by Scott Martindale
CEO, Sabrient Systems LLC
Quick note 1: Sabrient’s new Q2 2026 Baker’s Dozen Portfolio just launched last Friday 4/17 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across 8 business sectors, including several under-the-radar names. Notably, last year’s Q1 2025 Baker’s Dozen just terminated on 4/20 with a gross total return of +46.7% (vs. +20.3% for SPY).
Quick note 2: I invite you to visit https://MoonRocksToPowerStocks.com to learn more about Sabrient founder and former NASA engineer David Brown’s new book (an Amazon international bestseller) that details the fundamental factors underlying Sabrient’s models. Immediately download the book and 2 bonus reports (on investing in the Future of Energy and Space Exploration), plus a detailed report on the new Q2 2026 Sabrient Baker’s Dozen (all in PDF format) and learn how to access Sabrient Scorecards, an investor tool that provides access to our proprietary scores to make the stock evaluation process easy for idea generation and portfolio monitoring.
Overview
It didn’t take long for stocks to surge back to new all-time highs. Despite some commentators asserting that $100/bbl oil is here to stay given the damage wrought on energy infrastructure and supply chains, investors were unphased. The S&P 500 quickly reclaimed both its 50- and 200-day moving averages simultaneously (before the dreaded “death cross” could occur) in an historic run, and then continued to surge to new highs in response to Iran resolution optimism, earnings season confidence, resurgent zeal for the Tech/AI/blockchain Supercycle, falling bond yields, and a weaker US dollar, as safe haven capital rotated back into risk assets. Just a few weeks ago, I wrote in my 3/31 post that the S&P 500 had closed below its 200-day moving average for eight straight sessions and was struggling to hold support at the 300-day moving average, but that the selling seemed near exhaustion and ready for at least a bounce to fill gaps in the chart. Well, it got a lot more than a bounce.
Big Tech led the April surge. Bloomberg pointed out that over half of the S&P 500’s gain can be attributed to these seven companies—NVIDIA, Amazon, Microsoft, Broadcom, Alphabet, Meta Platforms, and Apple, which gained a combined $4 trillion in market cap. The rally commenced on 3/31 even as oil prices were still rising (to nearly $120/bbl on 4/7). This divergence is similar to what it did in 1990, which marked a low for equities at the time. But then on 4/8, crude oil fell suddenly and sharply, ultimately falling to near $80/bbl last Friday on ceasefires and news of that a peace agreement might be nigh along with a reopening of the Strait of Hormuz. (However, investors must keep in mind that we are still dealing with a fanatical, apocalyptic theocracy that is neither rational nor trustworthy…and indeed we can’t be sure if there is a true central governing body with whom to make a lasting deal.)
According to Bespoke Investment Group (BIG), since 1928, this is the first time the S&P 500 has reached a new all-time high within 11 days of a 5-10% pullback. In the midst of this historic rally, DataTrek noted, “Will the S&P 500 need to retest its March 30th lows, or was that a classic ‘V bottom’? History shows stocks don’t need to retest if investors are sure that policy has changed enough to address the causes of prior declines. We believe that is the case now and remain positive on global/US stocks.” Indeed, last week for the first time ever, the S&P 500 closed above 7,000 and Nasdaq above 24,000, while the Dow is eyeing 50,000 once again—and this bull market is now approaching 1,300 calendar days since its last 20% peak-to-trough correction (which ended on 10/11/2022).
Furthermore, the CBOE Volatility (VIX) Index is solidly back below 20 (the “fear threshold”), and the 10-year Treasury yield has pulled back to 4.25%. Notably, credit spreads are subdued, with high-yield plummeting from a peak of 3.46 pps on 3/30 to just 2.83 today. The credit market is highly sophisticated and historically a better predictor of economic distress than equities, so the current tightening in spreads suggests that despite high oil price and lingering uncertainty about direction, institutional fixed income investors are not pricing in rising default risk.
However, the market is surely not off to the races from here, in my view. The charts are extremely overbought, there has been narrow Tech leadership during this recent surge, and traders have taken on additional leverage. So, stock will likely pause to at least consolidate gains and more likely pull back to test bullish conviction at key support levels.
Nevertheless, I think the overall outlook for 2026 remains bright. Yes, the ongoing Iran conflict has created vast uncertainties and severe impacts on energy and supply chains—and by extension, inflation. But don’t forget, as we entered Q1 earnings season, corporate earnings expectations continued to be revised higher—now expected to be around 13% YoY for the S&P 500 in Q1 and 17% for full-year 2026—fueled by massive capex in AI, blockchain, energy, and re-industrialization/reshoring of factories and power infrastructure, leading to rising productivity, increased productive capacity, a resumption in disinflationary trends, and economic expansion.
In addition, the One Big Beautifull Bill Act (OBBA) has fully kicked in with its tax reform, deregulation, pro-energy policies, and broad support for the private sector to retake its rightful place as the primary engine of growth (with more efficient capital allocation and ROI than government). Federal government staffing is shrinking, helping to contract the budget deficit, along with tariff revenue, fraud identification/reduction (especially in big-ticket line items like Medicare/Medicaid). And don’t forget the enthusiasm for this year’s IPO market, with names like SpaceX/xAI, OpenAI (ChatGPT), and Anthropic (Claude) expected to soon go public. In February, Anthropic closed a $30 billion funding round at a $380 billion valuation, backed by Alphabet, Amazon, Microsoft, and NVIDIA. SpaceX seems to be targeting a June listing at a valuation of at least $1.75 trillion. No doubt, the US continues to be the world’s leading economic growth engine.
