Aptus 3 Pointers, May 2026

Full Transcript

Derek

Welcome. Thanks, guys. Appreciate you making time. We do have one more day left in the month, but Thursday afternoon seems like a better brain time than Friday afternoon. So we’re going to run with it. I think stocks will be up for the month, so most of this is pretty accurate. Got Dave Wagner, Head of Equities. John Luke Tyner, Head of Fixed Income. Going to talk through a little bit of everything. It’s been another strong month for stocks. I’ll do the disclosures and let these guys run with it.

The opinions expressed during this call are those of the Aptus Capital Advisors Investment Committee and are subject to change without notice. This material is not financial advice or an offer to sell any product. Forward-looking statements are not guaranteed. Aptus reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. More information about Aptus’s investment advisory services can be found in its form ADV part two, which is available upon requests. So this isn’t color coded, but there’s a lot of green on that screen right there.

David

Yeah, there’s definitely a lot of green on the screen. Even on the five-year aggregate bond index is actually now green. It looks like up 14 basis points over the last five years. A number that’s been, I feel like, parentally in the red ever since we started doing these three-pointer videos. But I always like doing this slide first because obviously, I know what returns are basically throughout the entire month, but I like being surprised by actually seeing how great they are in a period of time like what we saw in May. You had the NASDAQ up almost 10%, you had the S&P 500 tech on another 5% after an amazing April, then you had emerging markets continue to drive strength off the back of the memory names and the semiconductor names within that index. Remember SK Hynix and Samsung, they make up almost 13.5 or 14% of the emerging markets index as a whole.

And they’re up in financial technical terms, a crap ton so far year to date, definitely driving that EN narrative. It does feel like EFA, the international side of things specifically in Europe, is getting a little bit left behind. They’re more of a service-based economy, not more of a tech or innovative style economy that you’re seeing partially on the EM side now, but definitely, here in the United States.

I think one of the cool things that I’ve seen underneath the hood of the equity markets during the quarter was a lot of the winners from the large cap side of things within the tech sector, within semis, you’ve started to see, given the supply constraints in some of those areas like Memory and Dram or the semis itself, you’ve seen a lot of flowdown of some revenue to some of the smaller cap names. It would mean that some of the smaller cap names in the higher, more speculative risk on space, they’re getting more of a bid than the higher quality names right now because these are a lot of semiconductor names in the small cap space that really didn’t do anything for about 10, 15 years, but now they’re up like 200% so far year-to-date.

But it’s cool that small caps are really getting some type of participation, not from a mean reversion trade, but from an actual growth perspective. I think that’s very healthy to see. But really taking a step back and looking at this from a 10,000-foot level, a table like this, it just shows you that markets move very fast and investors can get some type of paralysis analysis, especially if they’re trend investors or valuation investors. But I think that’s the exact beauty of the magical elixir of what we’re doing with our overall Aptus asset allocation feature because you’ve heard us talk so much about our thesis of more stocks, less bonds while remaining risk neutral. But the secondary thesis that we have from our asset allocation investment philosophy, is that we want to do best details. And this right here is just another great case study that tails something we said is going to occur more often into the future. It’s happening right now.

Really, ever since the March 30th of this year, bottom, so the bottom of the conflict with the war in Iran in regards to the equity index, S&P 500 is up 18%. So we saw a quick left tail so far this year given the conflict on Iran, but now, you’ve seen a right tail event, i.e. some type of V-shaped recovery, which the market’s really very much been accustomed to. But that’s the beauty of our asset allocation is, especially relative to a lot of our peers, is that we do not have to try to time this market. If the markets go down and have a left tail, we own Convexity through volatilities and asset class. But then if markets were to rebound fast, much like we saw during COVID, during the tariff tantrum and so far this year, we simply own more stocks and less bonds.

So we don’t have to flip that light switch of trying to time the market bottom. It’s an absolute beauty of what we’ve seen with a lot of our models and it gets us very excited for the future. John Luke, I’ll pass it to you in 30 seconds, but I think the table at the bottom just shows you is like, “Hey, don’t try to time the market. Don’t try to fade the market, be a rational optimist.” And it basically is a chart that walks through the returns if you get eight straight weeks in a row of the S&P 500 winning. The record was set back in 1985 at 12 straight weeks in a row where the S&P 500 won every single week. Well, we currently sit at eight weeks right now.

But what this chart tells you is that strong returns beget even stronger returns into the future. So the old saying that we have here is be patient, don’t try to time the market, don’t try to be creative because it pays more to be patient. And right now, please be patient.

