Data and insights are from CWM's March 11th Spring Market Outlook; subsequent developments may impact the conclusions presented.
Overall economic outlook is strong, bolstered by big corporate and government spending, but valuations seem akin to champagne prices on tap water. Investor fear is also ramping up in response to global conflicts and rising oil prices, causing many investors to dump stocks at a low price, creating opportunity. It’s a great time to buy stocks—just not stocks in the S&P 500.
For this spring’s Market Outlook, Chief Investment Officer Morgan Arford and Brian J. Lockett, CFP ®, Vice President and Lead Advisor, were joined by guest presenter Joyce Huang, CFA, Senior Portfolio Manager at American Century Investments. They discussed overall economic outlook and potential effects from global events—plus how fixed income investments have become more attractive in the current conditions. Read on for a recap of key conclusions and points from their conversation.
To get an overarching view of key indicators, we analyze 140 variables that fit into five categories. The economic outlook at present is primarily optimistic and bullish, with the exception of valuations. We’re seeing strong services and manufacturing data, high corporate spending (including a huge data buildout), high government deficit spending, and projected massive tax refunds. These factors combined will infuse a lot of cash into the economy, and so far it’s holding up well.
Here’s a closer look at these key factor groups:
Economy (green/positive): Service and manufacturing data are both in expansion territory with rising, positive momentum. Government deficit spending and corporate earnings both remain high, which bolsters the market. New fiscal legislation and higher-than-average tax refunds will inject even more cash into the economy, leading to a higher GDP.
Momentum (dark green/positive): This sentiment indicator is reflected in prices rising over time as customers vote with their dollars and continue to spend. All factors indicate a sustained trend of positive momentum.
Behavior (green/positive): Geopolitical events like the war with Iran and the threat of rising oil prices are stoking investor fears. This is making investors more cautious and they’re selling off more stock at lower (though still high) valuations. This behavior, combined with overall economic performance and continuing momentum, makes it an opportune time to buy.
Interest rates (yellow/neutral): Affordability remains a concern as price increases are slowing but show no signs of stopping or reversing. Interest rates and inflation are still very high compared to a few years ago. Sharply higher oil prices, due to the conflict with Iran, have raised higher inflation fears and may lead to fewer or no cuts this year.
Valuations (red/negative): This is the factor group representing the most risk, as valuations remain at extremely high outlier levels. That raises apprehension over what will happen if valuations revert to historically normal levels, a significant decline from here.
In light of these extreme valuations, it’s a good time to consider other opportunities, such as those outside the U.S. Looking through the lens of CAPE (cyclically adjusted price-to-earnings) ratios, stocks can be bought far cheaper outside the U.S., and U.S. stocks pay far less in cash yield than equities in other markets. Prudent portfolio management this year will include more international exposure than in years past.
Massive capital expenditures by tech giants (a.k.a. hyperscalers) as they build data centers and other AI infrastructure: an estimated $646 billion in spending, which is 2% of the total U.S. GDP.
Massive hyperscaler capex is only one piece of the broader liquidity story. The federal government continues to run historically large deficits, projected at roughly $13 trillion in 2026, despite an economy that is not currently in recession. At the same time, the One Big Beautiful Bill Act, passed in 2025, is expected to meaningfully increase tax refunds for Americans in 2026. History suggests that when refunds come in larger than expected, consumers spend them. Taken together, this surge in liquidity and cash flow creates a powerful buffer against economic contraction, making a recession in 2026 increasingly unlikely, especially before even considering the scale of global fiscal spending occurring outside the United States.
The Fed has paused planned interest rate cuts for now, but they may resume later in 2026. History tells us that markets often see stronger returns after Fed rate cuts resume. If we continue on the same path, that's a positive environment for nearly all sectors. (Note: After this article was written, on March 18th the Fed held interest rates steady for the second straight meeting citing the uncertainty of the moment.)
Historically, Fed rate cycle pauses don't last long. Periods of three months or more between rate cuts since 1990 range from 3.5 to 9 months.
Remember that the media is selling clicks, not level-headed analysis. Beware of sensational headlines—for example, when a “Massive thousand point plunge” actually represents a 2% drop in the market. Use discernment to avoid falling for noise, and focus on the things within your own control.
Last year was a great time to be in fixed income. Diversification really delivered in 2025, and international stocks performed for the first time in recent memory. Emerging market stocks were the highest performer, followed by the MSCI EAFE Index.
Emerging market performance has been historically driven by China, and 2025 was no exception. But because of the weaker dollar and the high demand for commodities, many other emerging markets performed too, and it was a well-rounded year.
The threat of AI disruption has rolled through different sectors of the market, from tech to wealth management to entertainment, but we’ve yet to see the drastic, sustained real-world effects that investors feared.
Meanwhile, AI giants are ramping up capital spending, limited only by energy and infrastructure capacity. This creates opportunities in industrial, AI-adjacent sectors that are essential for large-scale data center builds. These sectors will benefit from AI growth with less direct risk.
Valuations are elevated, but are they warranted? AI is often compared to the Dot Com bubble, but today’s environment differs from the Dot Com era in a few key ways. First, the price-to-earnings ratios now are not nearly as high as in the late 1990s. Second, current valuations are supported by strong corporate earnings and margin expansion, not just speculation. If companies deliver on their earnings projections, these higher valuations could be justified.
The future impact of rising tariffs remains uncertain. While they could continue to climb, so far the effect on inflation has been more benign than expected, with markets and companies adapting quickly. One reason for that is sentiment—consumers were cautious with spending at the end of 2025 as uncertainty loomed.
More companies are confirming that prices will go up in the coming year. Because consumer spending remained strong as 2026 began, companies gained the confidence to raise prices, meaning inflation will begin to climb again.
Inflation is likely a bigger risk than much of the market suspects. Not because it will get drastically high, but because so many people are writing it off. But the war with Iran and price hikes are changing that outlook.
Current rate dynamics sustain a compelling yield environment for fixed income investments. Yields have come down from recent highs; however, they remain at nearly historically elevated levels, creating strong income potential.
If rates decline further as the Fed proceeds cautiously with cuts, bond prices will rise, adding price appreciation on top of yield.
Positioning for success: Uncovering tomorrow's growth leaders
Earnings growth among the Magnificent 7 (Alphabet/Google, Amazon, Apple, Meta, Microsoft, NVIDIA, Tesla), has seen a slight reversal - still positive, but slowing. It's a good time to look at opportunities beyond these industry giants. Market dynamics are unlocking opportunities across sectors, positioning a broader range of companies for growth in a more supportive economic environment.
While large-cap growth is extremely overvalue, mid- and small caps are undervalued, with even high-quality names heavily discounted. Valuations are also appealing in non-U.S. markets.
The bottom line: Diversification is an investor's best friend!
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