1st Quarter 2026 Market Review

1Q26 Market Performance

• The US equity market posted negative returns for the quarter and underperformed both non-US developed markets and emerging markets. Value outperformed growth. Small caps outperformed large caps.
• US REIT indices outperformed equity market indices.
• Short-term and long-term interest rates generally increased during the quarter. The yield on the 10-Year US Treasury Note increased 0.12% to 4.30%.
• The Bloomberg Commodity Total Return Index returned +24.41% for the first quarter of 2026.

Economic Commentary

The first quarter of 2026 opened with strong momentum but ended with a noticeable shift in tone. Markets began the year on solid footing—growth was holding up, inflation was near target, and January delivered strong economic data. But by March, rising geopolitical tensions and a sudden spike in oil prices pushed investors toward caution. What started as a continuation of 2025’s optimism turned into a quarter defined by uncertainty and a reassessment of risk.

Major U.S. Stock Indices

• S&P 500: –4.63%
• Nasdaq 100: –5.98%
• Dow Jones Industrial Average: –3.58%

The Economy: Still Growing, But Showing Strain

The U.S. economy entered 2026 in relatively good shape. Household finances were stable, and January’s jobs report nearly doubled expectations. But as the quarter progressed, the data softened. Consumer sentiment slipped, hiring plans slowed, and February brought an unexpected loss of roughly 90,000 jobs. Wage growth remained positive, suggesting a cooling—not collapsing—labor market.

The Federal Reserve: Holding Steady for Now

The Fed held rates steady at 3.50%–3.75% at both its January and March meetings. What changed was the outlook. Markets began the year anticipating several rate cuts, but by March those expectations had largely disappeared as inflation remained stubborn and rising oil prices added fresh pressure.

Rising oil prices further tightened the Fed's constraints. With energy costs threatening to keep inflation elevated, rate cuts could be delayed well into the year. The practical takeaway: don't count on falling rates to do the heavy lifting. Policy is likely to remain restrictive — supportive of income from cash and quality bonds, but offering little tailwind for equity valuations.

Oil and Geopolitics: The Quarter’s Wild Card

The biggest surprise of Q1 was the rapid rise in oil prices. Crude surged above $100 per barrel after the conflict between the United States and Iran escalated on February 28, disrupting tanker traffic through the Strait of Hormuz—a key global shipping route.

The conflict continued through March, and while President Trump has expressed interest in ending the war, the timeline remains uncertain. For markets, the immediate impact has been higher energy prices and increased volatility.

For clients, the message is simple: Geopolitical shocks can move markets in the short term, but they rarely change long-term financial plans.

Looking Ahead to Q2 2026

• Monthly inflation and labor reports (CPI, PPI, jobs data)
• Two Federal Reserve meetings: April 28–29 and June 16–17
• Market expectations currently point to no rate change in April

The longer-term effects of the conflict in Iran remain unclear, but the short-term pressures—especially on energy prices—are likely to continue.

The focus remains on staying disciplined. Diversification, quality holdings, and a long-term perspective continue to be the most reliable tools in navigating periods like this.