The first quarter of 2026 presented a series of unexpected developments, most notably the United States' engagement with Iran, which led to the closure of the Strait of Hormuz. This geopolitical event triggered a significant surge in West Texas Intermediate (WTI) oil prices, pushing them above $100 per barrel. This unexpected turn of events contributed to a decline in equity prices as the quarter concluded. By the end of March, the Mott Capital Thematic Growth strategy finished down 10.88%, inclusive of dividends and net of fees. In comparison, the S&P 500 total return index experienced a decrease of 4.33%, also including dividends. It was a quarter of poor performance for the strategy.
The biggest detractor from the quarterly performance came in February, when earnings reports from key healthcare companies, including Boston Scientific (NYSE: BSX), Unitedhealth (NYSE: UNH), and Grail (NASDAQ: GRAL), caused their stocks to fall sharply. These disappointments led to a much deeper and sharper decline in the portfolio's holdings compared to the broader S&P 500 index. Concurrently, a strategic shift towards the healthcare sector and a reduction in exposure to software and technology stocks did not yield the anticipated positive impact.
Despite the initial setbacks, UnitedHealth has since recovered all the losses incurred during the first quarter. However, Boston Scientific reported another weak earnings quarter, causing its stock price to fall further. This prompted an exit from the position. Given the sizable gains in Amazon (NASDAQ: AMZN), a portion of that position was trimmed following its significant upward movement. A meaningful stake in Amazon is still maintained, but the reduction served to offset some of the gains against losses in Boston Scientific for tax purposes. The proceeds from this adjustment, along with a portion of the available cash, were reinvested into a new position in Intuit, the maker of QuickBooks and TurboTax. Intuit's stock had experienced a considerable decline, making its valuation more attractive. Over time, the company is also anticipated to benefit from advancements in artificial intelligence.
Grail's stock also faced significant weakness in the first quarter. The company's top-line data from its cancer screening test failed to meet its primary endpoint of detecting more cancer in stages 1 and 2. While the study did not meet this specific endpoint, it did identify more cancer in stage 3, which implies a reduced number of cases progressing to stage 4. The core objective of the test is early cancer detection, when treatment is typically more effective. Grail plans to present additional data from this topline readout at an upcoming cancer conference. With additional clarity on the data, the stock has the potential for a rebound. Conviction in the stock and its underlying technology remains strong.
Additionally, significant weakness was observed across several technology-related stocks, including Shopify (NASDAQ: SHOP) and Microsoft (NASDAQ: MSFT). While healthcare stocks were expected to counterbalance some of this weakness, they did not perform as anticipated. It was simply one of those quarters where nothing seemed to go the strategy's way. As the chart indicates, many of these stocks have shown some improvement since March through May 1, but there is still a lot of work to be done, and there will undoubtedly be some reshuffling within the portfolio.
As the second quarter progresses, the S&P 500 has reached new highs. However, a familiar pattern of narrow market leadership, predominantly concentrated in mega-cap companies, is re-emerging, similar to characteristics observed at the end of 2025. With oil prices experiencing a sharp ascent and inflation showing signs of re-acceleration, a critical question arises: will global central banks shift from an easing cycle back towards tightening monetary policy? Alternatively, will elevated oil prices ultimately curtail global output and precipitate an economic recession?
Under typical market conditions, this assessment would be relatively straightforward. However, persistent war-related headlines and daily market fluctuations have amplified volatility, leading to larger and more frequent price swings. That said, at some point, oil supply and demand are likely to fall out of balance, and when that happens, prices will move higher. If demand exceeds supply, expectations regarding a near-term resolution to the conflict will become less influential.
