HUGHES INVESTMENT ADVISORY SERVICES LLC
Quarterly Market Letter
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April 1, 2026
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Dear Clients and Investors,
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In the first quarter most asset classes were modestly lower. Here is how major asset classes did in Q1 2026:
Fidelity Balanced Fund Index (Stock/Bond mix): - 1.4%
IVV - S&P 500 Equity Index: - 3.8%
RSP - S&P 500 Equal Market Cap Weight Index: + 0.0%
EFA - Europe, Australasian and Far Eastern Equity markets: + 1.6%
AGG - I-Shares US Investment Grade Bond Index: - 1.0%
GLD - Gold: + 9.0%
FBTC - Fidelity Bitcoin Index ETF: - 24.0%
Predicted ’26 Revised ‘26
GDP Growth 3.5% 2.0%
S&P 500 Earnings $310 $310
Core PCE Inflation 3.2% 3.6%
S&P 500 Return 12% 10%
Federal Funds Rate 2.5% 2.5%
So where do we stand as we head into Q2 2026? Our first mini-Black Swan event - the war in Iran - is having far-ranging economic consequences. The World’s oil supply has been significantly disrupted resulting in higher energy and commodity prices. This makes it more expensive for businesses to operate and for people to heat their homes and fuel their automobiles. Increased energy costs will force consumers to forgo purchases of discretionary goods to focus on essential items.
These effects probably reduced the nation’s GDP growth in the just finished first quarter. This follows the sluggish performance in the final three months of 2025, when last fall’s federal government shutdown caused GDP growth to slow to an estimated rate of just 0.7%. For these reasons I have reduced my GDP growth estimate for 2026.
Recent events and economic concerns raise the possibility of stagflation once again. This happens when stagnant economic growth occurs along with elevated inflation and unemployment levels. Producer and consumer inflation is still running well above the central banks 2% target. These higher inflation levels do not yet reflect the impact of the Iran war and significantly higher energy prices currently pulsing through the economy. The labor market remains resilient and is therefore currently less of a concern for the Fed which reduces the likelihood that the Fed will need to cut interest rates for this reason.
First-quarter earnings season will begin soon. I still expect excellent profit growth of 15% for 2026. This would mark the sixth consecutive quarter of double-digit earnings growth. I will be looking to our company’s upcoming earnings calls for guidance on their outlook for the remainder of 2026.
Estimates are that 8-12% of the world’s oil supplies have been taken offline by the Hormuz closure. A prolonged decline of this magnitude in year over year global oil consumption all but guarantees a global recession. Oil reserves are being released from all sources, but a continued closure will spell certain trouble for the world and US economies if nothing changes in the next 2 weeks.
As of Wednesday April 1st, the S&P 500 had pulled back 9.1% (i.e., just under a 10% correction) from its all-time peak on January 27, 2026. The markets are now clearly and correctly laser focused on the Iran war situation and fluctuating based on the day’s news. The news flow is concerning. Wall Street is trying to determine if this “correction” is over or a more severe economic drop is in store. I’m uncertain as to which it will be since it’s impossible to know how long the Hormuz Straight will remain closed and hostilities in the Middle East will continue. I will be monitoring this closely.
What if the Straight remains closed? I’m preparing for this possibility while watching for a resolution as well. Unfortunately, war in Iran, the closure of the Hormuz Straight and their effects is having serious negative consequences for the World economies and financial markets.
Another correlated concern is Treasury Secretary Bessent’s “3 Arrows” Plan. What is this Plan again?
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Cutting the federal budget deficit to GDP from 6% to 3% - currently not possible with the war expenses, tariff refunds and now potential economic slowdown with related loss of tax income.
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Grow the economy by 3% - currently not possible with higher energy prices, last quarters government shutdown plus war uncertainty all slowing GDP growth.
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Producing an additional 3 million barrels of domestic oil production – partially on track thanks to high levels of domestic production rates.
The delay in the “3 Arrows” plan means a delay in getting US Government finances back on stable ground. Therefore, my January prediction of Stagflation and a policy of “Financial Repression” by Washington is still very much in the cards. Below is a brief description of “Financial Repression “and the reasons for its potential utilization.
What is Financial Repression? Where the Federal Reserve and Executive branch work together to artificially hold short term rates lower than the inflation rate would normally dictate. The Administration has not used these words, financial repression, however their actions and President Trump’s open attempts at persuading the Federal Reserve to lower interest rates has not gone unnoticed. I expect lower short-term rates to become policy once Chairman-Elect Warsh is confirmed to replace current Chairman Jerome Powell.
Some features of Financial Repression are:
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Caps on short term interest rates - to keep government borrowing costs low.
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Capital controls – limits on moving money across borders.
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Forced lending - banks may be required to hold government bonds via stablecoins perhaps.
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Heavy Regulation - of banks and financial institutions.
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Inflation – which erodes the real value of the 40Trillion in current debt.
Why use Financial Repression?
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It makes it easier for the government to repay high levels of debt.
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It can stimulate economic growth by keeping borrowing cheap.
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It’s an alternative to more painful measures like raising taxes and cutting spending.
Why is the inflation number so critically important? Normally, the Federal Reserve would raise interest rates with inflation running closer to 3% well above the 2% target. However, due to the enormous US debt, which is +/- $40 trillion, interest costs are equaling 25% of the annual budget expenditures, which is $1 trillion annually. There’s only one policy answer available to address this problem which I have written about here throughout 2025/26 – Financial Repression.
Primary reasons for optimism in Q2 and 2026 include:
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Continued strong corporate earnings. First-quarter earnings season will begin soon. I still expect excellent profit growth of 15% for 2026. This would mark the sixth consecutive quarter of double-digit earnings growth.
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A strong labor market as recently evidenced by Friday’s Nonfarm payrolls which rose a seasonally adjusted 178,000 in March much stronger than expectations.
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The unemployment rate dropped to 4.3%.
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The possibility for a swift resolution to the war with Iran which could end swiftly under the right circumstances.
Overall, we continue to favor high-quality, large-cap, dividend paying, US based multi-national companies with strong balance sheets. We love businesses with irreplaceable brand names, wide moats, high margins, grow their dividends, and have modest debt. Risk/reward favors equities over fixed income. We continue to favor gold and other commodities. T-Bills, Real Estate/REIT’s, MLP’s, and specialized bond/income funds look good as income producers. I believe that our portfolios are well positioned to produce consistently attractive long-term risk adjusted returns while preserving capital. We will remain vigilant, assume little, and continue to follow the investment guidelines that we know, through experience, work in the medium to long-term. Producing consistent returns with less risk than the typical 60/40 portfolio. Please do not hesitate to give me a call to discuss the above analysis.
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Sincerely,
J. Britt Hughes
Investment Advisor Representative
Bay Colony Advisors
britthughes@hiasllc.com
www.hiasllc.com
203-209-4797
Investment advisory services offered by Bay Colony Advisors, a registered investment advisor, doing business as Hughes Investment Advisory Services LLC. No Advice may be rendered by Bay Colony Advisors d/b/a Hughes Investment Advisory Services LLC unless a client service agreement is in place. Bay Colony Advisors does not provide accounting, tax, or legal advice. No part of this newsletter should be considered investment advice. If your financial circumstances have changed,
you should contact your investment advisor representative. Principal Office: 86 Baker Avenue Extension, Suite 310, Concord, MA 01742.
Phone: 978-369-7200.