John Luke

Yeah. No, you really laid out a ton there, Dave, and I think it hits on the backdrop. Another pretty sleepy month for bonds where they’re just treading water even with a little bit of volatility across the rate curve, which this next chart really dips into. And so, yeah, this is looking at the yield curve at the start of the year versus basically, today. And what you can see is there’s been a pretty drastic move in the middle part of the curve, the belly of the curve, so two years to seven years where the bulk of the rise has come and a lot of that is just taking out the rate cuts that were priced in earlier this year because of oil prices, because of sticky inflation, because of the Iran conflict and those things.

But what you’ve really seen on the front end is the three month and the sixth month are hardly moving. And so, I think the nice part about the front end hardly moving is the market’s very suspect about this second wave of inflation, or at least, a lot of market participants are, as we’ve seen on numerous charts of comparing the waves of inflation from the ’70s to today. And what I would say is the market just ain’t buying it. The market’s not pricing in a second wave of inflation to any type of magnitude like we saw in the ’70s or through other abrupt periods. And the second part of the story is the long end of the curve. Yeah, it’s risen a little bit, but if you look on the 20 and 30 year, they’re up 20 basis points and 14 basis points. If we were in an environment of runaway inflation, the long end of the curve would be screaming higher.

And so, I think that there’s good points to each of the portions of the curve. If you break it down on the front end, it’s just, we’re not going to get rate cuts in the short term until the war is resolved and the oil prices are lower. The middle part of the curve is pricing in that there’s a lot of issuance across the AI spectrum, a lot of CapEx to be financed for the build out of data centers and AI investments. And a lot of that’s spurred because of the One Big Beautiful Bill and the ability that these companies are really incentivized to invest in the future and to invest in forward production. And the long end I think, is impacted because investors are continuing to more and more realize that bonds are not a great hedge for their portfolio. And you’ve seen that time and time again, I think we talked about the stat last time. The last 25 down 5% or more moves in the S&P, the ag was only up nine times.

I think, Dave, correct me if I’m wrong, but something along those lines where investors are realizing that they need to find other alternatives, whether it’s hedged equity, whether it’s buffered, whether it’s other asset classes, I think you’re continuing to see investors realize the fiscal picture of the U.S. ain’t necessarily great. There’s a lot of debt that’s coming to market and that there needs to be solutions that can provide real returns to asset allocations and it’s not TLP.

David

John Luke, you stated that perfectly and I think it’s something that a lot of investors tend to mistake. It’s you trifurcated the yield curve into three different sections, talked about what’s going on, but more importantly, what does that mean to markets on the short end of the curve, to the belly of the curve and to the long end of the curve? What’s actually driving the movements? Because I definitely think that there’s a lot of consensus heading into this year that the rates curve would start to increase and you’ve gotten the opposite. The yield curve has started to flatten.

In a quick response, John Luke, I think we’ve always talked about, well, I think, I know, I know we’ve always talked about that the 4.5% threshold for the tenure, the U.S. 10-year treasury has historically been that line of demarcation where equities start to at least see some type of valuation compression due to rates. Do you think that the market, John Luke, handled that situation pretty well because we did hit 4.5% on the 10-year this month?

John Luke

Yeah, actually got up to 470 for a hot second. In strides, the market continues to press higher, climbing that wall of worry. Maybe 5% is the bogey where if rates got up to that level that it creates some pain. But a lot of the stimulation that you’re seeing in the economy is real growth. And when that’s happening, it’s generally positive for markets, until that, the Fed has to come in and hike rates, but I’m not sure that that’s the case.

David

I don’t know what slide’s next, but what I would say there too, John Luke, is that everything we’ve seen with the conflict with Iran, it’s all been noise to me. It’s been a sideshow. It has not been the main character of the plot. The main character in this plot right now that we call the stock market, it’s artificial intelligence, it’s advanced computing, it’s the different agents, it’s the revolutionary technology and what it can do to overall profitability. And I know I’m going to get hated for saying that, but the war, the conflict in Iran, it doesn’t matter to this market, whatsoever in my opinion. I think we’ve recognized that over the past few months and that’s why stocks are hitting all time highs, even though we’ve hit that line of demarcation of 4.5% for treasury yields because the bond market’s trying to tell us that it’s a little bit worried about inflation, it’s a little bit worried about the conflict in Iran. Well, the equity market’s telling you something different.

We all know that bond guys are smarter than equity guys, no doubt about it. Look at John Luke versus me. I’m a crazy man, but I really truly believe that the bond market has it wrong, much like it did during COVID and the equity, dumb equity guys, I think we got it right because actually, now looking at this table, this is a very hated rally. I feel like every rally is hated because it’s cool to be a bear. It’s cool to be a Charlatan on Twitter and talk about, “Oh, hey, this is wrong with the world, so the market’s got to go down.” No. No, I think across the industry there, the consensus was that the average stock would perform quite well and you’ve seen that on the small cap side of the picture, but not on the S&P 493, but John Luke, it’s something we’ve talked a lot about.

