INSIGHTS

On March 16, 2026

AAM Viewpoints — Capital Markets: From Mystery to History

While the markets and investors grapple with uncertainty in the markets, the belief that the current level of skepticism is greater than moments in the past is a classic psychological challenge that is omnipresent. History says we minimize the challenges of past resolutions based on the outcome being resolved or we adapted to a new environment. While at the same time, follow similar patterns in defaulting to catastrophic conclusions in the future assuming the current environment contains unknowns that have no historical precedence.

This would be recognized on an individual or external level with a little reflection on history and what transpired. However, with the hindsight bias, everything seems obvious. The issue is this is after the fact and rarely do we dive deep enough into the complexities at the time to draw a lucid comparison to current uncertainties.

One area that reminded me of this is the table provided by Bank of America and annualized returns in four scenarios.
Past performance is not indicative of future results.

When an environment of above GDP growth and earning per share (EPS) growth exists, the returns in the S&P 500 are the lowest compared to the other three scenarios where at least one challenge in the metrics exists. Behavioral Finance rears its head in that we must have some negative to correspond to a discounted market price for above average future opportunity. It also explains why our worry when things are going well often tips the balance to a risk anxiety that almost becomes a self-fulfilling prophecy regarding momentum in market prices.

While we rightfully are concerned with geopolitical uncertainty from escalating Middle East tensions, the anxiety is most evident in the price of oil. The visceral move in oil on a daily basis shows the headlines that dominate short-term positioning. What it also reveals is what we have seen consistently when markets become one sided and a one-way directional trade causes liquidity to be removed and let the exacerbated price move occur with little exposure on the market makers side. We saw this in credit default swaps during the Great Financial Crisis; we see it in FOMO (“fear of missing out”) trades in certain equities and saw it several times in commodities over the last five decades. This exacerbated price moves from lack of a two-sided market during lucid times only corroborates the anxiety of the casual investor that this time is different.

To graphically display the uncertainty, consider the following from Jim Bianco on the history of angst with U.S. economic policy uncertainty over the last 40 years. The largest spikes have occurred in the last six years, which would corroborate why we feel this uncertainty is greater than others. I do think you have to also have a nuanced view of how information is delivered currently relative to previous periods when access was not as easy to access. Social media has helped propel information but also misinformation and this causes increased anxiety.

In the current situation, the oil supply shock has estimates from some going to $200/barrel to others who think it will be short lived. No matter the duration of the oil supply shock, it has always had a negative immediate price move in equity markets. UBS estimates that the average return during oil supply shocks is -4.9% in the S&P 500, -6.4% in the Euro Stoxx 600, -10.40% in the Nikkei and -6.0% in the MSCI Emerging Markets. However, as history has shown, markets rebound. We are seeing similar moves currently and are just in the beginning stages of the oil supply shock.

One way to measure a subjective metric (sentiment) with objective metrics is to look at the Misery Index. This measures two main stressful conditions for households in inflation and unemployment. As one can see, it is well below past spikes and at historically low levels.

With the traditional reaction of the equity markets with an oil supply shock and increased geopolitical tensions, the market valuations have moved to more attractive levels as far as earnings and market prices. This continues to point to our longer-term view that diversification and not purely momentum chasing is more attractive from a risk reward scenario for investors.

Overall, there is still growth in the GDP, real wages are increasing, a stable labor market, above average earnings growth and guidance in earnings moving forward. We continue to believe the best course of action is to stay in the markets, diversify into defined income solutions, broaden international exposure and invest in quality names that are showing elevated growth in earnings. 

CRN: 2026-0305-13289 R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.