The Balboa Brief: Patience Over Prediction (March 2026)
Geopolitics: Oil, Energy & Leverage
The Israel-Iran conflict escalated from headlines to real operational disruption this month, and it introduced a genuine oil supply shock. The Strait of Hormuz, which carries roughly 20% of the world's oil, remains disrupted. WTI crude jumped above $110/barrel. Gas prices went from $2.98 before the conflict to roughly $4.00 nationally by month's end. Jet fuel costs spiked, airline margins got squeezed, and entire industries began repricing their cost structures overnight. The market's reaction? A modest pullback from all time highs.
The current administration's approach to geopolitical negotiation appears to follow a pattern rooted in a well-known tactic called "extreme anchoring." The goal of this concept is to move the goal posts so far beyond your actual desired target that the eventual compromise lands exactly where you wanted to be all along. By reframing the entire negotiation range with a dramatic, attention grabbing position, the counterparty celebrates a victory because significant concession was given from the exaggerated high asking point.
As far back as the publication of "The Art of the Deal" in 1987, Trump outlined this approach directly:
"The worst thing you can possibly do in a deal is seem desperate to make it. That makes the other guy smell blood, and then you're dead. The best thing you can do is deal from strength, and leverage is the biggest strength you can have. Leverage is having something the other guy wants. Or better yet, needs. Or best of all, simply can't do without."
This pattern has been remarkably consistent across both terms in office, from tariff negotiations with Canada and Mexico, to NATO defense spending, to political posturing on Jerome Powell. Whether it is ultimately effective with Iran remains to be seen. The approach carries real risk: extreme anchoring can backfire when the counterparty has less to lose, or when allies begin to question whether the volatility is strategic or simply destabilizing. Markets may be willing to look past the noise for now, but patience has limits, and prolonged uncertainty has a cost of its own.
That said, history points to a pattern surrounding geopolitical conflict that is relatively consistent: initial fear, followed by discount, then adaptation. We have seen this before and I believe the situation will eventually resolve. Markets hate the threat of war more than war itself. Once the shoe drops and reality can be priced, capital soon finds its footing.
Style Rotation: Growth Continues to Lag Value
Despite the late rally to conclude March, Q1 of 2026 represented one of the more challenging quarters for U.S. equities in recent years. Growth stocks, particularly high-multiple tech, have now lagged Value for several consecutive months. What began as a measured re-rating has evolved into a broadened unwind of the growth complex.
Institutional selling appears to have become increasingly indiscriminate in recent weeks. When sentiment shifts this quickly, it often turns into an environment where the baby gets thrown out with the bathwater. Companies still delivering 20%+ growth are being treated the same as those with far weaker fundamentals simply because their multiples are elevated.
Capital appears to have rotated toward sectors the market currently views as "safer" or more predictable. Energy, Materials, and Industrials have shown relative strength year to date, with Utilities also gaining traction. Utilities, in particular, may be benefiting from a combination of structural electricity demand related to AI infrastructure buildout as well as a broader preference for income and stability in an uncertain environment. Materials have seen support from expectations around domestic reshoring and infrastructure-related spending. Collectively, these sectors have outperformed the Nasdaq year to date on a relative basis, a potentially meaningful shift in market leadership, though whether this trend persists will depend on how the macro environment evolves.
Comparisons to the 2000 to 2001 rotation are understandable, but less than compelling. The underlying fundamentals are very different. At its peak in 1999, eToys carried an $8 billion market cap on just $30 million in revenue. During the dawn of the internet era, early adopters with catchy domain names were trading at upwards of 266x annual sales with no clear path to profitability. That is not what we are looking at today.
Today's leading Growth companies are highly profitable and generate substantial free cash flow. This does not have the appearance of a speculative bubble unwinding. It is a valuation reset driven by higher discount rates and shifting investor preferences. That distinction is critical when thinking about long term positioning.
The objective here is not to chase what has already worked, but to selectively accumulate durable businesses as valuations become more reasonable. Periods like this tend to reward patience and discipline far more than whoever has the quickest reaction to headline news. We are beginning to see select opportunities emerge within Growth, particularly among high quality companies with diversified revenue streams and proven business models.
Consumer Outlook: The K-Shaped Consumer
There's a growing disconnect in the consumer data, and it deserves attention. Lower-income households are clearly under pressure. Gas prices, grocery inflation, and the compounding cost of carrying revolving debt at higher rates are all weighing on confidence. But when you look at the aggregate spending data, things appear relatively stable.
That's because the top of the income ladder is disproportionately driving the numbers. In fact, the top 10% of U.S. households now account for roughly 40-42% of total consumer spending, a level that has steadily increased over time. That concentration is significant enough to keep headline consumption resilient, even as a large portion of the population (i.e., Sally the Schoolteacher & Clint the Contractor) pulls back.
Higher-income consumers continue to spend on travel, dining, and luxury goods. They benefit from elevated home equity, strong portfolio gains following the 2024-2025 rally, and more stable employment in professional and managerial roles. Meanwhile, lower-income households are becoming increasingly constrained. This is the "K-shaped" economy playing out in real time: one segment moving higher, the other facing mounting pressure, with the aggregate data masking the divergence.
Federal Reserve: Stability Over Speed
As we approach the sunset of the Jerome Powell era, I feel inclined to share a few thoughts. Boo'd, bullied, and accused, I respect Jerome for consistently valuing discipline over noise. Stubborn as he may have been, I thought he did a great job, and was right more times than not.
I find the juxtaposition between Powell and his heir apparent, Kevin Warsh, to be noteworthy. Long regarded by Wall Street as an interest rate "Hawk," Warsh appeared warm to the idea of rate cuts around the same time he was being considered for the role. Whether that reflects a genuine shift in economic thinking or simply good timing, it is an interesting development to watch. Of course, Warsh will not assume the position until May 15th at the earliest, so I will reserve judgment until he actually begins making difficult decisions on behalf of our country.
It is worth mentioning that rate cut expectations have swung dramatically in recent months. Coming into January, markets were pricing in two to three 25bp cuts. As of late March, futures markets show better than even odds of zero cuts in 2026, a near-complete reversal in under three months. The FOMC is navigating three competing headwinds in succession: tariff inflation, the Iran conflict, and stagflation concerns. The spread of FOMC dot plots indicates that there is no shortage of uncertainty right now, even amongst the Fed committee members.
By Daniel Tyler Holt
Principal | Holt Investment Partners
Disclosures: Holt Investment Partners is a Registered Investment Adviser
Data sourced from Bloomberg, U.S. Treasury, CME FedWatch, and publicly available market data, as of March 2026. The Balboa Brief is for informational purposes only and does not constitute a recommendation to buy or sell any specific security or asset class. This column does not constitute investment, legal, or tax advice. The views expressed are as of March 2026 and are subject to change based on market and other conditions. Certain statements may be forward-looking and are not guarantees of future results or events. Investment in stocks, bonds, and other securities involves significant risk, including the potential loss of principal. Past performance is no guarantee of future results. Advisory services are only offered to clients pursuant to a written agreement where Holt Investment Partners LLC and its representatives are properly licensed or exempt from licensure
