Written by Justin Pelletier
Partner / Director of Investments & Strategic Planning
April was a reminder of something we have written about for years, but rarely see demonstrated this cleanly inside a single month: in the short run, markets are a voting machine; in the long run, they are a weighing machine. After a tough start to the year, the S&P 500 rallied roughly 10% in April, its largest monthly gain since November 2020. The Nasdaq added more than 15%. The Dow closed above 49,500. Whatever you read in March about “structural breakdown,” April rendered a different verdict — the same companies, the same earnings power, simply re-priced after the panic gave way to the data.
Our research framework asks one question above all others when a holding sells off: is the business structurally impaired, or temporarily mispriced? April answered that question for most of what we own. We did not change what we held. We did not chase the recovery. We collected dividends*, watched earnings come in, and used selective weakness to add to compounders trading below our estimate of intrinsic value with an acceptable margin of safety. That is the process. The portfolios are doing exactly what we built them to do.
Markets: From Drawdown to Record Highs
The S&P 500 entered April down roughly 4% on the year and finished the month at fresh all-time highs above 7,200, with the Nasdaq also setting closing records. The breadth was meaningful — this was not a narrow Magnificent 7 rebound. Caterpillar, our kind of global cyclical bellwether, popped nearly 10% in a session on a strong report and raised guidance. Roughly three-quarters of consumer discretionary names advanced. Starbucks rallied 18%. Hilton, Wynn, and DR Horton all participated. Amazon added 27%. When the rally is that broad, you are no longer looking at a narrative trade; you are looking at the market re-rating earnings.
None of this happened because the macro picture got easier. Oil stayed above $100 for most of the month. The Strait of Hormuz remained functionally closed. The Fed held rates and saw four dissents — the most since October 1992. What changed is what always changes after a drawdown: companies started reporting earnings, and the actual numbers were better than the fear had priced in. With roughly two-thirds of the S&P 500 reported, 84% of companies have beaten EPS estimates — the highest beat rate since Q2 2021 — and aggregate earnings are coming in 20.7% above estimates (FactSet). Net profit margins are tracking 13.4%, the highest level FactSet has recorded since it began the series in 2009.
This is the lens that matters to us. Earnings are the weighing machine. When evaluating whether the businesses we own are structurally impaired or temporarily mispriced, the answer comes from the income statement, not from the chyron. So far, the income statements are saying the businesses are intact and, in many cases, stronger than the consensus believed three months ago.
The Fed: A Vigorous Debate and a Coming Transition
April’s FOMC meeting was likely Jerome Powell’s last as Chair. The committee held the federal funds rate at 3.50%–3.75%, but the vote split 8–4. Governor Stephen Miran preferred a cut. Presidents Hammack (Cleveland), Kashkari (Minneapolis), and Logan (Dallas) supported holding but objected to keeping an easing bias in the statement. Powell described the discussion as “vigorous.” On the same day, the Senate Banking Committee advanced Kevin Warsh’s nomination as Powell’s successor, with full Senate confirmation expected in time for the June meeting. Powell signaled he will remain on the Board of Governors.
Two things matter here. First, the dissents tell you that the FOMC is not currently inclined to cut, regardless of who chairs the next meeting. There is no convincing economic case for easier policy with oil above $100, headline CPI at 3.3%, and a labor market that is soft but stable. Morgan Stanley’s Ellen Zentner summarized it well: the current backdrop of firm growth, sticky inflation, and a stable jobs market does not justify lower rates.
Second — and this is the part worth underlining — front-end rate cuts are not the same as long rates falling. A normal-functioning yield curve does not require the long end to follow the front end down. The 10-year Treasury closed April near 4.35%–4.40% after testing nine-month highs at 4.45% mid-month. Cutting too aggressively into elevated inflation expectations would push long yields higher, not lower. For clients tempted to switch into bonds for “safety,” the belly of the curve has not given you the trade you might assume. We continue to favor compounders that grow their dividends through cycles over locking in nominal yields whose real return depends on inflation we cannot forecast.
Inflation: An Energy Story, Not a Wage Story
March CPI came in at 3.3% year-over-year, the highest since May 2024 and a sharp jump from 2.4% in February. The headline number was driven almost entirely by energy: gasoline rose 21.2% in a single month and energy goods overall jumped roughly 11% (BLS). Strip out the war-driven energy spike and the underlying picture is more stable. Core CPI was 2.6% year-over-year, with the monthly core read at 0.2%. Shelter rose just 0.3%, tied for its lowest monthly increase since 2021. New vehicle prices were essentially flat. Used vehicles fell.
The core PCE — the Fed’s preferred gauge — accelerated to 3.2% in March, its highest reading since November 2023 (BEA). That is the number that will keep the FOMC patient. Inflation is no longer a tariff story or a wage story; it is, for now, an oil story. If the U.S.–Iran ceasefire holds and Hormuz reopens — both still open questions — the energy contribution should fade by mid-year. If it doesn’t, expect another quarter or two of uncomfortable headline prints, even with core trends well-behaved. Our portfolio companies are not, on the whole, energy price-takers — they are businesses with pricing power that can pass through input costs. That is by design.
