenced by the trajectory of the conflict involving Iran. If global shipping conditions stabilize, whether through negotiation or enforcement, markets are likely to respond positively. Under that scenario, a disciplined and selective approach to adding exposure is warranted.
If conditions deteriorate, markets will remain reactive to unfolding events. In either case, maintaining a measured and informed investment strategy remains essential.