We love mega caps because of the operating leverage component to it and we wouldn’t fade this tech rally or the market cap weighted rally whatsoever. We recently made some pretty amazing tweaks to our impact series models back on February 5th to go more into beta, out of the RSP and we’ve been very fortunate with the trade. It bettered the structure and has been right from a fundamental perspective so far. And people always ask me like, “Dave, is there concentration in this market? Does that worry you?” I go, “No, it actually very much excites me.” But then they’re like, “Well, Dave, if those names pull back…” Because as we see on this chart here, tech’s driving 68% of the S&P 500’s returns so far year today, NVIDIA’s driving 19% of it. So it is a very concentrated market, not a whole lot of breadth.

60% of the names of the S&P 500 are trading over the 200-day moving average. They’re like, “Dave, if those names pull back, the market’s going to go down.” And I would be like, “No, no, no, sir. No, no.” Dumb equity guy here. Go back to October. Mega cap stocks, the stocks that led the market basically for the last five years started in October, they started to pull back. And you know what happened? That capital cycled over into the more broad-based areas of the market and you had the RSP do quite well and it actually insulated the overall headline performance of the market cap benchmark of the S&P 500.

So, I think it’s a lot of reasons to be optimistic of this market right now. You’re still getting the average stock growing earnings at 13% here today. Unbelievable. Yes, we have concentration. No, it doesn’t worry me and it excites me for the future. And when that baton does get passed off, I can’t wait for that moment because then we continue to burrow down and hopefully have great returns because I think valuations are very palatable right now.

John Luke

Yeah. Your point is right on the money of the market’s up 10% and the P/E multiple is less than when we started the year. So that works. Yeah, I hit on this one on the above comments, but it’s something that I think is really important as you look at your asset allocation picture of trying to think about how to position. As we always say, bonds can serve a spot in a portfolio and they’re probably needed to some extent. The income, the stability, I guess I’d say tongue in cheek, at least in nominal terms for your allocation. But when you look further out the yield curve, the traditional hedges for allocations where you own the 10, 20, 30-year treasury type of duration paper, where you expect it to explode in value if the market has some wobbliness. Well, in an environment of inflation, it’s just unlikely to persist.

And when you think about the backdrop of what’s driving the long end up, well, the Fed’s not buying bonds like they were. The fiscal pressures aren’t going away. Last I checked, we’re expected to have closer to 6% deficit for the next 10 years from the U.S. government side. So we’re making $100 and we’re spending $106 and we got to borrow money in order to make up that shortfall. And so, when you’ve got the pressure of fiscal, you’ve got the need for term premium because long bonds aren’t working, the long end of the curves can very likely stay elevated even if the economy does chop around. And so, I think rethinking your asset allocation structure is as important as ever and that’s been proven time and time again the last several years and I think it will continue to persist.

David

I second in motion that, that was beautiful. Here’s going to be the last slide today. We just got through earnings season and given what some people call “exuberance” in the market, the 18% increase since 3/30 of this year, the 10% increase that we have year to date that John Luke just alluded to, everyone wants to claim that we’re starting to enter bubble territory and I just think they are so wrong. And if you believe that, let me be your market maker because I’d love to take the other side of that equation because of this chart right here. It lays it out so simplistically because think of what John Luke, myself, Brad, JD, back on the entire Brian Jacobs, the entire team’s message during the bouts of volatility we saw this year, it was simple and it was so simple that we wanted to get back to the basics of what actually drives the markets.

And the simpleness of this market is amazing and it’s two things that are driving this market. It’s going to be economic growth, whether it’s on the corporate side through S&P 500 EPS or on the consumer side. I understand that it is a K-shaped economy right now, but on the consumer side, we’re starting to see GDP numbers go, well, John Luke, four or five, maybe actually 6% pardon me, very strong. And right now, the earnings season was so amazing. I understand there’s some one-offs on, oh, Anthropic gave some one-off benefits to Google and Meta. Okay. We’re still expecting earnings growth for the S&P 500 to be 21% in the year 2026.

On a year-over-year basis, we’re up 28%. That’s unbelievably strong. And even the average stock is doing well, as I just mentioned, up 13% on a year-over-year basis. But go back to this chart on the left-hand side here and look at it. It’s going to show you each single year, the five years leading up to the bubble from the Dotcom bubble and its earnings per share growth and the overall return per year. And from ’95 to ’99, you had earnings per share growth of 67%. You had a total return of 220%, meaning that a lot of the return was derived from a valuation expansion. That’s the hopes and dreams, the sentiment gauge on the market. Obviously, a higher valuation means you’re more optimistic. A lower valuation means you’re more pessimistic.

