Perspective

Market Backdrop

2025 marked another strong year for U.S. equities, with domestic broad market equity performance remaining robust. The S&P 500 Index (S&P 500) delivered its third consecutive year of double-digit returns, driven by a combination of solid earnings growth and continued multiple expansion. S&P 500 earnings per share increased 11.4%, while the index’s forward price-to-earnings multiple expanded from 21.5x to 22.4x.

While broad markets remain historically concentrated, with the weight of the top 10 companies in the S&P 500 representing more than 40% of the index’s capitalization, the dispersion in performance between the largest-capitalization stocks and remaining index constituents has moderated. Through November 2025, the 10 largest stocks by market capitalization contributed 55% of the S&P 500’s total return of 17.7%, compared to 62% in 2024. Moderation in return dispersion is also evident across investment style benchmarks, with the Russell 1000 Value Index underperforming its Growth counterpart by approximately 5% through November. By comparison, Growth outpaced Value by 31% and 19% in 2023 and 2024, respectively.

We view this broadening of performance contribution as a sign that markets are beginning to reflect supportive fiscal and monetary policy, which should continue to act as a tailwind for domestic equity performance. On the fiscal side, the One Big Beautiful Bill Act (OBBBA) is expected to support continued S&P 500 earnings growth in 2026. Key corporate tax policies include the permanent extension of the 21% corporate tax rate, full expensing for qualified equipment and R&D costs (retroactive to January 1, 2025), and enhanced bonus depreciation (100% through 2026), among other pro-growth policies. These changes primarily benefit companies by lowering effective tax rates, accelerating deductions, and improving cash flow. As the stimulative effects continue to work through the economy, we expect improved earnings for many U.S.-based businesses. For consumers, the OBBBA extends the 2017 Tax Cuts and Jobs Act, eliminates taxes on overtime and tips, and increases state and local tax deductions. These actions should support continued consumption growth. All told, the Congressional Budget Office estimates OBBBA will add 0.5% on average to annual gross domestic product (GDP) through 2034, with the largest impact seen in 2026 at 0.9%.

 

Monetary policy is also expected to support economic growth in 2026. The U.S. Federal Reserve Board (Fed) has lowered the fed funds rate by 1.75 percentage points over the past 15 months, the fastest pace outside of a recession since the 1980s. Interest rate cuts historically take time to influence business investment decisions. As uncertainty tied to domestic policy actions in 2025 (including “Liberation Day” tariffs) fades, we expect the combined effects of supportive fiscal and monetary policy to underpin economic growth throughout 2026.

Themes to Watch in 2026

Earnings Leadership Broadens Beyond Mega-Caps
With the underlying economic impulse notably positive as we head into 2026, several themes bear close monitoring for their potential impact on domestic equity performance. The first theme, which we feel is directly contributing to the ongoing broadening of equity returns, is the rate of change in corporate earnings growth across market capitalization ranges. Bank of America Corp. estimates small-cap and mid-cap stocks will report greater earnings growth than large-cap stocks throughout 2026, which could serve as a catalyst for broader market participation and reduced reliance on mega-cap stocks. While mega-cap stocks are still expected to grow earnings, there is growing skepticism around the return on investment generated from the massive capital expenditures related to artificial intelligence (AI). We believe this dynamic may limit further multiple expansion for mega-cap technology and communication services stocks from already elevated levels.

The Consumer Under Pressure
Another key theme is the health of the consumer. While the Fed appears increasingly pressured to continue cutting interest rates amid rising unemployment, recent policy decisions have been marked by greater internal disagreement, suggesting a less certain path forward. Despite declines in short-term rates, the 10-year Treasury yield has risen since interest-rate cuts began in September 2024, reflecting market concerns around inflation. Core consumer price index readings have increased each month since April 2025, pointing to persistent inflationary pressures. Sticky inflationary pressures, declining real wage growth, and rising consumer debt levels could act as headwinds to consumption, the largest component of GDP. In addition, just over one year has passed since the end of the “on-ramp” repayment policy for student loans, and J.P. Morgan Chase & Co. reports over 14% of student loans are now delinquent. Elevated housing costs remain another constraint, as higher mortgage rates continue to pressure affordability and limit transaction activity. Taken together, we expect ongoing pressure for the consumers in 2026.

Navigating a Narrow Policy Path
Finally, related to concerns around the consumer, is the prospect that the U.S. economy goes through a period of stagflation. Stagflation is characterized by above-trend inflation alongside slow growth and rising unemployment. At the December 2025 meeting of the Federal Open Market Committee, a majority of both voting and non-voting members highlighted upside risks to unemployment (13 of 19 members) and inflation (12 of 19 members), underscoring stagflation as a key concern heading into 2026. The Fed is faced with the unenviable task of trying to balance its dual mandate (maximum employment and price stability) under conditions where progress on one objective risks exacerbating challenges associated with the other. Further interest rate cuts could keep inflation above the Fed’s long-term 2% target, while holding interest rates steady could push unemployment higher and increase the risk of economic deterioration.

Positioning

An analogy that may be helpful when considering current market risks and opportunities is travel. When planning a trip, much like positioning a portfolio, the mode of transportation matters less than the destination. As Easterly Snow is based in Pittsburgh, January typically brings cold weather. Planning a trip to the Caribbean would require packing for an entirely different climate, even if doing so initially feels uncomfortable. Shorts and sandals may feel out of place in winter, but the destination, not the departure point, must guide preparation.

