Aptus 3 Pointers, April 2026

Full Transcript

Derek

Welcome. 1st of May, getting right at it right before the new month starts. And April was something. A lot of stuff to cover.

As we do every month, we’ve got John Luke Tyner, head of fixed income, David Wagner, head of equities, getting through a whole lot of technical difficulties that seem to have hit all of us at one point or another this week, but we’re ready to roll.

I’ll do my quick disclosure. 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 II, which is available upon request.

Guys, thanks for coming on. A lot has happened. I mean, I don’t even know where to start, but y’all do.

Dave

A lot has happened, DHern. DHern, I just wish you would unblur your background right now on your screen because many people don’t know that Derek was up in Buffalo celebrating his grandma’s 100th birthday. Unbelievable genes. And he’s in his childhood bedroom right now. I think that’s so cool.

But not only does his grandma have great genes, you know what else has great genes? The stock market. I mean, I feel like your grandma, her age, Derek, is just, put a chart up of the stock market over the last 100 years and you’ll just see a straight line up to the right.

And it just reminds you that over longer periods of time… There you go. Thank you for that.

Derek

That’s quite a pivot, Dave. Impressive.

Dave

That’s what we’re here for. But this past month, pardon me, April, is just another great case study to show investors that being a rational optimist and being very patient with the market tends to pay off over longer periods of time.

We know the old adage that goes, “Hey, markets fall like an elevator and rise like an escalator.” Well, it feels like over the past few years, last five, six years, or really during any period of time during quantitative easing, the market has fallen like an elevator, but also risen back up like an elevator. That’s something that we call a V-shaped recovery.

And what we learned last year is the market had its fastest recovery ever after a 15% drop. It only took 55 days to get back to all time highs. What we learned this year, the market had its fastest recovery back to all time highs after an 8% drop. It only took 11 days to get back to its all time high. And a lot of that had to do with what occurred back here in April.

You had large caps up close to 10.5%. You had small caps up my birthday, 12,08, December 8th. You had EM up 14 off the back of semiconductors and technological advancements that you’re seeing in South Korea and that you’re seeing in Taiwan. Obviously, it was a very great month.

And I think what we were saying with a lot of our quarterly earnings calls back at the beginning of last month was, “Hey, when the market feels like it’s in turmoil or when the market feels like it’s chaotic and volatile, the best thing that one can do is to get back to the basics.” And the basics were very, very simple.

The basics were two things, focus on earnings growth and focus on profitability. We’re going to talk about those two things later, but both were very strong, which allowed this market to remain very resilient.

But I would think that after a sharp, I would call this a right tail environment. John Luke, you can disagree with me, but the market was up 10.5% in the span of 30 days, 10, 20 trading days. And I think it might create a little hesitancy for those trying to put capital to work right now after the market has run so much.

We know that there’s always analogies or, I’m blanking on the other word. There’s that old saying sell in May and go away or sell in May and go to seaside heights. Well, we don’t believe in that because I think if you look at that May to July period when you’re supposed to sell in May and go away, over the last 31 years, the market was up during that timeframe.

So I think it still pays to be a rational optimist right now. Brian Jacobs, commerce CFA on our team did a great report a few years ago, and it was basically showing that, hey, the best time to be invested or put capital work is actually at all time highs.

That when the market is at all time highs, the forward 12-month return for the market tends to be above average. But not only that, it tends to come with a below average volatility range or standard deviation rate.

Obviously, that’s a great sharp ratio, not a fan of sharp ratio, but just trying to say, hey, you know what? Just because the market has hit all time highs, it is not a reason to become pessimistic. It’s another reason to remain a rational optimist.

John Luke

Yeah. And I think just looking at the bottom of this chart to get into the bond side, bonds didn’t help you during the turmoil and they didn’t do squat on the turn back up. And that five-year number on the right-hand side of the AGS return over the last five years, it did pop positive, but that’s barely.

And I saw a chart that was looking at, we’ll get into it on the Fed, but since 2018, when Chairman Powell became the head dog, prices are up about 33% cumulative since then. So that’s 2018. Your bonds, that’s eight years, so not quite 10, but your bonds have compounded at less than two, and prices have gone up almost 33% cumulative.

So again, just a smack in the face with longevity risk of over a long period, hadn’t worked out so well over the turmoil you saw earlier this year, wasn’t great. And then the rebound, left a lot on the table.

Derek

And like y’all always say, I mean, it’s just slow. You don’t notice it. It just creeps up on you, but you’re talking seven, eight years now. It’s 33% and you didn’t get any protection whatsoever. So that’s the nature of inflation.

