The Transcript 1Q26 Letter
Reviewing the key themes from Q1 2026 through C-suite quotes
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Macro
The war with Iran has been the main macro story this quarter. Oil prices have moved up meaningfully, but so far, there hasn’t been a clear impact on overall economic activity. Consumer spending and corporate sentiment are both holding up. Markets have sold off recently but have been relatively resilient throughout the conflict. The general view is that fighting won’t last that long, so investors aren’t yet pricing in a lasting economic impact.
“Some of the economic impact there, especially as it relates to the U.S. economy, is sort of -- it’s not hitting yet, and so it’s still in front of us.” – Morgan Stanley (MS 0.00%↑) Co-president Daniel Simkowitz [23rd Mar – Pricing Pressure]
“So on the consumer clients, they’re still spending at a 5% year-over-year rate. It’s about equivalent to last year” – Bank of America (BAC 0.00%↑) Co-president Dean Athanasia [16th Mar – Wild Card]
The Fed is also among the economic actors that are watching and waiting. For now, the Fed has signaled that it will look past temporary disruptions caused by high oil prices. But, like everyone else, the longer the conflict goes on, the less the Fed will be able to look past higher inflation.
“The implications of events in the Middle East for the US economy are uncertain. In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy,” - Federal Reserve Chair Jerome Powell [23rd Mar – Pricing Pressure]
The current closure of the Strait of Hormuz is economically significant. 20% of the world’s oil moves through the Strait, along with 30% of the world’s fertilizer and 45% of the world’s sulfur.
“Additionally, 30% of the world’s fertilizer supply passes through the Strait” – United States Senator Gary Peters [16th Mar – Wild Card]
“...45% of the sulfur has to go through the Strait, and it’s blocked currently. Also, a huge volume of up to 30% of nitrogen is coming from this region” – K+S AG Chair Christian Meyer [16th Mar – Wild Card]
“...now with the Middle East crisis, is that 18% of the airfreight capacity in belly and charter is grounded for the time being” – Kuehne + Nagel International AG (KHNGY) CEO Stefan Paul [9th Mar – How Long Will It Last]
This is arguably the largest oil shock in history, even compared to the 1970s shocks. The global economy is structured very differently than it was in the 1970s, though. It’s less dependent on oil for energy and is generally more diversified, which is likely why the impact has been more muted so far.
International
International economies are more directly exposed to the closure of the Strait of Hormuz than the US. That said, the impact has still been relatively contained. There appears to be optimism that European politicians are addressing issues with regulatory competitiveness, including even with respect to renewable energy policy and net-zero policies.
“I think the focus and also the willingness of the politicians to listen and talk to us…is much higher than in the years before.” - Deutsche Bank AG (DB 0.00%↑) CEO Christian Sewing [30th Mar – Still Stable]
In Asia, there’s optimism that the Chinese consumer is rebounding, albeit still slowly. Consumer sentiment also remains weak despite their massive savings.
“Asia is rebounding, and we see it, and in particular, China. The consumer is starting to shop again.” – Capri (CPRI 0.00%↑) CEO John Idol [23rd Mar – Pricing Pressure]
Financials
At the start of the year, financial CEOs were very bullish on a rebound in capital markets activity. That optimism has softened somewhat with the uncertainty around the war. Even so, the IPO pipeline still looks strong. Large deals, including SpaceX, Anthropic, and OpenAI, are still expected to happen this year, though timing may have shifted based on market conditions.
“2025...was the second best year in history from a dealmaking standpoint...the last four months of the year, definitely seems to be carrying on into 2026.” - JPMorgan Chase (JPM 0.00%↑) Co-Head of Global Banking & EMEA CEO Filippo Gori [26th Jan – So Much Work To Do]
“...it’s pretty clear to us that you’ll probably see some of the largest IPOs in history in the next 18 or 24 months,...especially in the United States, there’s a sense that being public is great again…” - Morgan Stanley (MS 0.00%↑) Co-President Daniel Simkowitz [23rd Mar – Pricing Pressure]
There’s also continued whispers of concern around private credit. It has been a fast-growing and relatively lightly regulated asset class, so people are starting to ask questions about credit quality and liquidity. In particular, bears have been focused on exposure to traditional software companies that could be disrupted by AI.
“So the question around private credit and some of the rumors, I would say, so far, the issues that we’ve seen in private credit were actually much less credit-related and much more isolated to fraud events in particular companies or that sort of thing.” - Raymond James Financial (RJF 0.00%↑) CEO Paul Shoukry [9th Mar – How Long Will It Last]
Consumer
Consumer spending remains solid overall, but the K-shaped consumer environment continues. Higher gas prices hit lower-income consumers the hardest, and that group was already under pressure. Higher-income consumers, on the other hand, continue to spend at a healthy pace.
“You do see evidence of a K-shaped economy...wages are growing faster and spend is higher on the upper end than it is on the lower end.” – Bank of America (BAC 0.00%↑) Co-president Dean Athanasia [9th Mar – How Long Will It Last]
In alignment with this pattern, QSR restaurants and consumer packaged goods companies tend to be most cautious about consumer spending. Meanwhile, companies exposed to luxury travel and entertainment see strength.
“..the QSR industry environments in the U.S. and across many markets will remain challenging.” - McDonald’s (MCD 0.00%↑) CEO Christopher Kempczinski [17th Feb – Feeling Pretty Good]
“I think overall, we’re not seeing issues with the consumer. The consumers continue to be strong relative to cruise and relative to our space.” – Norwegian Cruise Line (NCLH 0.00%↑) Executive VP & CFO Mark Kempa [16th Mar – Wild Card]
Housing markets remain an area of weakness, with home sales being at their slowest pace in decades.
