Investors should consider Meritage Homes (MTH) as a high-conviction long-term play while it trades near 90% of tangible book value (approximately $74), supported by an expected 11% share buyback by year-end. Monitor the 10-year Treasury yield closely, as a breach of the 4.5% threshold serves as a critical sell signal for the broader market and homebuilders. Avoid traditional software stocks like Adobe (ADBE) and ServiceNow (NOW), as AI disruption threatens their core seat-based pricing models and historical valuation multiples. Exercise extreme caution with Private Credit and Business Development Companies (BDCs) like Blue Owl (OWL) and Carlyle (CG), which are currently facing severe liquidity crunches and capped investor redemptions. While Occidental Petroleum (OXY) and Valero (VLO) offer a hedge against geopolitical conflict, investors should be prepared to exit these positions immediately upon any permanent ceasefire in the Middle East.

Market Overview: Q1 2026 Recap

The first quarter of 2026 was characterized by extreme volatility driven by geopolitical conflict in Iran, the rapid evolution of AI, and systemic stress in private markets. The S&P 500 closed the quarter down 4%, while the NASDAQ fell 7%.

Key Themes

• Interest Rate Sensitivity: The 10-year Treasury yield reached 4.4%. Eisman identifies 4.5% as a critical "boundary"; if breached, it typically triggers a significant market sell-off.
• The "Volatility Laundering" of Private Equity: Eisman argues that Private Equity (PE) has grown to $9 trillion partly because it provides "smoother" returns by not marking assets to market daily. He calls this "volatility laundering," noting that the underlying assets are just as volatile as public markets.
• AI Disruption: AI is no longer just a growth story; it is now viewed as a threat to the subscription models of established software companies.

Software & Information Technology (Infotech)

The Infotech sector was down 9% in Q1. For the first time in decades, Price-to-Earnings (P/E) multiples for software stocks are lower than the market multiple.

• Adobe (ADBE) & ServiceNow (NOW): Both stocks were "obliterated," falling 31% and 32% respectively during the quarter.
• The AI Threat: The traditional SaaS (Software as a Service) model relies on growing "seats" and increasing prices. AI threatens both by potentially replacing human "seats" with automated agents and making software generation so cheap that pricing power evaporates.
• Private Equity Exposure: PE firms went on a "buying binge" of software companies between 2018–2022. Eisman believes these transactions are now "underwater by a lot."

Takeaways

• Valuation Reset: Software multiples have been cut in half. While the group has been "humbled," the long-term viability of the seat-based pricing model remains a major risk.
• Employment Warning: Monitor the "AI layoff" trend. Companies like Block, Intel (24,000 layoffs), and UPS (48,000 layoffs) are cited as early indicators of AI-driven white-collar displacement.

Private Credit & Alternative Asset Managers

Private Credit is identified as the area where "all the risk is buried." The sector is facing a liquidity crunch as redemption requests spike.

• Blue Owl (OWL):
  • Flagship fund (OCIC) saw redemption requests of 21.9%.
  • Tech-oriented fund (OTIC) saw requests of 41%.
  • Redemptions were capped at 5%, leaving investors unable to exit.
• Carlyle (CG): Their tactical credit fund (CTAC) saw 16% redemption notices, also capped at 5%.
• Blackstone (BX) & Goldman Sachs (GS): In a counter-trend, Blackstone closed a $10B opportunistic credit fund, and Goldman lined up $10B for direct lending.

Takeaways

• Widening Spreads: As fear enters the debt markets, credit spreads are widening. This makes future loans more lucrative for those with fresh capital (like Blackstone), even as existing funds struggle.
• Negative Outlook: Moody’s has moved the outlook for the entire Business Development Company (BDC) industry to negative.

Energy Sector

Energy was the top performer in Q1, up 37%, driven entirely by the conflict in Iran and the closure of the Strait of Hormuz.

• Occidental Petroleum (OXY): Up 58% in Q1.
• Valero (VLO): Up 52% in Q1.

Takeaways

• Geopolitical Hedge: The sector trades strictly on war headlines. A permanent ceasefire would likely cause a "precipitous" decline in these stocks.
• Market Weight: Despite its massive impact on inflation, Energy only makes up 4% of the S&P 500.

Managed Healthcare

The sector was down 5% in Q1 due to rising costs and unfavorable government pricing for Medicare Advantage.

• UnitedHealth Group (UNH): Down 18% in Q1.
• Centene (CNC): Down 20% in Q1.
• Humana (HUM): Down 32% in Q1.

Takeaways

• Pricing Relief: The government recently revised 2027 Medicare Advantage pricing from 0.09% to 2.5%. While not "great," it provided a relief rally (UNH up 10% on the news).
• Short Covering: Much of the recent bounce in healthcare is attributed to hedge funds covering short positions rather than a fundamental recovery.

Homebuilders: Meritage Homes (MTH)

Eisman addressed a viewer question regarding his previous recommendation of Meritage Homes.

• Valuation: The stock is currently trading at 90% of tangible book value (roughly $74).
• Buybacks: The company is expected to buy back at least 11% of its shares by year-end.

Takeaways

• Bullish Long-Term: Eisman continues to own the stock, stating that buying a well-run builder at or below tangible book value is a winning long-term strategy.
• Interest Rate Risk: If the 10-year yield continues to climb above 4.4%–4.5%, the stock will likely continue to underperform regardless of company fundamentals.