So this is one of the charts you put in here just talking about where inflation is and where rates are. So what do you got here?

John Luke

Yeah, so one thing to think about is where’s the Fed fund rate relative to inflation? And if it’s above inflation, if the Fed fund’s rate is above inflation, you can view it as moderately restrictive, so against inflation rising and vice versa.

Obviously, we had quite a bit of a stretch where the Fed funds rate was well below where inflation was running, which led to that stair step up in the middle of the chart. But we’ve been holding above for a while, and it has worked at bringing inflation at least back to a more tolerable range.

We’ve continued to believe 2.5% inflation is probably something that we can work with. The bout of energy-driven inflation and cost from the Iran war has obviously led inflation to pop back up a little bit. We got that data last week where inflation was definitely hotter than what the trend has been.

But putting it back in perspective, inflation’s been above target for over five years with the bout of inflation from energy, which we think is probably pretty transient and short-term, what’s a few more months.

And so I think just getting back to the basics here with the Fed is holding rates at a level that, I think, is moderately restrictive and it should continue to get inflation. And what you’re seeing is inflation, especially longer term, is well anchored.

And one of the charts I think we talked about last time was looking at short-term inflation, so one-year inflation expectations. And right during the middle of the war, they popped up to about 6%, and you’ve seen a very steady decline. I guess it hasn’t been steady. It’s been the old elevator down where it’s about 3% now.

And so I think the market is coming to terms on where this positions. And so from an inflation perspective, I think there’s a few things to hone in on. Number one, the Fed focuses on core inflation, not headline. Headline is the one that’s moving the fastest with energy prices. It’ll move much slower and to a lesser extent to core.

Shelter inflation continues to work lower, which moves the core inflation, at least keeps it stabilized. And then last year, as we all know, this time last year was right after the tariff tantrum and the recovery that we saw there.

Well, the pricing of goods because of tariffs spiked where companies front ran orders, prices were just higher for goods because the tariff rates were higher. Well, for the next several months, we’re running off those comps from last year.

And so you’ve got some stability that I think keeps inflation pretty well anchored and from getting in a spot where the Fed’s too uncomfortable. And you saw that this week with the Fed meeting, which I won’t get ahead of myself there.

But long story short, I think inflation’s pretty well anchored. It’s above target, but we knew that and it seems like the Fed is moderately comfortable as long as it doesn’t get above 3%.

Dave

John Luke, I think I got a thought in my head that it’s something you said in your commentary there and it’s something I’ve been very impressed with by the market, specifically if you bifurcate the market between institutional investors and retail investors.

I’ve been very impressed by the retail investors and honestly, the equity markets. Everyone talks about the bond guys are smarter than the equity guys. We all know John Luke is smarter than me. That remains true, but it feels like the equity guys have been right here more often than the bond guys.

And I think you saw it during COVID. I think you saw it here more recently during tariffs and during this war on Iran debacle. But obviously the word transitory has a bad connotation. It’s up there with mortgage-backed securities after the misuse of the Fed talking about transitory influence. No inflation is transitory if you look at it from a cumulative standpoint.

But I think the market specifically on the equity side and retail investors have done such a great job looking through one-time bumps, or as the word you used at JAL, transient nature of increased costs.

That they’re willing to recognize that one, at least on the war on Iran, that the spike in oil prices is going to be temporary, much like what we saw with the tariffs, meaning that people have been less emotional on the short-term aspect of markets and they’ve remained invested.

John Luke

Yeah. I think that the last six years have maybe poked a hole in that bond guy smart. Wasn’t so smart when they were bidding 10-year bonds at 50 basis points.

Dave

You’re still smart, John Luke. Okay.

John Luke

Yeah. I’ll team you up here, Dave, on the energy side. We were talking before the call on a notable stat that was something to the tune of if oil is about $100 a barrel, it adds on average about $50 in expense from a fuel perspective to the average consumer’s budget.

So I think that number one, that’s much less than what I would’ve expected. And then two, where this chart really tees up is the US is in such a different spot than we were, say, 50 years ago during the ’70s when oil spiked.

We’ve got energy independence to a major level, especially relative to any other country.

Dave

John Luke, and Derek, you know too, I got a lot of problems with people and things and ideologies. And one of my top 20 pet peeves is, because I got a lot of them, is investors and people have a very difficult time seeing the forest through the trees on how times have evolved, especially nowadays in the terms of social media, we want instant gratification.

They don’t take a step back and look at things from a thousand foot view, what’s happened over longer periods of time. A great case in point is valuation. Valuation today is very different for the S&P 500, where it was back in the ’80s and ’90s due to the composition of the index.