“So there is pressure on the market. If you look at housing turnover, that’s actually been frozen for three years” - The Home Depot (HD 0.00%↑) CEO Ted Decker [2nd Mar – Agentic Inflection]
“The mortgage lock-in effect, coupled with lower consumer confidence, has led to a 30-year existing home sales” - Whirlpool (WHR 0.00%↑) CEO Marc Bitzer [17th Feb – Feeling Pretty Good]
Technology
In tech, the focus continues to be on AI, specifically the shift toward agents. Companies are increasingly evangelizing agents as the next phase of AI. If that plays out, it could create another exponential surge in token demand. More token demand means more demand for compute, which continues to support heavy investment across the space.
“But the world is now awakened to the agentic AI inflection. The agents are super smart. They’re solving real problems” - Nvidia (NVDA 0.00%↑) CEO Jensen Huang [2nd Mar – Agentic Inflection]
“I expect 2026 to be a year where this wave accelerates even further on several fronts. We’re starting to see agents really work.” – Meta Platforms (META 0.00%↑) CEO Mark Zuckerberg [2nd Feb – New Sheriff]
“Even within my finance team, for example, we deployed agents within our treasury organization. We’re deploying agents within how we pay and reconcile invoice, et cetera” – Alphabet (GOOGL 0.00%↑) CFO Anat Ashkenazi [9th Feb – Software Bust]
The entire technology supply chain is pushing to keep pace. Memory has been the latest bottleneck in the industry, and supply is not expected to match demand, at least, through 2027.
“So clearly, with the situation worsening and also expected to last multiple years, we are experiencing shortages in memory.” – Arista Networks (ANET 0.00%↑) CEO Jayshree Ullal [23rd Feb – Struck Down]
“We have seen memory costs increase roughly 100% sequentially, and we do forecast that to further increase as we move into the fiscal year” - HP (HPQ 0.00%↑) CFO Karen Parkhill 2nd Mar – Agentic Inflection]
“What we have said is in the last earnings call, some of our key customers…we are able to fulfill only 50% to two-thirds of their demand in the medium term. And yes, that still remains the case.” - Micron (MU 0.00%↑) CEO Sanjay Mehrotra [23rd Mar – Pricing Pressure]
There’s still no sign of a slowdown in data center capex from the big hyperscalers, but it is worth watching recent developments at OpenAI. OpenAI was the first mover in the space and arguably the ring leader in advocating for higher capex requirements. Recently, there have been signs that OAI is narrowing its focus and pulling back on expansion initiatives. If that continues, it could have an impact on industry-wide spending. For now, though, overall momentum remains strong.
“We talked about that a lot, data center CapEx increasing by some forecast projected to increase 3.5x over the next 5 years, versus the last 5 years, that’s probably low. something like $7 trillion required” – Blackstone (BX 0.00%↑) CFO Michael Chae [23rd Feb – Struck Down]
Healthcare
Capital markets appear to have been healing for the pharma and biotech industries. We have heard comments that after a long period of tightness, there are signs of increased activity and dealmaking.
“So we’ve seen significant capital inflows improving. We’ve also seen capital recycling within the sector with significant M&A transactions and the IPO market reopening for many of those companies as well.” – Kilroy Realty (KRC 0.00%↑) CEO Angela Aman [16th Mar – Wild Card]
“There’s great excitement in our customer base. Biotech funding is improving. You’re seeing some announcements that generate an investment cycle” - Thermo Fisher Scientific (TMO 0.00%↑) CEO Marc Casper [20th Jan – Tailwinds]
Industrials
The Industrial sector has seen weak sentiment for several years, but that may finally be starting to improve. PMIs have moved above 50, and there’s increasing optimism that the cycle has started to turn. We’ve seen positive comments in aerospace, agriculture, construction, and freight markets.
“It appears to be… improving…after a pretty long period of being flat to down. And so we’re hopeful…that it will continue to accelerate through 2026 since it’s been so soft for so long.” – W.W. Grainger (GWW 0.00%↑) CFO & Senior VP Deidra Merriwether [16th Mar – Wild Card]
“We watch PMIs, other metrics around the world. It’s actually encouraging to see PMIs be above 50 for a couple of months in a row, which I think is a good trend” - 3M (MMM 0.00%↑) Co CEO Bill Brown [30th Mar – Still Stable]
Energy
This is the first quarter in a long time that dynamics in oil markets have dominated the narrative of the energy sector. Between Venezuela and Iran, traditional fossil fuels have been back in focus. At this time, the supply disruptions still seem to be viewed as transitory. However, there’s growing recognition that the seemingly endless demand for energy that has been unleashed by the AI industry will likely be satisfied in large part by fossil fuels, including natural gas and even coal.
“...clearly, this is a big disruption…it really comes down to how long the Strait of Hormuz is going to be closed, closed for tanker traffic.” – Exxon Mobil (XOM 0.00%↑) SVP Jack Williams [9th Mar – How Long Will It Last]
Final Thoughts
The current market view is that the Iran conflict is temporary and that things will largely go back to normal once it ends. That is the most likely scenario, but the more complacent the market, the more opportunity there is for negative surprise. In this case, a longer-than-expected conflict, including continued closure of the Strait of Hormuz, would be an unwelcome surprise for capital markets.