Summary

• The end of the “one-way AI trade”, private credit crunch and Middle East war gave investors a lot to think about.
• Equities dropped, pulled down by large software constituents, compounded by surge in oil prices and reigniting inflation concerns, shuttering rate cut hopes and weighing on all cyclicals.
• The US economy moderated, with labour cooling and inflation uneven.
• Sector: Energy led by a wide margin on higher oil prices, with materials and defensives also outperforming, while technology and communication services lagged as AI monetisation concerns and rising rate expectations pressured long-duration growth, with consumer discretionary weaker on softer expected demand.
• Country: Korea and Taiwan led on semiconductor strength, while Germany and France lagged amid Europe’s energy shock, with China stabilising on exports despite weak domestic demand.
• Factor: Value led, supported by strength in energy and materials and limited exposure to software rout, while Low volatility benefited from defensive rotation.

Factor families

Exhibit 1: Q1 2026 Investable factor proxies versus respective capitalization weighted indexes

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Source: SEI, based on data from MSCI, Axioma and FactSet. Data as of March 31, 2026. Returns quoted in USD. Metrics are composites of underlying ratios that SEI has determined to be appropriate measures of each factor. Data refers to past performance of top-tercile factor-proxy portfolios vs. the capitalisation-weighted benchmark and rebalanced quarterly. Returns are for illustrative purposes only and do not represent actual fund performance. Excess returns measured against (in descending order): MSCI ACWI Large Cap, MSCI USA Large Cap, MSCI EAFE Large Cap, MSCI EM Large Cap, MSCI USA Small Cap, MSCI EAFE Small Cap Indexes. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance is no guarantee of future results.

Outlook 

Emphasizing Value family of factors based on:

• Wide valuation spread.
• Higher long-term interest rates (vs long-term average).

Over the quarter we have:

• Trimmed overweight to value.
• Reduced underweight to quality and low vol on the back of deteriorating economic indicators and reduced valuation.

Exhibit 2: Q1 2026 Adaptive positioning

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Source: SEI, the axis displays z-score exposure versus benchmark, as of March 31, 2026. Long term average exposure from January 31, 2003, to current. Benchmark: MSCI World Index.

Z-scores tell us how exposed a portfolio is to a factor, compared to a benchmark, based on what's normal for that factor. It is a common "currency" of portfolio exposures, making unrelated raw metrics like P/E or ROE comparable to each other.

A value of zero means the portfolio is neutral to the benchmark for that factor.

Higher values mean the portfolio has more exposure to that factor than the benchmark.

Economic indicators 

US.: Growth moderating as labour softens and inflation remains uneven

Jobs: cooling with weaker payrolls

• Nonfarm Payrolls: at -92K, well below expectations and prior quarter.
• Unemployment Rate: 4.4%, in line with expectations and prior quarter.
• Initial Jobless Claims: 212.31K quarterly average, below previous quarter average of 222.80K.

Inflation: Uneven, with persistent core pressure

• Core CPI: 2.5% (YoY), in line with expectations and marginally below prior quarter.
• Core PCE Deflator: 3.1% (YoY), in line with expectations but above prior quarter.
• Hourly Earnings (preliminary): 3.8% (YoY), marginally above expectations and prior quarter.

Consumer: Spending soft; sentiment stabilising

• Retail Sales: -0.2% (MoM, SA), below expectations and prior quarter.
• Michigan Sentiment (preliminary): 55.5, in line with expectations and above prior quarter.
• Consumer Confidence: 91.8, above expectations and prior quarter.

Manufacturing and Services: Expansion holds. with some softening

• Markit PMI Manufacturing SA (preliminary): 52.4, above with expectations and prior quarter.
• Markit PMI Services, SA (preliminary): 51.1, below expectations and prior quarter.
• Empire State Index, SA: -0.2, below expectations and prior quarter.

The rest of the world 

China: Activity strengthening, led by exports

• Exports: 21.8% (YoY), well above expectations and prior readings.
• PMI manufacturing: 52.1, above expectations prior quarter.
• PMI services: 56.7, above expectations and prior quarter.
• CPI: 1.3% (YoY), above expectations and prior quarter.

Japan: Inflation easing, services driving activity`

• CPI Core National: 1.3% (YoY) below prior quarter.
• Manufacturing PMI (preliminary): 51.4 below prior quarter.
• Services PMI: 53.8 above prior quarter.

Germany: Inflation cooling, activity stabilising

• CPI EU Harmonized: 2.0% (YoY), in line with expectations and below prior quarter.
• Markit Manufacturing PMI: 50.9, in line with expectations and above prior quarter.
• Markit Services PMI: 53.53, in line with expectations and prior quarter.

U.K.: Inflation sticky, activity holding up

• CPI EU Harmonized: 3.0% (YoY), in line with expectations and below prior quarter.
• Markit Manufacturing PMI: 51.7, in line with expectations and above prior quarter.
• Markit Services PMI: 53.9, in line with expectations and above prior quarter

Source: SEI, MSCI. As of March 31, 2026. Past performance is not a reliable indicator of future results.

Glossary and index definitions

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