And they’re like, “Well, you know what? The market’s expensive compared to it’s 30 or 40, 50 year average.” Could care less. The same thing’s happening here with energy because everyone’s like, “Well, the market had some trouble back in the 1973 oil embargo and it’s probably going to be like that this time.”

Or back during Persian Gulf in the ’90s or the Afghanistan war in 2003. Well, if you look at this chart here, the US economy from an oil standpoint has evolved, and that’s what people need to recognize to be able to see the forest of the trees.

That the infrastructure that has actually been built in the early 2010s on whether it’s in Utica or basically any type of fracking oil, not just fracking oil, but the efficiencies from a cost perspective on now you have horizontal drilling that the United States, which is in that University of Kentucky blue color, you start to see that number start to come down in 2008 that we become more of a net exporter and less of a net importer of oil.

Said differently, we are less dependent on oil prices globally than we were back in ’73 or 2003 or back in the 1990s. And I think we’re starting to see that show up today. The line you don’t want to be right now is that University of Louisville red color, that’s China.

Obviously we have the Derby this weekend, so we got to give a shout out to that. But China’s very dependent on oil out of the Strait of Hormuz, or even Japan is, India is, isn’t us. And I think that to be able to see the forest through the trees on the ramifications to other countries versus ours is very important.

And that’s something that we talked a lot about. I know John Luke, you talked a lot about it over the span of the last month is that, “Hey, we need to think about this time a little bit differently.” And some of the past periods of oil supply shocks, it’s null and void nowadays.

And I think we did a really cool study here at Aptus and it was validated by Jefferies and it said that, “Hey, if oil stays above $90 a barrel on average for the year 2026, it could hurt earnings per share of the S&P 500 by four or 5%.” I think that’s a conservative number.

I bet it’s closer to two or three, and we’re already kicking well above our weight class, and I’ll talk about that here momentarily from an earnings per share growth standpoint, meaning that we can handle higher energy prices for longer than what we think and much better than what we were able to back in the early 2000s.

JL, correct me on the stat and then I’ll pass it back to you. But oil, if you look at the cost of a barrel of oil, it’s not stated in inflationary terms. Everyone’s like, “Well, we’re above that three-digit $100 barrel number. Whoa, Nellie, that’s gnarly.” That’s a very different number of $100 today than $100 back in the ’70s or the ’90s or early 2000s.

If you look at an inflation adjusted barrel of oil costs, it’s over $210. So think about it from that standpoint too, that it’s the situation given the war on Iran, it’s not as bad to the consumer or input costs as many bear charlatans would think.

Derek

Well, you also used the word trifurcation, which is made up, I think. But if you look at the bifurcated nature of the market and semis versus software, and now it’s the same thing with energy, countries that import versus countries that can export, I mean, massive differences.

And so I think to just lay a blanket bear claim out there, I mean, I don’t think advisors are doing that heavily, but institutions, there’s definitely people out there that make that claim and make that extrapolation. And then you lead to going into safe instruments and suffering purchasing loss.

So it is important to dig into this stuff. And some of these charts are just, the US dependence on oil is crazy and this chart on earnings just keeps going up. So this is where we are with it.

Dave

Investors get in their way, Derek, more often than they should because they want to sound smart. They want to think that this time is different or that this and that, and it just gets you in trouble.

Think of how many people probably made moves in their portfolios given the war on Iran in late March or early April, because they thought the market was going to continue to go down. And then they missed out on a 10.5% S&P 500 rebound off the lows on March 30th. Stop.

That’s why I love the analogy, Derek. Overtrading’s like a pie crust. The more you mess with it, the worse off it is. Stick to your guns, stick to your plans, own beta, think differently on how to protect on the downside, and you’re just going to have so much of an easier lifestyle moving forward and better compounded returns.

Because who would’ve guessed, looking at this photo, that every single week since the beginning of the war on Iran, I guess it technically wasn’t a war by congressional standpoint, that hasn’t happened since 1941 in Pearl Harbor.

But earnings per share expectations for the S&P 500 have gone up every single week since the start of the conflict. If you ask most investors that they would’ve disagreed, “Oh, probably it would’ve gone down every week, input costs, higher oil prices hurting the consumer, crush the S&P 500 EPS.” It’s just been absolutely wrong.

Follow with the narrative, I think this war in Iran is getting investors away from the focal point that they should be focusing on, and that’s earnings per share growth off of a revolutionary technology from artificial intelligence.

I mean, look at the reports that we saw out of Google this week. Unbelievable. Even on Microsoft had some great aspects. Even Meta data, even the stock was down 10% off their Zuckerberg higher than expected CapEx guidance increase for the year when no other company was doing that. It’s because they see opportunity here.