Similarly, while equity markets have been characterized by elevated valuations, narrow breadth, and returns driven primarily by the “Magnificent Seven” companies and AI-related equities, we believe the environment 18–36 months ahead may look meaningfully different. Accordingly, the Fund’s portfolio is positioned for where we believe markets are heading, rather than where they have been.

The Easterly Snow Long/Short Opportunity Fund’s delta-adjusted net exposure is approximately 70%, with our short positions primarily concentrated in broad market exchange-traded funds.

Our net exposure increased modestly by 3% relative to the end of the third quarter of 2025, reflecting the growing number of opportunities we are identifying outside of mega-cap technology and communication services stocks that have driven the market over the past three years. Our largest sector overweight is energy, where we believe investor sentiment is bottoming. The energy sector currently represents less than 3% of the S&P 500, approaching historical lows. As with commodity-dependent businesses, we believe the cure for low prices is low prices. With that, we expect that ongoing prolonged weakness in commodity prices will ultimately temper concerns around oversupply, which should benefit our overweight position in the energy sector.

We also remain overweight in the materials, health care, and consumer discretionary sectors, each of which have faced near-term concerns that have caused their price-to-earnings (P/E) multiples to contract. We believe these exposures are well positioned for the coming year as earnings recover and investor sentiment improves, creating the potential for multiple expansion alongside earnings growth.

Conclusion

While valuation is often a poor indicator of near-term performance, it provides a strong indicator of longer-term results. Historically, the relationship between the S&P 500’s forward P/E ratio and subsequent five-year annualized returns suggest that, based on current levels, investors should expect minimal returns from the index over the next five years. Conversely, we believe value stocks are extraordinarily inexpensive relative to the market, with the Russell 1000 Value Index trading at nearly a 40% discount to that of the Russell 1000 Growth Index.

We feel our value-oriented approach offers an attractive alternative for investors to maintain their exposure to the market amid elevated valuations and heightened concentration risk within broad-based indices. This framework underpins how we allocate capital across all our strategies, highlighting our preference for investing in fundamentally strong companies facing near-term headwinds that have compressed both earnings and valuation multiples.

We are excited about the opportunity set that exists for active equity managers as we begin 2026. Improving fundamentals for many sectors that have lagged during the mega-cap tech and AI-driven rally present a compelling landscape for investors willing to look beyond broad market indices.

 

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RISKS & DISCLOSURES

Investors should carefully consider the investment objectives, risks, charges and expenses of the Fund. This and other important information about the Fund is contained in the prospectus which should be read carefully before investing. To obtain a prospectus or summary prospectus which contains this and other information, visit funds.easterlyam.com or call Easterly Securities LLC at 888-814-8180. Performance data quoted represents past performance. Past performance is not indicative of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. All results are historical and assume the reinvestment of dividends and capital gains. Performance shown reflects contractual fee waivers. Without such waivers, total returns would be reduced. Please click here to view standardized performance for the Fund.

The Easterly funds are distributed by Easterly Securities LLC, member FINRA/SIPC. Easterly Investment Partners LLC is an affiliate of Easterly Securities LLC. Orange Investment Advisers, LLC and EAB Investment Group, LLC are not affiliated with Easterly Securities LLC.

Easterly Investment Partners LLC is the investment adviser to the Easterly family of mutual funds. Easterly Investments Partners LLC is an SEC registered investment adviser; see Form ADV at www.sec.gov. Registration does not imply and should not be interpreted to imply any particular level of skill or expertise.

Not FDIC Insured–No Bank Guarantee–May Lose Value

IMPORTANT FUND RISK

Short sales involve unlimited loss potential since the market price of securities sold short may continuously increase. Diversification does not assure a profit nor protect against loss in a declining market. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. Mutual fund investing involves risk; principal loss is possible. Investments in smaller companies involve additional risks such as limited liquidity and greater volatility. Investments in foreign securities involve greater volatility and political, economic and currency risks and differences in accounting methods. These risks are greater in emerging markets. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. The Fund may invest in lower-rated and non-rated securities which present a greater risk of loss to principal and interest than higher rated securities. The Fund may invest in other investment companies, and the cost of investing in the Fund will generally be higher than the cost of investing directly in the shares of the mutual funds in which it invests. By investing in the Fund, you will indirectly bear your share of any fees and expenses charged by the underlying funds, in addition to indirectly bearing the principal risks of the funds. The Fund also invests in ETFs. They are subject to additional risks that do not apply to conventional mutual funds, including the risks that the market price of an ETF’s shares may trade at a discount to its net asset value (“NAV”), an active secondary trading market may not develop or be maintained, or trading may be halted by the exchange in which they trade, which may impact the Fund’s ability to sell its shares. The Fund may use options and futures contracts which have the risks of unlimited losses of the underlying holdings due to unanticipated market movements and failure to correctly predict the direction of the securities prices, interest rates and currency exchange rates. This investment may not be suitable for all investors. Small- and Medium-capitalization companies tend to have limited liquidity and greater price volatility than large-capitalization companies. Performance over one year is annualized.

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