A Monster’s Ball
As Trust Company’s longtime Chief Investment Officer, Dan Tolomay likes to say, “volatility travels in packs.” While March saw many investors white-knuckling their way through the month as prices declined sharply with the outset of hostilities in the Middle East, fortunes turned sharply positive in April. Rightly or wrongly, markets began to anticipate a relatively favorable resolution to the Iran conflict, or at least one that would not dramatically impair corporate earnings growth, with major indices posting powerful rallies.
Global stocks were up more than 10% for the month of April, more than erasing what had been modest losses for the year. Domestic stocks, and tech stocks in particular, both of which had been taking a beating in 2026, rallied hard. The S&P 500 returned 10.5% for the month, and the tech-heavy NASDAQ turned in a monster return of 15.3%. U.S. stocks still lag international stocks YTD, but it was a powerful rally indeed.
French/Fama Fiesta
Since I’m writing this on Cinco de Mayo, I will take the liberty of describing what has been happening this year among adherents to the French/Fama school of investing as a fiesta. For those readers who are not complete and total investing nerds, Ken French and Gene Fama are giants in the world of investment academia and pioneered some of the concepts that are the bedrock of modern investment theory, including the once-novel notion that there is a relationship between risk and investment returns. (Gene Fama won the Nobel Prize for his work.)
French and Fama demonstrated that investment returns were, in the long run, a function of risk exposure, and that returns would be heavily influenced, again over the long term, by exposure to certain factors. Their research showed that investors seeking to optimize portfolio performance should favor these factors, including a healthy dollop of “value” stocks as opposed to “growth” stocks, favoring smaller companies instead of larger companies, and favoring more profitable companies. There’s more to the strategy than just this, but this is the philosophical underpinning of the French/Fama investment model, and it’s at the cornerstone of how we allocate capital.
It’s important to remember that this is just a model; there are lots of reasons why stocks and bonds go where they go. They can’t always be explained in the near term. Moreover, on a day-to-day basis, the model does not always look like it is working; it is a long-term strategy for long-term investors.
But it is working right now.
After all the investor adulation and some amazing performance in recent years of the large-cap growth, especially as it relates to the Magnificent Seven and a few other tech high-fliers with exposure to AI, the factors championed by French/Fama nerds are having their heyday so far in 2026. Value factor working? The Russell 3000 Value index returned 10.6% through the end of April, while its growth counterpart had returned only 1.5% (despite a double-digit recovery last month). Small-cap factor? The Russell 2000 is up 13.3% through April 30 vs. the large-cap Russell 1000’s 5.5% (and still quite respectable) return. Looking across the full spectrum, small-cap value (up 15.0%) is the best-performing broad domestic equity asset class, while large-cap growth, up 1.5%, is at the other end of the spectrum. Meanwhile, international stocks, which have long been considered more attractive from a pure valuation perspective than their U.S. counterparts, have also performed well in 2026, despite challenging fundamentals in many overseas economies owing to the closure of the Strait of Hormuz.
Major Equity Indices
“Fiesta Forever?”
We all know that nothing lasts forever, but we can think of a few reasons why these factors are outperforming in this market environment. First, equity valuations had become so stretched, particularly among the largest companies, that it was becoming increasingly difficult to make the case that even the best companies with the best growth prospects were not aggressively priced. That set the stage for the rotation away from the Magnificent Seven and into less expensive parts of the market. (Again, tech had a wonderful month in April, so fortunes can change quickly). Second, the longer the Iran conflict endures, the greater the impact on global economic growth. For shares priced for dramatic future growth, the odds have become longer. Third, value indices tend to include lots of energy-related stocks, which have benefited from the rise in energy prices.
In the meantime, we are pleased to be French/Fama nerds, and we are enjoying these margaritas that the market has been serving. We thank you for your continued trust in us.
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For more information, please reach out to:
Burke Koonce III
Chief Investment Strategist
bkoonce@trustcompanyofthesouth.com
Daniel L. Tolomay, CFA
Chief Investment Officer
dtolomay@trustcompanyofthesouth.com
This communication is for informational purposes only and should not be used for any other purpose, as it does not constitute a recommendation or solicitation of the purchase or sale of any security or of any investment services. Some information referenced in this memo is generated by independent, third parties that are believed but not guaranteed to be reliable. Opinions expressed herein are subject to change without notice. These materials are not intended to be tax or legal advice, and readers are encouraged to consult with their own legal, tax, and investment advisors before implementing any financial strategy.
