McGowanGroup Wealth Management
Q2 2026 Client Updates
Deep Value Prevails Q1
The McGowanGroup portfolios benefited in Q1 from selections in the “deep value” category. Our investment committee definition of “deep value”: high cash flow at lower prices, relatively low multiples with a positive forward catalyst. For a deeper dive, we have attached Gemini AI’s definition at the end of this update.
Epic Fury began on February 28th. From peak valuations in February, equity markets experienced a decline of approximately 10% and declines overall in Q1.
Index |
Q1 2026 Total Return |
Context/Key Drivers |
S&P 500 |
-4.6% |
Downward pressure from consumer discretionary; Energy sector was a rare bright spot. |
Nasdaq 100 |
-9.1% |
Tech and growth stocks were hit hardest by rising rates and geopolitical uncertainty. |
Dow Jones |
-4.7% |
Blue-chip companies saw mid-single digit declines; oil price volatility impacted industrial sentiment. |
Russell 2000 |
-6.0% |
Small caps lagged as borrowing costs remained elevated and recession fears lingered. |
Energy Infrastructure
Energy was a top performing sector in the first quarter. The S&P 500 energy sector exchange traded fund, XLE was up approximately 36% through 3/31/2026.
Pipelines: Rising dividends and stock buybacks underscore attractive opportunities for investors. Deregulation possibly leads to increased business productivity and profit growth. Currently, the pipelines and export facilities still appear underpriced relative to other sectors. In our estimations, Data Center electricity demand is an obvious choice for natural gas power generation.
Nuclear holdings include profitable companies benefiting from the current build out of increased capacity and data center demand.
The State of the US Economy
The ending numbers for economic growth were above average and exceeded consensus expectations.
The Atlanta Federal Reserve’s Real GDPNow number estimates Q1 2026 Gross Domestic Product (GDP) at 1.9% as April 1st, 2026.
Overvaluation and Potential Solutions For Investors?
While the S&P 500 is near record high valuations based upon earnings, the multiple is high for the largest technology companies and relatively low for the category which we refer to as Deep Value, assets with favorable estimated forward returns when compared to assets at inflated valuations.
The MGWM Investment Committee
Our focus remains building tactical safety while holding great assets at reasonable valuations.
Energy and Artificial Intelligence
The recent rally in U.S. equity indexes was driven, in part, by rapid recovery in Artificial Intelligence (AI) related companies after the correction early in 2025. The AI revolution is already increasing productivity and profitability for many companies, similar the roaring 1990’s PC/Internet driven boom.
Data center expansion is the result of AI demand for processing power. The initial wave of upgrades delivered attractive growth for the AI technology supply chain.
Who is spending money? Current capital expenditures appear unsustainable for many datacenter providers and even some electric utilities. A potential reduction in capital expenditures by AI providers could set the state for potential correction opportunities in 2026.
Who is getting revenue? The resulting increases in electricity demand have led to increased use of natural gas while nuclear power is undergoing a renaissance.
Global High Yield Bond Fund Prices and Floating Rate Loan Funds
In the portfolios we reduced our holdings in high cash flow global lending portfolios honoring a sell discipline in floating rate loan funds. In our managed accounts, we avoid illiquid investments. A crisis unfolding in the illiquid private credit markets could provide better entry points in traditional liquid high yield portfolios later in 2026.
Our Next Steps
The McGowanGroup Investment Committee (IC) meets each Wednesday morning to review and upgrade the model portfolios using an impressive, evolving, research process. Equity market rallies provide investors the opportunity to raise Tactical Safety for future resilience as underperformers are harvested systemically. Pullbacks in market values for equity provide the opportunity to add high cash flow assets at attractive prices.
Our wealth managers and the team remain committed to helping you evolve your financial plan!
New Client Portal, State of the Art Applied Technology
Our performance tracking for clients started in the 1990’s along with customer relations management software. Each designed for relentless pursuit of reliable, superior client profits and excellence in service. We have received great feedback on the new Black Diamond Client Portal including the mobile app. Just call or email if you would like a refreshed link. The past year we devoted the extra resources to upgrade to the state-of-the-art financial software including the document vault. Special recognition: All hail Scary Smart Joyce Cheng for her devotion!
Tax Planning
Good news. Pershing BNY automatically feeds your tax forms to Black Diamond and your CPA is notified as they are added to the document vault. If you have not provided your CPA information or have made a change, please call or email us.
