Trading for the final session of Q1 has kicked off and we are seeing green for the major US stock averages at the same time, the major averages are on a five-week skid and the Dow enters today's trading session down about 6% year to date and big tech valuation premium over the S&P 500 has collapsed to just 1.7 points.
Now at the same time we're keeping an eye on AI and AI overvaluation fears.
Underlying factor this quarter and Micron both down double digits since their blowout earnings reports showing how high the bar is right now for tech giants.
Meanwhile we saw micro close down about 10% yesterday, building on weakness after Google released.
Well joining me this morning is Marta Norton, Empower's Chief Investment Strategist.
Marta, great to see you.
Thank you so much for joining me.
My pleasure.
Well here we are the final trading session of Q1 2026.
Different place where we started.
So when it comes to your economic outlook, where do you stand, you know, it's so interesting because to your point, I on AI, it's been still a major driver in terms of how the year shapes up, but it's been more disruptive and maybe more creative destruction than I think a lot of us anticipated, and the force of that has certainly had an impact on the markets.
There's a lot of value.
That that has unlocked.
So that's something that we're watching as we look forward and of course you can't talk about an outlook without also talking about the Iran war and what that means for markets and for the economy.
And I think right now it seems as though markets are to your point, skidding or kind of incrementally leaking value but not necessarily collapsing, kind of focused on this idea that at some point we're going to get some sort of resolution, but of course there's a.
Case scenario that's out there and as you mentioned all eyes are on the conflict in the Middle East and one thing is for sure there's plenty of uncertainty and we've seen that uncertainty play out across all asset classes whether we're talking about commodities, equities, even crypto as well as the bond market.
So what do you make of what we heard from Feder Powell given some of the elevated energy prices?
Yes, it's very interesting.
So when you look at For example, the summary of economic projections where they're talking about what they anticipate doing over the next several quarters, they kind of stuck to the Fed playbook.
They're looking through the inflation impact.
They're expecting inflation to come up and then come back down.
They still have that rate cut on the table for 2026, but then when you hear the commentary, uncertainty is the watchword, and I think there's an especially strong. nervousness given what we saw with the COVID supply shock and then wondering, are we going to see that kind of same lingering inflation with this supply shock.
We're looking at very different scenarios the COVID supply shock, the demand pull that came from all the fiscal stimulus, that's a very different environment than what we have today, but it's something that I think they're going to have in the back of their mind and they're they're not going to want to project too far into saying that they're just going to look through oil altogether.
And when we take a look back and look at the sector breakdown of the S&P 500 in terms of leaders and laggards, we see quite a contrast with energy leading the way higher and that no surprise.
But what do you make of what we're seeing, especially since you mentioned the keyword value.
Yeah, it's it's interesting when we entered 202.
Almost everything was overvalued at this point.
I would still argue, and this is globally, it's for the US, but it's also for a lot of the international markets that people were so enthused about.
They were also overpriced and now we're seeing a bit of a pullback.
But because the equity reaction hasn't been all that severe, valuations have slowly.
But they haven't collapsed, so there's still some overvaluation in our estimation across markets now.
The one exception to that is this AI trade.
Members of the MAG 7, you talk about their value premium over the market kind of coming down.
We've certainly seen that.
They look pretty cheap to us and also some of the softwares. and of course we're paying attention to what's happening when it comes to artificial intelligence as well as software, especially given the performance we saw in Q1 2026, but moving forward all eyes are going to be on earnings season whether we're talking about tech or even consumer discretionary to get a better idea of what's happening within these companies as you head to as well as the rest of the first half.
What are your expectations when it comes to.
Earnings, so when we're taking a look at estimates, we still see, and this is according to Facts that, we still see double digit estimates for the Q1 earnings season, and actually those estimates have ticked up.
So if you look at what the estimates were as of December, they're modestly higher as we get closer and closer to the start of earnings season, and a lot of that relates of course to energy, but also to technology, that favorite stalwart that is continuing to perform as the AI trade continues to develop.
What's going to be really important is watching not just what the results have been, but getting a sense for what companies are saying as they manage their businesses through the higher oil prices, the higher fertilizer prices, the higher helium prices, and getting a sense for how well they can navigate that.
I think the lesson we learned from the tariff brouhaha a year ago was that companies had a lot more flexibility than we would have guessed.
And so the big question is, can you have That same flexibility with this type of shock that is moving through the system.
Marta, while I have you here, I do want to get your take on what we're seeing in digital assets in particular because when we look at Bitcoin, we are looking at that crypto major hovering around the 66,000 level and that is quite a contrast to what we saw last year.
So where do you stand when it comes to crypto and what are you paying attention to within digital assets? you know, here's where I come from when I look.
Markets whether it's stocks, bonds, commodities.
I'm a cash flow investor.
I want to have an underlying value for every asset that I look at that helps me know whether it's overvalued or whether it's undervalued, and it helps me determine kind of buy sell decisions.
When we look at crypto, it has enormous amounts of utility as a transaction vehicle, but there isn't that same cash flow that you can kind of grab upon to determine what that fair value is, and that makes it tricky and it subjects it to the kind of volatility. that we've seen over time and certainly in this recent period.
And so when we're taking a look at crypto, you know that there's worth to it.
You know it can have a permanent place in a portfolio, but determining when you buy and sell is especially tricky.
So when you have a selloff like this, normally you would be saying, hey, this is a great time to move in.
But I think in this instance you have to recognize that without that fair value undergirding the asset class, you can still have some volatility.
So as I look at something like crypto and if I were interested in it.
I would want to make sure I'm sizing it correctly for our portfolio, and I would want to be able to have that long term time horizon because it is something that's going to swing around and as it's come down, it can also move higher.
And finally, before I let you go, we have less than 60 seconds here.
So what does diversification actually look like for the rest of this year?
I have not given up on diversification.
I know a lot of folks are saying, gosh, the bonds haven't performed, but that's because we have inflation concern in the market.
If you have growth concerns as we saw. bonds do perform, so I still think that you can have those traditional asset classes in your portfolio and expect them to behave as you would expect in terms of bonds offering that offset to equities when inflation isn't the greatest concern.
But I do think cash plays a role in a portfolio today.
It is offering that ultimate hedge against some of these other concerns that we're facing.
Well Marta, it was great having you here at the New York Stock Exchange.
Thank you so much for joining us and thank you so much for sharing all of your insight.
My pleasure.
