To The Moon

As we wrap up the first quarter of 2026, the markets have delivered a more sobering story than many expected after the strong momentum of 2025. The “easy money” environment has clearly shifted, and while underlying strengths remain—particularly in certain pockets of the economy—the path forward feels noticeably choppier amid ongoing geopolitical tensions in the Middle East, tariff uncertainties, and growing scrutiny around AI’s path to real monetization.

Q1 Recap: Resilience TestedJanuary brought its share of volatility, driven by tariff headlines and fresh geopolitical concerns. The S&P 500 ended the quarter in slightly negative territory—down roughly 4-5% overall—rather than posting the modest gains some early commentary had hoped for. That said, there were encouraging signs beneath the surface: participation started to broaden beyond the mega-cap names. Equal-weighted indices and selected mid-caps showed moments of life, even as the so-called Mag 7 continued to shoulder much of the index’s weight.In Singapore, the picture was brighter. The Straits Times Index (STI) stood out as a clear performer, crossing the 5,000 mark for the first time in February (reaching intraday highs above 5,020) and marking a new all-time high. Local banks—DBS, OCBC, and UOB—played a leading role, alongside what felt like a genuine “catch-up” trade. International capital appeared to seek shelter in Singapore’s stable, high-dividend environment while global uncertainty lingered. Policy support, including the government’s S$3.9 billion allocation under the Equity Market Development Programme (EQDP), has provided a helpful tailwind.

Outlook for 2026 Year-End TargetsAnalysts remain generally constructive, though expectations have been tempered compared with last year’s more aggressive calls.For the S&P 500, valuations are no longer cheap. The forward P/E sits in the low-to-mid 21x range (with some measures closer to 22-23x), meaning sustained gains will need to come primarily from earnings delivery rather than further multiple expansion. Consensus points to Q1 earnings growth around 12.5% year-over-year, with AI-related infrastructure continuing to drive optimism.On the STI, a year-end target of around 5,400 (as highlighted by UOB Kay Hian) looks reasonable. It is supported by the index’s attractive dividend yield (in the 4-4.5% area) and the ongoing effects of the EQDP initiative aimed at breathing fresh life into the local market. More bullish voices, such as JPMorgan, have floated scenarios as high as 6,000–6,500 under optimistic conditions.Where I’m Focusing: Quality and ResilienceAfter watching the tape this quarter, my conviction has grown that 2026 will reward profitable growth over raw growth stories. This isn’t the year to chase hype.Sectors worth leaning into:Energy and Commodities: Gold has been a standout hedge, trading well above $4,300/oz and at times nearing $4,500+ in recent sessions. Oil has swung sharply on Middle East developments, reinforcing its role as both an opportunity and a volatility source.

Singapore Financials (DBS, OCBC, UOB): These remain the anchors of many local portfolios. They continue to benefit from a relatively stable interest rate backdrop and disciplined capital management.

Data Center and AI Infrastructure: The build-out phase is far from over. I’m more comfortable owning the “plumbing”—utilities, industrials, and hyperscale real estate—than pure-play speculative names.

Areas to approach with caution:Consumer Discretionary: There’s a clear divide in spending patterns. Lower-income households are feeling the lingering effects of inflation, which is pressuring retailers and travel-related stocks that lack strong pricing power.

Pure speculative or pre-revenue tech: Without clear paths to profitability, these names face a tougher environment as the market becomes less forgiving of froth.

A Practical Barbell ApproachThe volatility in Q1 reminded me how important it is to have defensive options ready when headlines intensify.I’ve been building positions in high-quality dividend growth companies—those with a history of maintaining or growing payouts even in tougher times. In Singapore, suburban retail REITs and industrial names like ST Engineering fit this profile well.A 5-15% allocation to gold and precious metals no longer feels extreme; it has become a sensible portfolio stabilizer against currency swings and trade disruptions.Short-to-medium term bonds, with yields stabilizing around the 4.1% level, finally offer a reasonable cushion while waiting for better equity entry points.My Personal TakeAfter reviewing the numbers and reflecting on the quarter, I’ve come to a simple conclusion: this is increasingly a stock-picker’s market. Blindly buying the index worked beautifully in 2025’s momentum-driven phase, but 2026 demands more discipline—tight spreadsheets, careful sector allocation, and the willingness to trim winners from last year to fund higher-quality or more defensive holdings.I’m not predicting doom, far from it. The underlying earnings momentum (especially in AI infrastructure) and Singapore’s policy support provide real foundations. But patience and selectivity will matter more than ever.What are your thoughts on the shift we’re seeing? Have you been adjusting your own allocations as we head into the second quarter? I’d be interested to hear where you’re finding opportunities—or shelter—in this environment.