But I think then people would kick back like, “Hey, Dave, earnings per share has only gone higher so far your day because of energy companies and Micron.” Well, that would be correct. So I guess you could say there’s a concentration in earnings growth.

But if you bifurcate, there’s bifurcate, not try for Kate, do you earn the Mag 7 growth rate versus the earnings growth rate for the 493, you’re getting very strong growth rates for the Mag 7. But even the 493, the average stock is still growing earnings. I think it’s now at 11% in 2026, maybe 12% in 2026.

That’s well above the long-term historical growth rate for the S&P 500 of 9%. So this is a healthy market. Don’t tell me there’s no growth in this market because in my mind, in financial technical terms, there’s a hella amount of growth in this market.

And that’s a reason to be optimistic, and it’s a reason to believe that the market could very much continue to be resilient during bouts of volatility.

John Luke

Yeah. And I’d just say we’ve talked a lot about this over the last couple years, and we’re six years into the Trump presidency between his two terms, the split.

Every backdrop of the market down that’s been somewhat self-inflicted, whether it was the tariffs, whether it was back in 2018 where the tug of war with Powell, whether it was COVID, whether it was ’22, all of these environments… Well, I know ’22 wasn’t during Trump’s presidency, but it was definitely one of the backdrops that the market had what you call a V recovery.

But we’ve just been given the playbook where Trump wants the market higher and he’s going to do things that I think and say, and you’ve got tweets moving the market or Truth Social posts or whatever you want to call it, moving the market three, 4% in a day.

That when you look at what Dave just said about the bottoms up perspective of earnings growth, and then you think about his positioning from the top down, it just obviously seems obvious in hindsight that it was a very viable opportunity.

Because it was inevitable that he was going to do something to push the market higher, just like he did this time last year with tariffs.

Dave

I don’t like talking politics at all, John Luke, but I think in the quarterly slide deck, I have a quote in there and it says, “Macro news can seem overwhelming. Tweets from the president can seem overwhelming, but just remember, at the end of the day, it’s still all about stocks, which are all about underlying businesses.”

And that’s something I’m not going to bet against because what we learned in 2022 with inflationary pricing, what we learned during an economic shutdown of COVID, businesses are very resilient because they are so fast to adapt to the current environment because capitalism, it projects that and it’s not going to lose because of that mentality.

And that’s why it’s hard to bet against the market. It’s hard to bet against the US because these underlying businesses, the adaptability has been so impressive over the last six years.

Derek

So he had a huge week. I think this was the biggest week for earnings as far as number of companies coming out and obviously the big high profile tech companies.

Did have a Fed meeting, and this is probably where we’ll wrap. I don’t know that there was a whole lot of clarity coming out of it or that rates are really going to change much, but JL, I’m sure you got some thoughts on what’s going to happen with the handover when it does happen.

John Luke

Yeah. So Warsh looks all but set to get in here soon. I think it’s going through Senate confirmation and getting everything finalized. I think the key notable was really, number one, the legal case against Jerome Powell and the renovations at the Fed, which have been under high scrutiny due to cost.

It looks like that case is being dropped. So his legal risk is much lower now than it was. But the big thing from his press conference is that he’s staying on the board, which is really rare for the Fed chair to stay on the board after their term ends as the chair because he gets demoted a notch.

You haven’t seen that happen since the ’40s. So a lot of folks have taken that as a political jab against President Trump because essentially if he leaves, then Trump gets another pick.

And you could see an environment where that would be four folks that have governor positions that Trump had nominated and the governor, they always vote, but they also have influence over who’s the regional presidents, which vote on a rotating cycle.

And I think part of Powell’s thought or decision to stay on board, maybe part of it’s legal, I think it’s more political, because he would be giving up some of that control. And so it’s going to be interesting to see how Warsh leads with Al staying in.

It’s like your big brother keeping his hand on your shoulder and keeping him from blossoming to the lead as he was put in the position to do. But no real surprise that they didn’t cut and they gave very little clarity of future cuts.

You actually saw three of the members’ dissent against the easing bias that was in the minutes. So essentially the minutes were saying the next move is a cut. And so three members were against that based on inflationary prices from the Iran conflict.

And then Stephen Miran dissented against the, he actually wanted a cut, which is consistent with what he’s done since he’s had the job making President Trump proud.

But at the end of the day, the Fed really has their hands tied. The benefit of the Fed versus other central banks here is we have a dual mandate of jobs and inflation where most of the other central banks have a mandate based just solely on inflation.