And when you had that increase in the valuation skyrocket higher, that’s a lot of optimism in the market, but it wasn’t fully backed up by earnings per share growth. Fast-forward to today, people are still calling for a bubble. Okay, cool. Way to go, man. But look at the last five years of earnings per share growth. It doesn’t even include the earnings per share growth that we’re going to see in 2026. As John Luke alluded to, our earnings per share growth has been higher than the return to the market, meaning that the valuation has come down. But even during the period of ’21 to 2025, you’ve had S&P 500 earnings growth of 79% that’s equated to a total return of 85%. I’d say the market’s move over the last five years. That’s justified to me because as I just mentioned, the basics of this market, economic profit, economic growth and economic profitability, which I technically didn’t touch on right there, they’re amazing.

So, stay simple. The market may feel complex, but the best way to attack complex problems is through very simplistic solutions. Look at earnings growth, look at earnings profitability. And if you viewed those two things as your north star to investing, you’ve done amazing. If you viewed proper asset allocation like more stocks, less bonds, risk neutral, you have even better north stars so you don’t have to try to time the market. So be basic, be simple. And if you do those two things, you’re going to have great returns, in my opinion, and you’re going to make your life so much easier.

Derek

I think a couple things pop out. I’m going to use a couple of your quotes, Dave, if you don’t mind. So you always joke that the bond guys are supposedly smarter than the stock guys. I’ve also heard you say from meatballs, it just doesn’t matter. From doing these calls over and over and that bond number is always flat or somewhere around flat. It seems to me that if you took the bond market and said yields are going to go way up or they’re going to be somewhere in a range or they’re going to go way down, right? Well, if they go way up, you don’t want to own them anyway. They’re going to be impacted, especially the long duration. If they go way down, we’re just not in any kind of fiscal environment, inflationary. We’re just not in them. Anything’s possible, but bonds going back to 2%-

John Luke

Unlikely.

Derek

Bond going back to 2% seems impossible in the near term. So, as long as they don’t explode out into a way down or way up, stocks don’t care when they have this kind of earnings growing.

David

Yeah. It’s really just the sharp movements that stocks can get affected by rates, specifically when they go up one or two standard deviations. But Derek, you bring up a great point. People call rates are going to come down, I want to own fixed income for duration. Be like, cool, bro. You know what the best asset class to own when rates come down? It’s stocks, because they can get debt cheaper, their discount rate is lower so their valuation can go higher. But then even from a point that John Luke’s probably about to make from a fiscal standpoint, well, a drop in rates is going to help our fiscal picture because our interest expense could go down, but what are we going to do when our interest expense goes down as a country? We’re just going to go spend the savings that we had on something to jumpstart the economy, move the economy faster from a growth perspective.

So that benefits the economy and that benefit stocks even more. So cool, you can call your timing on the interest rates coming down and wanting to own longer duration of fixed income, but I’d still rather just own stocks because they’re a bigger beneficiary of lower rates.

John Luke

If your time horizon’s over 10 years, you should be looking to own as much in equity allocation as possible. The last 125 years, money supply has grown at a 6.5% CAGR and right now, you can get 4.5% on a 10-year. So money supply’s going to increase at 2% faster than what you’re going to get on the bond and you’re going to have to pay taxes on it. It’s just treading water. I think the best analogy that seemed to stick is JD likes to go fishing and he’s got a boat and likes to go out tuna fishing. And if he invites me fishing and says, “Hey, this is great. I’m going to take you out on my boat. We’re going to go out 100 miles and catch tuna, but my boat has a 2% leak on it.” Do you think I’m going to step foot on that boat? Probably not.

So, I think that the leakage of real purchasing power is detrimental and it’s nice to see a lot of people waking up to the impact. And I think that what we’re doing is helping make changes and reduce some of those handcuffs that traditionally, you didn’t really have a solution to go with and now, you do.

Derek

Awesome. Thanks guys. I guess we didn’t cover too much specific earnings, but earnings season is generally over. New Fed chair, Iran… I guess we’re just going to see headlines for the next month, like random stuff come out of nowhere, but behind the scenes, the AI build out is going to continue and then in a month companies are going to start talking again.

John Luke

And we’ll get Fed chair meeting here in three weeks. So our next one will hone in on what the market response looks like. And obviously, he’s probably not going to be able to cut rates even though El jefe would like him to, but it’s probably not much of an event in reality.

David

Sell in May and go away, that ain’t the way y’all.

Derek

Awesome. Dave, hope you feel better, but thanks, guys, for coming in and recapping for us and looking ahead.

David

God speed.

John Luke

Good deal, you guys. God bless.