John Campbell: 2026 Q1 Recap and Q2 Outlook

What stood out to you during the first quarter in equities?
John Campbell: There was a lot for investors to digest over the first quarter. The war with Iran was the primary market-moving event, but we also had significant stress due to fears of AI (artificial intelligence) disruption as well as potential spillover effects from the turmoil in private credit markets. Somewhat surprisingly, the sell-off in equity markets was rather modest, given the geopolitical shock could have significant economic ramifications. The S&P was down about 4.6%, and the Nasdaq was down about 7.0%. But the small-cap Russell 2000 actually eked out a slight positive return. Globally, the MSCI ACWI fell about 3% and, perhaps unsurprisingly, crude oil was up about 76%. From a factor perspective, in general, it was a risk-off tone that played out where lower beta and high dividend yield were in favor, and even though there was a reversal in the middle of the quarter, both momentum and value factors had positive spreads while quality factors showed mixed results. In general, it was a dramatic and somewhat historic quarter, with high levels of volatility across many asset classes.

What are you most focused on as we move into the next quarter? 
In the short run, the path of the war with Iran takes center stage with the potential for either escalating conflict or successful diplomatic efforts. As the quarter progresses, earnings are going to come back into focus and especially within the software sector, we’ll be listening to see if these companies actually are experiencing impacts from the feared AI disruption. For our global strategies, we'll be closely monitoring the economic impact from higher oil prices. Both inflation effects and central banks' policy responses will be in focus. As usual, there are many moving pieces, so we'll continue to focus on company fundamentals and risk management.

What’s your playbook for managing geopolitical shocks like the Iran conflict?
First, let me tell you what's not in our playbook. We are not going to use geopolitical shocks as an opportunity to generate alpha through tactical trading. As managers of core equity strategies, our portfolios form the foundation of an investor's allocation and are expected to be broad based in their exposure to the markets. We do not have a forecast on how long the war will last, or where oil prices will be in the next week or month. We view these shocks as times to focus on risk management. Our approach includes managing our exposure to macroeconomic forces like commodity prices and inflation shocks. It also includes managing exposure to emerging themes. If we're able to effectively manage these risks, it will allow stock selection to drive relative returns during the shock. In addition, if your macro and thematic risks are well managed, the added volatility may present opportunities to invest in high-quality stocks that may be experiencing temporary dislocations.