Topic Tags: U.S. Equity

Let’s Hear It for Latin America

Latin American equity markets have shown remarkable strength in 2026. After a strong start to the year, the MSCI Emerging Markets Latin America Index corrected by only 4% in March amid a broad, more pronounced market pullback due in large part to the conflict in Iran. Brazil, which represents the largest economy in Latin America, was uniquely positioned to handle commodity market disruptions given its status as a net exporter of crude oil and a world leader in renewable energy utilization. Indeed, almost 90% of Brazilian electricity is generated via hydropower, wind, and solar sources, so the nation has been able to withstand recent energy shocks better than many other Western nations. The Central Bank of Brazil also cut interest rates for the first time in two years in March, though additional rate cuts that were anticipated at the start of this year are now more uncertain. Investors have also looked on Latin American financial institutions with favor in recent time, as banks across the region (e.g., Creditcorp in Peru, Itaú in Brazil, and Grupo Financiero Banorte in Mexico) are outperforming their global peers on a year-to-date basis due to attractive earnings projections. Additionally, significant foreign investment in the Brazilian economy has led to higher volumes and earnings for B3, the Brazilian stock exchange.

Global markets have stabilized in April, with the S&P 500 Index now trading near calendar year highs and developed international equities also exhibiting renewed strength. At the same time, Latin American equities have continued their upward trajectory, with the MSCI Emerging Markets Latin America Index now up more than 20% since the start of 2026. Following strong performance in 2025 and after having avoided a major drawdown in the wake of the Iran conflict, investors may want to keep a close eye on Latin American stocks as the year progresses.

We’ve Seen This Before

Diversify. Rebalance. Stay invested. Every one of these letters has concluded with that same advice in some shape or form. It’s not particularly shiny and new, but the best documented path to a successful long-term investment program. The last eight weeks are another data point in support of these practices.

In this edition:

  • Impact of U.S.–Iran conflict on oil prices, interest rates, and equity markets
  • Volatility and drawdowns in the market cycle
  • Equity market rotation
  • Magnificent 7 detraction and increased market breadth
  • Slowdown in non-U.S. equities

1Q 2026 Market Insights Webinar

This video is a recording of a live webinar held April 16 by Marquette’s research team analyzing the first quarter across the economy and various asset classes as well as themes we’ll be monitoring in the coming months.

Our quarterly Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real assets, and private markets, with commentary by our research analysts and directors.

Featuring:
Greg Leonberger, FSA, EA, MAAA, FCA, Partner, Director of Research
James Torgerson, Senior Research Analyst
Fred Huang, Research Analyst
David Hernandez, CFA, Director of Traditional Manager Search
Evan Frazier, CFA, CAIA, Senior Research Analyst
Dennis Yu, Research Analyst
Hayley McCollum, Senior Research Analyst

Sign up for research alerts to be invited to future webinars and notified when we publish new videos.

If you have any questions, please send our team an email.

 

A Bug in the Software

Recent market dynamics in the software sector reflect a sharp shift in investor sentiment driven primarily by concerns that advances in artificial intelligence could fundamentally disrupt traditional software business models. Public software-linked equities have sold off broadly (even as many companies continue to deliver solid earnings) because investors are increasingly focused on long-term structural risks rather than near-term financial performance. Indeed, estimates for longer-term earnings growth for these businesses have started to decline despite stable or improving near-term outlooks, highlighting growing skepticism around the durability of pricing power, competitive moats, and growth trajectories in an AI-enabled environment. Since the end of October, the S&P North American Technology Software Index has fallen by roughly 30%. These concerns have now spread beyond equities into credit markets, where leveraged loan investors are rapidly reducing exposure to software-related borrowers. Many software loans that entered 2026 priced at or near par have since declined as investors reassess the sector’s credit risk profile, reflecting fears that AI-driven disruption could weaken cash flows and increase default risk for highly leveraged issuers. Specifically, the Morningstar LSTA U.S. Leveraged Loan Index has dropped by around 6% since the start of 2026.

This repricing across equity and credit markets underscores a key shift in sentiment. Software, long viewed as one of the most predictable and resilient sectors of the economy due to recurring revenue models and high margins, is now facing simultaneous multiple compression in equities and widening spreads in credit. While fundamentals remain relatively intact today, markets are increasingly discounting a wider range of potential outcomes for software-linked businesses, creating heightened volatility and a more selective environment in which investors are demanding clear evidence of AI resilience and sustainable competitive differentiation.

Healthcare System Operating Portfolios: Balancing Stability with Need for Growth

Healthcare systems have faced an onslaught of challenges in recent years. They had to navigate the operational and financial headwinds stemming from COVID-19, a severe labor shortage, and 2022’s double-digit drawdowns in both stocks and bonds. Since the end of 2022, global equity markets have returned more than 70% cumulatively, but a combination of portfolio draws and elevated cash expense growth has left median days cash on hand roughly flat. Going forward, balance sheet liquidity is likely to be restrained. While operating margins are improving, the appetite for capital spending remains high and the effects of the One Big Beautiful Bill Act have yet to emerge. At the same time, equities are expensive and credit spreads are tight, limiting the margin for error. Health systems need to carefully weigh the risks of a significant market decline with the need for long-term growth.

