March Madness 2026

It’s that time of year again: March Madness is underway. If your bracket is still intact, enjoy it while it lasts. March Madness can humble even the most confident “bracketologists.” For many of us in North Carolina, injuries to two Calebs — one a superstar for UNC, the other the starting point guard for #1 overall seed Duke — tempered our expectations before the first tip-off. Yet, one cannot lose hope! As the legendary Tennessee basketball coach Pat Summitt often said, “Believe you can, and you’re halfway there.”

Investors are navigating a different kind of madness this month — and it’s a bewildering economic environment I admittedly haven’t seen before. My summary to clients typically sounds something like this:

• Corporate profits are slated to grow 13% this year — a strong historical predictor of stock prices;
• The One Big Beautiful Bill Act (OBBBA) is poised to inject significant fiscal stimulus into the economy;
• U.S. tariff policy remains chaotic, creating both headwinds and potential recalibration ahead;
• AI capital expenditures are carrying the economy, while AI displacement punishes entire industries;
• Crude oil prices spiked ~55% in recent weeks;
• Private credit market stress appears to be building;
• U.S. job growth is virtually non-existent.

A Game of Two Halves

What’s an investor to make of these mixed signals? The labor market data is particularly striking. Corporate profit growth is soaring while the labor market has collapsed.

Since the start of 2025, the U.S. economy has produced an average 11,000 jobs per month — a sharp drop from solid monthly gains of 122,000 in 2024 and 210,000 in 2023. One explanation is that a reduction in the undocumented workforce has mechanically lowered payroll counts. But the broader data complicates that story. If the cause were simply fewer workers in the labor pool, we’d expect unemployment to fall and labor participation to rise (fewer people competing for the same jobs). Instead we’re seeing the opposite: unemployment is rising and participation is at its lowest level since 2021. That looks more like weak demand than a supply issue.

Anecdotally, I’ve mentored students at Duke and UNC for over a decade. I can tell you those enrolled today struggle to find jobs in ways earlier cohorts didn’t. A March 13th Bloomberg headline said it well: “For Young New York Job Hunters, Entry-Level Roles are Vanishing.” AI is part of the headwind, but I’d wager a softening labor market is the larger factor.

These labor market signals look all the more puzzling against the backdrop of corporate profit growth. S&P 500 earnings are forecast to grow 13% this year, well above the 30-year average of approximately 8%.

More corporate profits with fewer jobs sounds a lot like rising productivity to me, and the data bear that out. U.S. productivity grew at an annual rate of 2.8% in Q4 2024, modestly ahead of the 2.2% 30-year average. That’s an encouraging sign, likely aided by AI. Historically, productivity gains lead to increases in corporate profits, higher wages, gross domestic product (GDP) growth, and ultimately more employment. The risk is that this cycle proves different, and AI-driven gains lead to large-scale job losses. We’d hate to see an economy where AI boosts corporate profits and productivity in the short-term, while eroding the long-term health of the U.S. by replacing many young workers with AI bots.

Boxed Out

In a typical environment, a weakening labor market would prompt the Federal Reserve to cut rates in an attempt to boost demand. But inflation complicates that calculus. In January, the Federal Reserve’s preferred inflation gauge — the Personal Consumption Expenditure (PCE) Core Index — rose to 3.1%, a far cry from their 2.0%-2.5% target. In recent weeks, geopolitical tensions have dramatically impacted global oil prices. One month ago, a barrel of West Texas Intermediate (WTI) crude oil traded at $63. As of this writing, that same barrel costs $98 (and had peaked as high as $120), forcing consumers to absorb the impact of ~50% higher oil prices on top of already-rising costs.

Gatorade for the Economy

Again, though, what makes this economic environment so befuddling is the extent of both “bad” and “good” news. The “good” news side of the ledger is meaningful. For instance, the One Big Beautiful Bill Act (OBBBA) is projected to provide approximately $285 billion in stimulus this year, with $150 billion going to individuals and $135 billion to corporations. Defense spending related to the Iran conflict, estimated at $1–$1.5 billion per day, is likely to require a substantial supplemental spending package in the near term. Historically, wartime government expenditures have tended to support equity markets. But much like Gatorade, we’re not sure this stimulus is particularly healthy for an overly indebted economy that’s been reliant on sugar for too long.

Cheers and Groans

Like a back and forth hoops thriller, the torrent of daily news flow keeps us oscillating between cheers and groans. For instance:

• A federal court ruled the International Emergency Economic Powers Act (IEEPA) tariffs unconstitutional.
• They were replaced almost immediately by Section 122 tariffs at 10%, with 15% floated as an alternative.
• Public credit markets have remained stable despite recent market volatility, providing easy access to capital for large companies.
• Stress in the private credit markets appears poised to tighten financing conditions for many small and medium-sized companies.

There’s plenty of madness this March, and it’s not all in the brackets. We’re navigating a genuinely unique landscape – one with an unpredictable mix of high-stakes technology bets, fiscal stimulus, and geopolitical shocks. Headline earnings growth numbers look quite impressive, and we do believe AI will be a structural leap forward in innovation, but the weakening labor market and rising U.S. debt levels are among a growing list of items that concern us.

One Shining Moment

In this season of “bracket busters,” we choose to use quality investments, diversification and prudent asset allocation as our protection against busted portfolios. We hope your favorite team advances in the brackets and that the U.S. expansion continues chugging along. But it’s that time of year — upsets happen, so one must be prepared for the unexpected. We welcome your questions or comments.

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_{All market data is sourced from Bloomberg unless otherwise stated. The commentary is for informational purposes only and the opinions expressed herein are those solely of Hamilton Point. Hamilton Point reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. There is no assurance that any securities or strategies discussed herein will be included in or excluded from a client portfolio. It should not be assumed that any of the securities, strategies or internal studies discussed were or will prove to be profitable or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein. An investment in our strategies is subject to investment risk, including but not limited to, the loss of principal and may not be suitable for all investors. This is not a recommendation to buy or sell any particular security and should not be considered financial advice. Past performance is not indicative of future results. A full description of Hamilton Point and its investment strategies and advisory fees can be found in Hamilton Point’s Form ADV Part 2 and CRS which are available upon request or at the Investment Adviser Public Disclosure website. Hamilton Point is an investment adviser registered with the U.S. Securities and Exchange Commission, though such registration does not imply a certain level of skill or training. Hamilton Point’s principal place of business is in the State of North Carolina. HP-26-18}