Economic Deck
In this quarterly update, Brian Collins, Chief Investment Officer at HUB Retirement & Private Wealth (HUB RPW), recaps a turbulent quarter under the theme “The World Runs on Energy.”
Key Highlights:
- A quarter in three acts: January brought modest gains, February saw weakness in mega-cap AI stocks while overseas markets continued rallying, and March turned negative with the onset of the Iran conflict — resulting in a mixed bag of returns for the quarter.
- Energy and geopolitics take center stage: The Iran conflict disrupted oil and gas supply chains, triggering inflation fears and rattling global equity markets. Despite this, investors and markets showed resilience, treating the disruption as a speed bump rather than a breaking point.
- Mixed economic signals: GDP growth appears to be slowing after a period of robust growth mid-2025. Inflation remains above the Fed’s target, consumer sentiment hit new lows (though actual spending continues to grow), and labor market data is shifting due to immigration policy changes.
- The yield curve and Fed outlook: Despite 1.75% in rate cuts since September 2024, long-term rates have risen modestly, signaling that investors expect inflation to persist, fiscal deficits to remain elevated, and growth to slow. The Fed is expected to stay in pause mode for the rest of the year.
- AI vs. old economy: AI-driven stocks faced headwinds as old economy sectors outperformed amid elevated levels of volatility.
Small Cap Reversal
In this video, Chris Wright-Madison, Senior Analyst of Investments at HUB RPW, breaks down a notable Q1 trend: the surprising outperformance of small cap stocks over large cap.
Key Highlights:
- A striking Q1 reversal: The S&P 500 fell -4.33% in Q1, while small cap value — measured by the Russell 2000 Value — finished up 4.96%, resulting in a 9.29 percentage point spread in favor of small cap in a single quarter.
- Cuts against a long-running trend: Over the past 3, 5, 10, 15, and 20 years, large cap has outpaced small cap by three to eight percentage points annually. Over the last decade, the S&P 500 returned over 14% annually versus under 10% for small cap value — a gap largely driven by a handful of mega-cap technology companies.
- Concentration risk on full display: That same mega-cap concentration that fueled large cap dominance worked against it this quarter — when sentiment shifted, those names pulled the entire index down quickly.
- A statistically rare event: Looking back over roughly 20 years of quarterly data, a spread this wide — small cap value outperforming large cap by 9% or more in a single quarter — has occurred fewer than one in ten quarters.
Why Small Cap Value Deserves Attention Now: Chris highlights three reasons to watch this space: its domestic revenue focus offers a relative advantage in a tariff-uncertain, supply-chain-disrupted environment; valuations remain at a meaningful discount to both their own history and to large cap; and historical data shows that extended periods of small cap value underperformance have often been followed by outsized gains — making Q1 a potential early signal of mean reversion.
AI Boom
Jay Sanford, Director of Investment Strategy at HUB RPW, explores a critical but often overlooked theme: the massive physical infrastructure required to power the AI boom — and the three sectors positioned to benefit.
Key Highlights:
- AI’s exponential power demand: A single Google search uses one unit of power. ChatGPT requires roughly 10x that, image generation 50x, advanced reasoning models 200x, and video AI tools like Sora over 10,000x — making this an exponential, not linear, growth story in energy consumption.
- Real estate — data centers can’t be built fast enough: Data centers are the factories of the AI economy. US demand is forecast to grow 5x by 2030, and supply is already struggling to keep pace, creating a structural imbalance that favors data center real estate.
- Utilities — scarcity creates pricing power: Securing grid power for a data center that used to take one year now takes seven. That bottleneck gives utilities and power producers meaningful structural pricing power, with US electricity demand expected to grow 40% over the next decade.
- Energy infrastructure — a multi-decade investment wave: An estimated $106 trillion in global infrastructure investment is needed through 2040. Long-term contracted infrastructure assets historically offer yield and an inflation hedge that are difficult to find elsewhere.
Market Performance Backs the Thesis: In 2025, utilities were up 16% and energy returned 8.3%, both driven in part by the AI power demand narrative. In Q1 2026, all three sectors stayed positive while the broader S&P 500 fell 4.3%. Energy was the standout at nearly 38%, though Jay notes a significant portion of that gain was tied to Middle East conflict pushing oil above $100 a barrel — a geopolitical tailwind being watched closely, not purely an AI story.
International
Cameron Cooke, EVP Investment Consulting at HUB RPW, examines how the Iran conflict and its disruption to global energy supply shaped international market performance in Q1 2026.
Key Highlights:
- Energy disruption as the defining force: The war with Iran led to the closure of the Strait of Hormuz, which accounts for 20% of global energy shipments — making the quarter’s theme of “The World Runs on Energy” particularly fitting for international markets.
- Broad market results: Emerging markets were roughly flat for the quarter and continued to lead global markets, which fell 3.2%. Emerging markets drew strength from AI-related spending, while global markets broadly declined in reaction to rising oil prices.
- Country-level divergence: Energy import-dependent countries were hit hardest — Germany fell 8.5%, India dropped 19%, and China declined 9% for the quarter. Meanwhile, Korea and Taiwan rose 16% and 9%, respectively, driven by strong AI chip demand.
- March impact — when the war began: Following the conflict’s start on February 28th, March alone saw Germany down 12.4%, India down 15%, and China nearly 8%. Energy-producing countries had mixed results, with Norway up 9.5% and Brazil down 2% for the month.
Notable Country Stories: Germany’s outsized losses were less about direct Middle East energy dependence and more about its manufacturing-heavy economy facing spiking natural gas costs, compounded by US tariffs hitting its auto sector. Norway, which supplies Germany with oil and gas since Russia’s 2022 invasion of Ukraine, benefited from the price spike. Brazil had a standout quarter overall — up 19% — bolstered by Petrobras’s oil exposure and a US Supreme Court ruling that slashed its tariff rate from 50% to 10%, though a small March dip reflected some Middle East energy import exposure. Korea’s strong quarterly gain of 16% was largely AI-driven via SK Hynix and Samsung memory chip demand, despite a sharp 25% drop in March when oil prices surged.
Staying flexible, diversified, and focused on long-term goals remains key heading into Q2 2026.
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