Labor: Stalemate, Not Cracking
From our lens, the labor market remains where it has been all year: at a stalemate. March payrolls came in at +178,000, the strongest print since December 2024, but February was revised to a loss of 133,000. Unemployment sits at 4.3%. The preliminary benchmark revision to March 2025 employment was -911,000 — a sobering reminder that the establishment survey overstated the strength of last year’s labor market. Real (inflation-adjusted) earnings fell 0.6% in March because energy ate the wage gain (BLS).
The pattern we have flagged before remains intact: people who have jobs are mostly keeping them and getting paid; people without jobs are finding it harder to get hired. Hiring is slow, layoffs are not widespread. For our portfolio companies, this matters because it tells us the consumer — particularly the higher-income consumer — is still spending. April earnings from Starbucks, Hilton, Wynn, DR Horton, and Amazon all confirmed that read.
Oil, Gold, and the Headline Reflex
If you wanted a clean illustration of why we don’t trade headlines, April provided one. Brent crude swung between roughly $100 and $120 a barrel intra-month on each turn of the U.S.–Iran negotiations. Gold, which had hit an all-time high near $5,595 in late January, closed April near $4,728 — down approximately 15% from its peak as real Treasury yields above 4% created an opportunity cost that even a Middle East war could not overcome (IEA, Bloomberg). Western gold ETFs saw record outflows in March.
The clients who called us in March wondering whether to add gold or rotate into Treasuries got the same answer: that is a momentum trade dressed up as a defensive trade, and we don’t know what the next headline does to it. The clients who stayed put have a portfolio of businesses that just earned more than the Street expected, paid dividends*, and did not require us to know what Iran would do next.
The Berkshire Anchor
It would be wrong to write an April 2026 letter without noting that this past weekend was Greg Abel’s first Berkshire Hathaway annual meeting as CEO, with Warren Buffett still on stage as Chairman. Berkshire’s cash position now stands at roughly $397 billion. Abel’s message could have been lifted directly from the framework we hand new analysts: “One of our greatest strengths at Berkshire is patience and being disciplined at allocating our capital. We’re not anxious to deploy capital into subpar opportunities” (AP, May 3).
That sentence, from the world’s most-watched value investor’s chosen successor, is the single best summary of our investment philosophy you will read this year. Patience and discipline are not the absence of action — they are the action. Our research framework is built on three lenses: business quality (Buffett and Munger), margin of safety (Klarman), and resilience under adverse scenarios (Dalio). Every holding has to clear all three. When the macro deteriorates, the question is whether anything on the income statement, the balance sheet, or the competitive position has actually changed. In April, for almost everything we own, the answer was no.
How We Are Positioned
Our process has not changed. We continue to own businesses with durable competitive advantages, strong balance sheets, the ability to pass through costs in inflationary environments, and management teams that allocate capital intelligently. We continue to favor dividend growers that have raised their payouts through multiple cycles. We continue to look for second- and third-derivative ideas — the picks-and-shovels names that benefit when the primary AI trade gets crowded — rather than chasing what already worked.
Where April gave us volatility, we used it. Where it gave us strength, we trimmed selectively to maintain position-size discipline. Most importantly, none of the events of February, March, or April have changed the intrinsic value of the businesses we own in a way our research can defend. They have changed the price. Those are very different things — and the distinction is exactly what the value-investing tradition we operate in is built to exploit. A meaningful drawdown inside an up year is the historical base rate, not the exception. The plan and the portfolios were built for years like this.
Looking Ahead
May will bring the April CPI print on the 12th, the April jobs report on the 8th, the formal transition at the Fed mid-month, and the back half of Q1 earnings season. The U.S.–Iran negotiations remain the single biggest variable for energy prices and, by extension, for the inflation path that will determine how soon — and whether — the Fed cuts. We will watch all of it. We will not trade most of it.
If your circumstances have changed — a liquidity need, a tax consideration, a shift in your goals or time horizon — that is the conversation we want to be having, not whether to react to the next headline.
As always, please call with questions. We would rather walk you through our research than have you wonder. To that end, we work!
Best, -Justin
Justin Pelletier
Partner: Director of Investments & Strategic Planning
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*Dividends, if any, are not guaranteed and are determined by the issuing company and subject to change.
Sources: Wall Street Journal, Financial Times, Bloomberg, Reuters, The Economist, Associated Press, CNBC, Federal Reserve Board, Bureau of Labor Statistics, Bureau of Economic Analysis, FactSet Earnings Insight, IEA Oil Market Report (April 2026), Berkshire Hathaway 2026 Annual Meeting transcripts. All market and economic data as of month-end April 2026 unless otherwise noted.
This letter is provided for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Past performance is not indicative of future results. Specific securities and sectors mentioned are for illustrative purposes and may or may not be held in client portfolios.
Justin Pelletier is a registered representative of and offers securities, investment advisory, and financial planning services through MML Investors Services, LLC, Member SIPC, One Marina Park, Suite 1600, Boston, MA 02110, Tel: 617-585-4500. Justin Pelletier, Boston, MA, CA Insurance Lic.# 4074427
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