We remain committed to the mission of Superior Client Profits Through Excellence in Service. Thank you for allowing us to serve you and your family!
Spencer McGowan and The Team That Cares,
McGowanGroup Wealth Management
Conversation with Gemini
Investment definition: Deep Value
Gemini said:
Deep value investing is an extreme sub-sector of value investing where an investor seeks out stocks that are trading at a significant discount to their intrinsic value, often characterized by very low valuation multiples or trading near (or below) their liquidation value.
While a standard value investor might look for a “great company at a fair price,” a deep value investor is typically looking for “a troubled company at a basement-level price.”
Key Characteristics
Deep value stocks often share several of the following traits:
-
Extremely Low Multiples: Low Price-to-Earnings, Price-to-Book, or Price-to-Sales ratios compared to the broader market or industry peers.
-
Net-Net Stocks: A classic Benjamin Graham strategy where a company is valued at less than its Net Current Asset Value (Current Assets minus Total Liabilities), essentially meaning the market is valuing the business at less than its cash and liquid assets.
-
Market Pessimism: These companies are usually facing significant headwinds—such as legal issues, declining earnings, or industry disruption—which causes the broader market to “abandon” the stock.
-
High Margin of Safety: The core thesis is that the price is so low that even if the company doesn’t fully recover, the downside is limited because the assets themselves are worth more than the share price.
Deep Value vs. Standard Value
Feature |
Standard Value |
Deep Value |
Company Quality |
Generally healthy, just undervalued. |
Often distressed or “broken.” |
Primary Metric |
Future cash flows / Earnings. |
Asset value / Liquidation value. |
Risk Profile |
Moderate. |
High (potential for “Value Traps”). |
Time Horizon |
Long-term. |
Until a catalyst triggers a re-rating. |
The “Value Trap” Risk
The primary danger in deep value investing is the Value Trap. This occurs when a stock looks cheap on paper but continues to trade at low levels (or goes bankrupt) because its business model is fundamentally flawed or its assets are deteriorating. Without a catalyst—such as a management change, a merger, or a cyclical industry turnaround—a deep value stock can remain “cheap” indefinitely.
Expert Tip: Deep value investing requires a “contrarian” mindset and a very thick skin, as you are often buying exactly what everyone else is selling.
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Headline Round Up!
*This Was the Worst Quarter for Stocks in 4 Years.
*Short Squeeze Spiked by Iran Peace Prospects.
*Mergers and Acquisitions at Record Levels, $1.3 Trillion for The Quarter.
*Buy The Dip: Public AI Will Do It for You!
*The Dollar Spikes.
*Morgan Stanley’s Wilson Says Correction Nearing End.
*TEXAS! North Texas Home Prices Down 1.52% Over Past Year.
*TEXAS! Microsoft in Talks With Chevron for Giant West Texas Power Plant.
*AI Spending Contest: Mistral AI Borrows $830 Million.
*CoreWeave Borrows ANOTHER $8.5 Billion?
*Private Equity Racks Up Another $94 Billion in Debt to Fund Payouts in 2025.
*Private Credit Desperation?
*Ackman Says Fannie and Freddie “Stupidly Cheap.”
*Updates on The Biggest Ever IPO, SpaceX.
*Russian Oil Exports Plunge, Drone Strikes
*$4 Gasoline.
*Europe Inflation Jumps Most Since 2022 on Energy Costs.
*America Now Has an EV Rust Belt.
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Dow Jones Industrial Average ETF (12/31/2025 – 4/2/2026)
– Courtesy of Bloomberg LP
Gasoline Futures (12/31/2025 – 4/2/2026)
– Courtesy of Bloomberg LP
West Texas Intermediate Crude Oil Futures (12/31/2025 – 4/2/2026)
– Courtesy of Bloomberg LP
Recurrent Master Limited Partnership Infrastructure Fund (12/31/2025 – 4/2/2026)
– Courtesy of Bloomberg LP
U.S. Liquid Natural Gas Exports (12/31/2025 – 4/2/2026)
– Courtesy of Bloomberg LP
Standard and Poor’s 500 Top & Bottom Performers (12/31/2025 – 4/2/2026)
– Courtesy of Bloomberg LP
Standard and Poor’s 500 Sector Performance (12/31/2025 – 4/2/2026)
– Courtesy of Bloomberg LP
Consumer Balance Sheet & Debt
– Courtesy of JPMorgan Chase
2026 Federal Budget & Deficit
– Courtesy of JPMorgan Chase
