Sawgrass Market Musings

Geopolitical shocks, AI skepticism, and shifting rate expectations pulled the S&P 500 lower in Q1, even as market leadership broadened beneath the surface. Portfolio Manager, Anthony Brooks, walks through a quarter that felt like an endless bedtime story - full of twists, false endings, and an ever-growing cast of macro surprises reshaping the market narrative.

Liridon Gila, CFA, Portfolio Manager, discusses the S&P 500's decline of -0.8% in February as the market broadening and sector rotation continued, and defensive stocks generally rallied on perceived "safety" from the AI disruption risks. He highlighted three near-term potential catalysts including 1) ongoing concerns over AI-driven disruption, 2) an escalation of geopolitical tensions, and 3) uncertainty over monetary policy and persistent inflationary trends. He expects quality to outperform in 2026 as markets continue to digest the disruptive impact of AI, the Fed continues to ease rates, and the valuation gap between mega-cap growth and the rest of the market remains elevated.

Marc Davis, CFA, Co-Portfolio Manager, discusses the strong start to 2026 and continued market broadening as the AI theme draws greater scrutiny from investors. He sees a challenging path forward with stocks vulnerable to selling pressure on the heels of a tremendous 3-year run. Looking ahead, Sawgrass expects equity returns to be more muted with increased market volatility, however greater variation in universe returns and a better stock picking environment could be supportive of active managers' ability to outperform their benchmarks and peers.

Anthony Brooks, Portfolio Manager, discusses the market's resilience in 2025, with stock prices supported by optimism around potential rate cuts and steady earnings, despite uncertainties around circular AI deals, geopolitical tensions, and political shifts. By year-end, more than 80% of S&P 500 companies beat earnings expectations, as real earnings growth rather than expanding valuations supported the majority of the year's gain. We expect investors' renewed focus on fundamentals to continue into 2026, creating significant potential for high quality stocks trading at below average valuations.

Liridon GIla, CFA, Portfolio Manager, discusses November's market broadening as defensive and value-oriented sectors outperformed the market's YTD leaders. Investor sentiment was tested by the government shutdown and mixed economic signals, however a strong start to the holiday shopping season solidified confidence that household spending power was intact. Looking toward 2026, Sawgrass expects quality companies could continue to outperform as the market broadens further, the Fed stays the course on easing, investors digest AI spending and near-term return expectations, and extreme relative valuations moderate.

Marc Davis, CFA, Co-Portfolio Manager, discusses how investors' fascination with Artificial Intelligence (AI) combined with continued hopes for further Federal Reserve easing has pushed equity markets to new all-time highs. However, valuations in many of these mega-cap companies appear stretched and with markets pricing in lots of good news, there is little room for error in both earnings and economic growth projections, thus increasing the potential for volatility at any time. Overall, despite these stretched valuations and uncertain fiscal and monetary policy, markets have continued to heed momentum, and we expect the continued chase by investors will likely lead equities higher and could keep a bid on any significant pull backs through year end.

Anthony Brooks, Portfolio Manager, discusses the strong third quarter spurred by optimism in Artificial Intelligence (AI) developments and a dovish Federal Reserve. The largest technology companies are set to increase spending and Wall Street is rushing to jump on board the "AI goldrush." Historically, markets tend to do well in the fourth quarter, however stubborn inflation and mixed monetary policy signals could awaken some volatility.

Marc Davis, CFA, Co-Portfolio Manager, discusses the continued ascent of equity markets and stocks' resiliency despite signs of a weaking job market. This slowdown has shifted the interest rate outlook toward multiple potential cuts. However, although short-term rates are expected to decline, will longer-term rates follow suit?

Anthony Brooks, Portfolio Manager, shares insights on what's been driving positive investor sentiment as the S&P 500 hit new highs in July. And he discusses how investors' response to corporate earnings, economic progress, and seasonality may shape whether this moment can continue.

Liridon Gila, CFA, Portfolio Manager, discusses US equities' V-shaped recovery from April's lows - driven largely by AI momentum, trade relief, and resilient earnings. Looking to the second half of the year, Sawgrass expects market breadth to continue improving, in response to the Federal Reserve likely keeping rates higher for longer than the market expects due to tariff and policy uncertainty, and extreme relative valuations between mega-cap stocks and the rest of the market.

Marc Davis, CFA, Co-Portfolio Manager, discusses the equity market rebound in May, as investors shrugged off trade/tariff tensions, higher rates, and a potentially difficult growth outlook. Given significant macro uncertainty, a market pause to consolidate these sharp gains wouldn't be surprising.

Liridon Gila, CFA, Portfolio Manager, discusses the causes of April's significant market volatility including heightened uncertainty, tariff turbulence, policy shifts and a tech-led rebound.

Anthony Brooks, Portfolio Manager, discusses recent equity market volatility given the anticipated wide-reaching effects of President Trump's "tariff tantrum," and details several positive factors that may be supportive of equities over the longer-term.

Anthony Brooks, Portfolio Manager, discusses February's difficult equity markets given today's tariff talk, economic conditions, and political drama. Investors focused on the plight of the consumer and drop in confidence, along with elevated earnings expectations that may lead to an increase in volatility during any move higher.

Liridon Gila, CFA, Portfolio Manager, discusses how tariffs and a new lower-cost AI technology could lead to increased market volatility. He also details how a pro-growth Trump administration, the Fed’s easing cycle and current extreme relative valuations could also lead to a continued market broadening.

Anthony Brooks, Portfolio Manager, breaks down the 4Q24 markets and discusses why macro uncertainty and a rotation away from the Magnificent 7 could heighten volatility in 2025.