The Passive Performance Podium

Performance is a key attribute of any investment strategy with a values-based or sustainability focus. As such, analyzing the 2025 returns of traditional indices and those of their ESG-integrated equivalents seemed like a worthwhile endeavor, especially given the 25th Winter Olympic Games currently taking place in Italy. The purpose of this assessment was to evaluate how ESG-oriented indices performed against traditional indices in the U.S. Large Cap, Emerging Markets, and Developed International equity spaces to determine the “passive performance medalists” of 2025.

Before evaluating returns, it is important to outline how ESG-oriented indices are constructed, given that a degree of tracking error is always to be expected from these benchmarks. According to MSCI, each ESG index seeks a risk and return profile that is similar to the broad market index it is designed to track, while also targeting improved sustainability characteristics and avoiding controversies. Of course, nuances exist across different flavors of sustainability indices. For instance, the “ESG Leaders” approach differs slightly from that of “ESG Focused” indices in that it overweights higher scoring ESG names against sector peers and utilizes additional screens. Key examples include the following:

  • MSCI USA Extended ESG Leaders Index: Applies exclusions related to alcohol, Arctic oil and gas production, controversial weapons, nuclear power, palm oil, thermal coal, tobacco, fossil fuel extraction, and gambling.
  • MSCI Emerging Markets ESG Focus Index and MSCI EAFE Extended ESG Focus Index: Both apply exclusions related to civilian firearms, controversial weapons, tobacco, thermal coal, and oil sands.

The time has now come to award the medals. In the U.S. Large Cap space, the ESG Leaders approach landed atop the podium in 2025, as overweight positions in best-in-class Communication Services companies proved fruitful last year. Within Emerging Markets, the MSCI EM ESG Focus Index took home gold with the highest absolute outperformance thanks to positive stock selection effects in sectors including Information Technology, Health Care, and Energy (where being underweight also contributed to excess returns). Finally, a photo finish determined the gold/silver outcome for traditional indices in the EAFE space. The MSCI EAFE ESG Index trailed the two traditional benchmarks due to its weapons-related exclusions and lower exposure to companies in construction and mining spaces, which hampered relative returns given Europe’s increased focus on defense and infrastructure.

The fact that passive ESG indices fared well outside of the EAFE space in 2025 serves as a reminder that funds that track these benchmarks may make sense for the following types of market participants:

  • Mission-aligned investors who do not see their values fully reflected in certain segments of their portfolios
  • Purpose-driven or traditional investors who may consider passive vehicles as placeholders before identifying a viable active manager

It is important to note that understanding the nuances of different ESG-focused products is crucial, as many involve exclusions, additional risk management levers, and screens that will create absolute and relative performance variability. Still, if a lesson can be learned from 2025, it is that investors can enjoy strong performance from passive equity strategies while also tilting toward securities with more sustainable characteristics.

Seventy-Five Horses and Two Pieces of Plastic

Anyone who has gone snowmobiling knows it can be simultaneously exhilarating and terrifying. Throttling across snow and through a forest powered by a 75-horsepower engine with two plastic skis to steer makes it hard to feel like one has complete control; 30 mph in the open air feels more like 100!

Nonetheless, operating a snowmobile is pretty straightforward: The throttle is a right-thumb button, the brake is a left-hand squeeze lever. Beyond those two controls, it’s up to the driver to effectively navigate the trail, with the critical concession that the terrain is out of anyone’s complete control. Which brings me to our 2026 market outlook.

The “throttles” for portfolios are the usual constituents: equities, below investment grade credit, and private markets. The “brakes” are investment grade fixed income, particularly Treasuries which can slow a portfolio’s losses if the market tumbles. The terrain is naturally the actual path that each of these asset classes will follow in 2026. Since 2022 the equity market ride has been mostly exhilarating, save for some of the terrifying moments like the market dip after Liberation Day. But that’s in the rearview mirror, and the focus is what is around the bend. Will the thrill continue, or should we ease up on the throttle?

2026 Market Preview

This video is a recording of a live webinar held January 15 by Marquette’s research team analyzing 2025 across the economy and various asset classes as well as themes we’ll be monitoring in 2026.

 

Our quarterly Market Insights series examines the primary asset classes we cover for clients including the U.S. economy, fixed income, U.S. and non-U.S. equities, hedge funds, real assets, and private markets, with commentary by our research analysts and directors.

Featuring:
Greg Leonberger, FSA, EA, MAAA, FCA, Partner, Director of Research
Frank Valle, CFA, CAIA, Associate Director of Fixed Income
James Torgerson, Senior Research Analyst
Catherine Hillier, Senior Research Analyst
David Hernandez, CFA, Director of Traditional Manager Search
Evan Frazier, CFA, CAIA, Senior Research Analyst
Dennis Yu, Research Analyst
Amy Miller, Associate Director of Private Equity
Chad Sheaffer, CFA, CAIA, Associate Director of Private Credit

Sign up for research alerts to be invited to future webinars and notified when we publish new videos.