As the WSJ noted last week, “Oil prices have retreated. Wall Street banks just posted blockbuster earnings. And CEOs are touting the strength of the US economy. That combination has stocks back on the brink of records and some investors thinking a strong earnings season could power them even higher.” And as Barclays sees it, “There is a wall of worry—but it’s worth climbing.”
Regardless, the Iran conflict and seesaw of shipping blockades has laid bare the risks to the global economy of overreliance on supplies of critical energy and petrochemical supplies from a volatile part of the world and a very narrow waterway/chokepoint that has been long at the mercy of a terrorist regime. Facing down this systemic threat had to happen before Iran’s military capabilities—supported by China and Russia—reached the point of no return, in which the fallout of confrontation could be catastrophic. But also, the need for more diversified petroleum and petrochemical supply chains is no longer a mere discussion point.
Looking ahead, the Atlanta Fed GDPNow forecasts only +1.3% for Q1 2026, but it can change quickly with new data points. The jobs market remains in a lackluster “no hire, no fire” mode, with falling job openings, fewer opportunities for new college grads, and wage growth that has not kept up with price increases, as real (inflation-adjusted) hourly earnings declined -0.6% in March and have risen only +0.3% over the past year. As the Fed put it in their Beige Book, labor demand is “stable, with low turnover, minimal layoffs, and hiring mostly for replacement.” So, jobs growth is slowing and wage growth is decelerating. Overall, I continue to believe the overall economic picture suggests room for another Fed rate cut—but certainly not a rate hike, as some inflation hawks still suggest—and I still think today’s fed funds rate should be 3.0%.
The topics covered in today’s post are eclectic. I discuss stock patterns and valuations, the economy, inflation, debt, liquidity, and Fed policy, and in my Final Comments section I touch on more esoteric topics like lessons learned from the Iran conflict, supply chains, reverse lightering of oil tankers…and even some passages from Catechism. Then I close with my usual update on Sabrient’s sector rankings, positioning of our sector rotation model, and some top-ranked ETF ideas.
I expect stock market performance to be more dependent upon robust earnings growth and ROI—rather than AI hope-driven multiple expansion. Regardless, rather than the broad passive indexes (which are dominated by growth stocks, Big Tech, and the AI hyperscalers), I think 2026 should continue to be a good year for active stock selection, small caps, and bond-alternative dividend payers—which bodes well for Sabrient’s Baker’s Dozen, Forward Looking Value, Small Cap Growth, and Dividend portfolios, which are packaged and distributed as unit investment trusts (UITs) by First Trust Portfolios.
By the way, our new Q2 2026 Baker’s Dozen Portfolio just launched last Friday 4/17 as a 15-month portfolio with a mid-cap bias and a diverse group of 13 stocks across 8 business sectors (InfoTech, Financials, Industrials, Healthcare, Consumer, Comm Services, Energy, and Materials), including familiar names like Taiwan Semi (TSM) and Cheniere Energy (LNG), but also under-the-radar names like machinery maker Allison Transmission (ALSN) and engineering & construction firm Dycom Industries (DY). Notably, last year’s Q1 2025 Baker’s Dozen just terminated on 4/20 with a gross total return of +46.7% (vs. +20.3% for SPY), led by infrastructure engineering & construction firm Comfort Systems USA (FIX), oil & gas equipment and services firm TechnipFMC (FTI), and chipmaker Advanced Micro Devices (AMD).
Also, small caps and high-dividend payers tend to benefit from market rotation—which should resume as the war comes to a (hopefully swift) resolution, so Sabrient’s quarterly Small Cap Growth and Dividend portfolios might be timely investments. And, as a reminder, our Earnings Quality Rank (EQR) is licensed to the actively managed, low-beta First Trust Long-Short ETF (FTLS) as a quality prescreen (Note: FTLS never lost support at its 200-day moving average during the March selloff).
I have been encouraging investors throughout this global turmoil to exploit market pullbacks by accumulating high-quality stocks as they rebound. By “high quality,” I mean fundamentally strong, displaying a history of consistent, reliable, resilient, durable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates, a history of meeting/beating estimates, rising profit margins and free cash flow, high capital efficiency (e.g., ROI), solid earnings quality and conservative accounting practices, a strong balance sheet, low debt burden, competitive advantage, a wide moat, and a reasonable valuation compared to its peers and its own history.
These are the factors Sabrient employs in our quantitative models and “quantamental” portfolio selection process. You can learn how to access several of our proprietary models for idea generation and portfolio monitoring through Sabrient Scorecards, as well as download Sabrient founder David Brown’s latest book (an Amazon international bestseller), by visiting this link: Moon Rocks to Power Stocks
Here is a link to this post in printable PDF format, where you also can find my latest Baker’s Dozen presentation slide deck. As always, I’d love to hear from you! Please feel free to email me your thoughts on this article or if you’d like me to speak on any of these topics at your event! Read on….