And so I don’t think that you’re going to see the Fed respond to higher energy prices and hike rates, but that’s not necessarily the case for other central banks. And so we are in a better spot relatives. And then going back to that energy dependency piece, which I think the longer this goes on, the better it is for the US relatives.

But until clarity comes, we can expect the Fed to be on hold. Now, one thing I’ve been saying to the guys, and just this is an opinion, but the next catalyst for the market to continue ripping higher could be we see an end of this conflict and we start to see rate cuts get priced back into the market.

And Dave, do you think it would be favorable for earnings multiples if we had an environment where two or three cuts started getting priced back into the market?

Dave

Launch pad, because obviously we can go into the academia answer here like, “Well, the dues count rate gets lower, so you can pay more for unit of growth.” Cool.

Valuations are very cheap right now. So I think you got the narrative that valuations can go higher due to more expected rate cuts, but valuations compress quite substantially in the first quarter. So I think you get a two-for-one special of a launchpad jump from, I think the market’s undervalued, but also then from a lower discount.

All right, John Luke, I actually had a few questions for you, but we’re running along on time. But since we just saw Jerome Powell’s, Fed Chair, Jerome Powell’s last press conference, I asked this question a year ago. How would you grade him A, B, C, D, there’s no Es, F. Then what would you grade Bernanke and Janet Yellen?

John Luke

This is a loaded question. I can’t see an answer to that.

I mean, if you look at Chairman Powell’s objective of what’s the Fed shooting for, from a labor market perspective, we’re at some of the lowest level of unemployment that we’ve really ever seen. So from a labor side, I think pretty solid. Obviously he doesn’t have all to do with that, but from how he’s managed policy, I think it’s been pretty decent for the labor market.

When you put it in perspective from the prices side, if you look at the cumulative inflation of what it’s realized versus what it would’ve realized if it’s net to 2% target, we’re pretty far above that number from what’s actually been realized.

So I think that probably would notch him a couple ticks down and the labor side maybe notch him a couple ticks up. So yeah, it’s a tough job. I don’t envy him. The political side of that job is a complete bear and dealing with different administration.

Whether you like Trump or not, I’m sure that he can be a pain to work with as is put through Truth Social with, “Too late Jerome Powell,” in about every message he sends out. But I think that Warsh is going to be a good man for the job.

So I’m diverting your other two parts of the question because they don’t matter and saying, I think Warsh is going to do a good job. I think he’s very well positioned.

I do think that having people from the actual private sector that have had jobs in the public sector and don’t necessarily need the job, they don’t need the money, they’re doing it because I think that they can give back to the country and help make better decisions to let capitalism run.

It’s much better than the academic take that we’ve had in the past. So maybe that answers part of your question.

Derek

Sounds like a B minus.

Dave

I gave you a minus F for not answering all my entire question, John Luke.

John Luke

I’ll give him a B.

Derek

Okay. All right. Well, cool. I don’t want to get too far down the road, but I mean, is this the equivalent of Calipari going to the bench and being an assistant coach at Kentucky after? I mean, he’s just sitting there on the end of the bench waiting. It seems odd. Speaking of Kentucky, Dave, I know-

John Luke

I wouldn’t be surprised if Powell leaves soon after this, to be honest. I would say I’d give him six months.

Derek

Yeah. Yeah. I mean, it’s hard to imagine he’s going to stick around too long.

Dave

Yeah. I like-

Derek

Dave, you got anything for us to know for May 2nd in Louisville?

Dave

All right. So here are my picks, my big picks. The Musing is going out today Friday, the day before the Derby. But my picks are going to be… I like Renegade a lot. He’s got the first hole. The first hole is one of the most difficult spots to actually race from because you get blocked in.

And I don’t think there’s been a winner there since 1986, but my winner is going to be The Puma. My second favorite is going to be Renegade. Third favorite is Emerging Markets. It’s not going to just work in the stock market. Emerging Markets are also going to work in the Derby. But if you want a long shot, I think Golden Tempo is probably my horse, but let’s go with The Puma.

But again, disclaimer, in the seven years I’ve done the note on Derby picks, I’ve only been correct once, and that once has an asterisk because I chose correctly with Maximum Security in 2019 who crossed the line first, but was then disqualified. So Country House won at 62 to one odds.

So hopefully we can make it two for eight with The Puma. Run fast, baby.

Derek

Pretty impressive that you threw emerging markets and gold into that mix though.

Dave

I don’t know what happens in my head.

Derek

All right, guys. Thanks for the time.

John Luke:

All right. Thanks guys. Have a good weekend.

Derek

Bye. See y’all.