If you have any questions, please send our team an email.

Brains Over Brawn?

The development of artificial intelligence is advancing along two largely distinct paths. The first centers on generative AI powered by large language models, with the long-term objective of creating systems that can reason across domains at levels superior to those of human beings. The second focuses on embodied intelligence (i.e., robotics). In this space, the objective is not abstract reasoning but rather the deployment of capable machines that can operate effectively in the physical world. Over the last five years, capital and attention have overwhelmingly gravitated toward companies involved in generative AI, with the Bloomberg Artificial Intelligence Index up a staggering 276% in that time. Robotics, by comparison, has been widely viewed as a longer-dated theme, with the Bloomberg Robotics Index up only 77% over that same period (even less than the S&P 500 Index return of 134%). These dynamics can be observed in this week’s chart.

Going forward, there are reasons to believe that this performance trend may shift in the years ahead. For instance, human-level general intelligence could be far more distant than markets currently assume, and language models may not prove sufficient to reach it. At the same time, practical robots (e.g., warehouse automation, humanoid assistants, etc.) appear closer to commercial reality than previously believed, particularly in aging societies facing persistent labor shortages. One possible accelerant for robotics companies in the years ahead is the use of advanced simulation. By training in virtual environments, robots can acquire motor skills and coordination far more rapidly than through physical trial and error alone, potentially pulling forward adoption timelines relative to current investor expectations. Importantly, transformative impact does not require robots to achieve artificial general intelligence but rather functional capability (i.e., the ability to move objects, operate safely, and sustain useful work with sufficient battery life). Commercial momentum in robotics is already building. In 2024, for example, Agility Robotics opened a manufacturing facility in Oregon with capacity to produce up to 10,000 humanoid units annually, and Amazon has now begun testing Agility’s robots in its warehouses. Additionally, companies like Tesla are showcasing humanoid prototypes performing increasingly fluid physical tasks, and BYD has signaled interest in future household robotics. While price points remain prohibitive for mass adoption today, several structural forces are converging to improve the economics of robotics. Manufacturing costs are declining as scaling drives down prices for components like sensors and actuators, while improvements in AI models are enhancing robotic perception and control. Taken in tandem with the fact that generative AI leaders are currently investing heavily in costly, power-hungry data centers, it is fair to say that a once slower-moving, less glamorous segment of the AI ecosystem may now benefit from relative capital efficiency.

Despite these developments, markets continue to assign a significant valuation premium to generative AI over robotics, which can also be observed in the chart above. Factor analysis helps explain part of the gap, as AI-heavy indexes skew toward momentum and growth while robotics-oriented benchmarks exhibit greater exposure to value, quality, and, in some cases, even dividend income. Further, the generative AI complex is dominated by large technology platforms including Alphabet, Microsoft, and NVIDIA, whereas robotics companies tend to be more industrial in nature (e.g., automation specialists, automakers, and emerging consumer-robotics firms). This valuation disconnect suggests that investors may be overemphasizing long-term breakthroughs in cognition while underappreciating near-term progress in physical automation, especially as physical robots transition from research environments into factories, homes, and hospitals. Indeed, while much of today’s excitement centers on artificial brains, it may ultimately be robotic brawn that drives the next leg of growth within the technology sector.

Glass Half Empty

While the holiday season was once marked by bustling bars, readers may notice that nightlife isn’t what it used to be. Indeed, alcohol-oriented companies, long considered stable components of the Consumer Staples sector thanks to recession-proof attributes, are struggling to regain momentum after a post-pandemic boom. As can be seen in this week’s chart, the Bloomberg Global Alcohol Index, which tracks over 50 of the world’s top listed beer, wine and spirits producers, has exhibited a roughly 46% decline since the summer of 2021. Shares of European giants such as Diageo, Pernod Ricard, and Remy Cointreau now hover near multi-year lows, with many global peers notching similar declines.

There are likely many factors contributing to these performance headwinds for alcohol-oriented businesses, including rising costs, post-pandemic societal shifts (i.e., higher levels of solitude), and healthier lifestyle choices being pursued by consumers. Interestingly, a recent Gallup survey indicates that alcohol consumption by U.S. adults sits at a staggering 90-year low, with members of the Millennial and Gen-Z cohorts increasingly viewing drinking as less fashionable. This change in behavior is compounded by the rise of GLP-1 drug use for weight loss, as early indicators suggest that these medications are catalyzing behavioral changes that have led to a greater emphasis on health and well-being. Additionally, the options for partygoers outside of alcohol have rapidly expanded in recent years, with global consumers increasingly turning to non-alcoholic beverages and cannabis to fuel their holiday cheer. While demand for alcohol is unlikely to disappear completely, alcohol-oriented businesses will surely need to innovate and diversify to meet changing consumer preferences based on the trends described above.