The Cornerstone Investment Commentary: 1st Quarter 2026

The year’s first quarter divides into two parts with the solid gains through February given back – and then
some – in March with the onset of the war in Iran as a 4% gain became a 3% loss.

While this pattern applied to all the major investment asset classes, the specifics are noteworthy:

• U.S. large value stocks went from a 7.0% gain through February down to +2.1% by March 31st
• U.S. large growth stocks went from a 5.1% loss through February down to -9.8% by March 31st
• U.S. small-cap stocks went from a 6.0% gain through February down to +0.9% by March 31st
• Foreign ‘developed markets’ 11.7% gain through February went down to +2.5% by March 31st
• Foreign ‘emerging markets’ 7.2% gain through February went down to -2.7% by March 31st
• The overall U.S. bond market went from a 1.6% gain through February to -0.2% by March 31st

Since we expect each category to eventually (and, at least, mostly) recover their declines, it seems wise to
pay attention to how each was responding to global economic conditions before the conflict began:

• Foreign equities, which understandably fell the most in March, also had the strongest 2026 gains
before the Iran war. This was a continuation of their large 2025 out-performance. A recovery may
take longer, but the fundamentals underpinning their recent returns remain in place.
• The strongest U.S. equity performers – large value and small-cap (especially small value) stocks –
of early 2026 also finished 2025 impressively. While falling ~5% in March, their decline is similar
to U.S. large growth stocks, which had already lost 5% in 2026 through February. Uncertainties as
to interest rate cuts, inflation and the future trajectory of artificial intelligence (A.I.) create the most
challenging conditions for growth stocks since 2022. This is why we again lowered your allocation
to them (and increased foreign and U.S. large value stocks) in last quarter’s portfolio rebalancing.
• Longer-term bonds suffered in March due to heightened inflation expectations from higher energy
prices. Simply put, the Federal Reserve must now slow the pace of any additional interest rate
cuts. While we still expect these, which benefit intermediate-term bonds over shorter term, they
are ‘off the table’ until global energy supplies are restored and prices moderate.

As you know, we are not market timers and do not advocate trying to predict how (or when!) today’s
unsettling economic winds will shift. However, we can take note of clues as they arise: recent peace talk
rumors sent global equities rallying to a 3% gain in a single day. This suggests recovery in global financial
markets, though not in terms of the human suffering, could be rapid when the ‘real one’ begins. For this
reason as well as for those cited above, we believe your portfolio will benefit most from continued
patience and that our rebalancing efforts since mid-2025 will continue to prove beneficial.

Of course, we will continue to monitor developments and to respond as needed when we think it prudent.
As always, we welcome your comments and questions and look forward to our next conversation. We
wish you a healthy, enjoyable spring and thank you for the continuing opportunity to work together.