6 minute read

Smart insight and clear visuals that matter – what we’re watching now and how intention and conviction shape our portfolios.

Markets

This Q1 earnings season significantly exceeded expectations despite the challenging macro backdrop, most likely led by these selected themes:

• The S&P 500 had earnings growth estimates to start the quarter of 13% and earnings growth came in just over 28%.
• In emerging markets, the original earnings growth estimate was 6% and earnings growth came in at 33%.
• The MSCI EAFE used to proxy the developed international market started at 7% and is tracking nearly 18%.
• The most explosive earnings growth in the world is connected to the capex spent on data centers to support AI.
  • Semiconductor demand continues to outpace available supply, with ongoing capacity constraints supporting pricing power across the industry.
  • The data center investments are lifting earnings growth from industrials to utilities.
  • Higher corporate profits help the stock market, which helps financials.

Equities

While in the past decade the concept of investing in companies that compound capital at high ROICs was a winning strategy, it may be time to consider opportunities in companies whose rate of change in ROIC provide alpha. Previously these companies have been hard to distinguish, often posing concerns of being value traps, however with the integration of new technologies there may be more probability of identifying companies with positive incremental ROIC. Valuation was a smaller portion of long-term returns and is being challenged particularly with rates remaining elevated and inflationary concerns.

• Companies like S&P Global, Pool Corp and Chipotle are companies that have consistently had strong returns on capital but have seen moderate growth in the last few years.
• Below is a chart provided by a fund manager that showcases how emphasizing historical compounded returns outperformed emphasis on valuations.

Indices and SpaceX

• FTSE Russell will initially classify SpaceX as mostly a telecoms value stock.
• Estimates are being put out on the massive index buying as a percent of available shares
  • • • S&P committee followers could be buying 19% of the public SpaceX shares
      • Russell 1000 and Nasdaq 100 may buy another 5.5%
      • If you think about the “quants” and mutual funds, this could be another 10-20%

Source: Goldman Sachs Global Investment Research and Goldman Sachs Asset Management. As of April 24, 2026. Chart shows the approximate pro-forma index weights of a hypothetical company with $1 trillion market cap floating 10% and 90% of its shares on the S&P 500, Russell 1000 Growth and Nasdaq 100 indices. 

Tech

SaaS Companies

We released a commentary called Practitioners Corner (check it out here), highlighting the significant drawdown of Software as a Service (SaaS) companies have experienced from the second half of last year to this year. We believe the market was punishing itself indiscriminately, and that there were actually many SaaS businesses that would benefit as AI disrupts the market. Snowflake is one of those names.

• Snowflake is a platform that provides data that allows enterprises to build and operate their domain-specific AI applications.
  • The tool “Cortex Analyst” allows questions that previously required a business user to engage an IT professional but now can be asked and answered directly inside the platform. The result is more questions being asked, faster decisions being made, and better business outcomes. Snowflake is the platform customers trust to enforce governance, maintain security, and ensure the business is not acting on hallucinated results.
  • Snowflake delivered blowout first-quarter results. Year-over-year product revenue growth of 34% beat guidance by 500 basis points. Non-GAAP operating margin also reached a new record of 11.9%, 290 basis points above guidance.
• Management raised full-year product revenue growth guidance by 400 basis points to 31%. Non-GAAP operating margin guidance also increased by 100 basis points to 13.5%.

Source: Bloomberg and Morningstar

Data Centers

Doubleline made the point this week that our country is now spending more money to build datacenters than office buildings. They peg the datacenter construction figure to a run-rate of $49.5 billion, more than the $43.4 billion in office construction spend.

• The WSJ reported last year that Stargate employed 1,500 people to build that datacenter but when up and running it will only have 100 full-time employees.
• The Virginia legislative review estimates that datacenters are 1 worker per 5,000 square feet compared to office space which is more like 1 worker per 175 square feet. Thus, office spaces are 20x more people intensive per foot.
• Another interesting way Doubleline shows this comparison was to point out that Berkshire’s Nevada Energy is required to find power for 49,000 California residents before agreeing to redirect power to a datacenter project.

Real Estate

We continue to emphasize the importance of investing in real estate funds that have no legacy assets.

• JP Morgan is winding down one of their real estate funds that survived the GFC.
  • The fund, launched in 2002, carried a portfolio split across industrial, multifamily and office properties
• The NFI-ODCE Index, a well-known benchmark for private real estate in the U.S. that tracks the performance of open-end funds continues to reflect challenging performance from treasury yields remaining elevated, financing costs are high and transaction momentum appearing to be shaky.

Source: Accordant

Economic Calendar: Week Ahead (Eastern Time)

Mon, 6/1 @ 10:00 am: ISM Manufacturing

   @ 10:00 am: Construction Spending

Tue, 6/2 @ 10:00 am: Job Openings

Wed, 6/3 @ 8:15 am: ADP Employment

                  @ 10:00 am: Factory Orders

                  @ 10:00 am: ISM Services

                  @ 2:00 pm: Fed Beige Book

Thu, 6/4 @ 8:30 am: Initial Jobless Claims

                 @ 8:30 am: U.S. Productivity

Fri, 6/5 @ 8:30 am: U.S. Employment Report

               @ 8:30 am: U.S. Unemployment Rate

               @ 8:30 am: U.S. Hourly Wages/ Hourly Wages YoY

The Team Behind Friday Focus

Mary Ahn
Investment Research and Portfolio Strategy Manager

Cal Jones, CFA
Managing Director of Fixed Income

Eric Speron, CFA
Managing Director of Equities

Alton Tjahyono, CFA
Sr. Investment Strategist