Given the volatility in oil and the rapid rise in Occidental Petroleum (NYSE: OXY), a decision was made to secure some gains and reduce the position to 5% from approximately 8%. In today's market, gains can be erased quickly, and the strategy aims to avoid such rapid reversals. The first quarter presented many challenges, both expected and unexpected. It remains unclear how the conflict will evolve, and as a result, oil prices and broader markets are likely to remain highly volatile in the near term. The S&P 500 index ended above 7,400 for the first time, but gains were capped by a diplomatic setback related to Iran. The U.S. 500 index closed at 7,388.60, down 24.3 points, or 0.33%. The Dow Jones Industrial Average rose 95.31 points, or 0.19%, to 49,704.47. The Nasdaq Composite gained 27.05 points, or 0.10%, to 26,274.13. The S&P 500 VIX, a measure of market volatility, increased by 3.05% to 18.94. The Dollar Index rose 0.333 points, or 0.34%, to 98.157. Crude Oil WTI Futures saw a significant increase of 3.10%, closing at $101.11 per barrel, with a gain of $3.04. Brent Oil Futures also climbed 2.82%, settling at $107.15 per barrel, up $2.94. Natural Gas Futures edged up 0.45%, closing at $2.923 per unit, a gain of $0.013. Gold Futures declined by 0.40%, settling at $4,710.01 per ounce, down $18.69. Silver Futures dropped 1.31%, closing at $84.82 per ounce, a loss of $1.128. Copper Futures increased by 0.51%, settling at $6.4933 per pound, up $0.0328. U.S. Soybeans Futures saw a modest gain of 0.10%, closing at $1,214.25 per bushel, up $1.25. The U.S. 10-year Treasury yield increased by 0.36% to 4.429%. The U.S. 30-year Treasury yield rose 0.28% to 5.001%. The U.S. 5-year Treasury yield climbed 0.52% to 4.09%. The U.S. 3-month Treasury yield increased by 0.35% to 3.707%. U.S. 10Y T-Note Futures decreased by 0.10% to 110.30. Euro Bund Futures fell 0.26% to 124.87. The 10-to-2 Year Yield Spread widened by 15.27% to 31.32. In terms of individual stock movements, Apple (AAPL) closed at $292.68, down 0.22%. Nvidia (NVDA) gained 1.97% to $219.44. Google (GOOGL) fell 3.03% to $388.64. Tesla (TSLA) rose 3.89% to $445.00. Amazon (AMZN) declined 1.35% to $268.99. Netflix (NFLX) dropped 2.33% to $85.45. Meta Platforms (META) decreased 1.77% to $598.86. Intel (INTC) was up 3.62% to $129.44. Micron Technology (MU) surged 6.50% to $795.33. Advanced Micro Devices (AMD) gained 0.79% to $458.79. Microsoft (MSFT) was down 0.59% to $412.66. Western Digital (WDC) rose 7.46% to $515.83. Seagate Technology (STX) gained 6.56% to $834.01. Corning Incorporated (GLW) jumped 10.94% to $207.39. Qualcomm (QCOM) increased 8.42% to $237.53. CF Industries (CF) rose 8.22% to $124.48. Fox Corporation (FOX) gained 8.09% to $61.18. Fox Corporation Class A (FOXA) was up 7.59% to $67.72. Barrick Gold Corporation (ABX) was down 1.31% to $84.82. Freeport-McMoRan Inc. (FCX) was down 1.31% to $84.82. United States Steel Corporation (X) was down 5.23% to $33.52. Citigroup Inc. (C) was down 7.64% to $104.63. Zoetis Inc. (ZTS) fell 7.44% to $76.67. Shopify Inc. (SHOP) dropped 7.13% to $102.54. Intuitive Surgical Inc. (ISRG) declined 6.67% to $420.06. Target Corporation (TGT) was down 5.44% to $118.44. Super Micro Computer Inc. (SMCI) fell 5.23% to $33.52. ConocoPhillips (CTRA) was down 8.62% to $32.56. The S&P 500 has reached new highs in the second quarter, but market leadership remains narrow, concentrated in mega-cap companies, a trend reminiscent of late 2025. With oil prices surging and inflation showing signs of re-acceleration, a key question is whether central banks will shift from easing to tightening monetary policy, or if higher oil prices will reduce global output and trigger a recession. The conflict in the Middle East and daily market swings have amplified volatility, leading to larger and more frequent price movements. At some point, oil supply and demand are expected to fall out of balance, pushing prices higher. If demand outstrips supply, expectations of a near-term end to the conflict will diminish in importance. Given the oil market's volatility and Occidental Petroleum's rapid rise, a decision was made to reduce the position to 5% from approximately 8% to lock in gains and avoid rapid reversals. The first quarter presented numerous challenges, both anticipated and unforeseen. The evolving nature of the conflict remains uncertain, suggesting that oil prices and broader market dynamics will likely experience continued high volatility in the near term.
