Q1 2026 Economic and Market Overview
By Brian Andrew, CFA®, Chief Investment Officer
The first quarter of 2026 was defined by a sharp transition in market leadership and a meaningful increase in macro and geopolitical uncertainty. Entering the year, investors were positioned for a continuation of the disinflationary trend that characterized much of late 2025, with expectations for easing monetary policy (lower interest rates) and continued support for growth-oriented assets. Instead, markets were forced to recalibrate as a war started in the Middle East, energy prices rose sharply, and stock leadership continued to rotate away from many of the prior year’s winners.
Economically, conditions remained mixed. Growth has slowed, though consumer spending shows signs of resilience despite rising energy prices late in the quarter. Labor markets remain firm, though forward-looking indicators began to reflect increased caution from both consumers and businesses. Inflation trends improved across many core categories, but the spike in oil prices reintroduced headline inflation pressures and complicated the Federal Reserve’s next move.
Markets responded by repricing risk. Equity volatility rose as investors reassessed valuations particularly within technology and growth stocks while real assets, cash, and defensive assets outperformed. Energy and commodity-linked assets rallied due to supply constraints tied to the Middle East conflict, while diversification across geographies and asset classes proved valuable as correlations shifted.
From a portfolio perspective, the quarter reinforced a key reality of late-cycle environments: short-term outcomes can diverge sharply from long-term expectations. These conditions highlight the importance of maintaining balance across different investments, emphasizing flexibility and risk management as markets absorb both macroeconomic and geopolitical shocks.
Asset Allocation
While market volatility increased during the quarter, it was notable that performance across asset classes widened significantly. Traditional equity and fixed income benchmarks struggled, while energy-linked assets, cash, and gold delivered positive relative performance. This divergence underscores how geopolitical risk can alter short-term asset behavior and highlights the role of diversified portfolios in navigating complex market environments.
As allocators, we have greater confidence in asset price behavior over longer horizons than short periods. Q1 results underscored how unpredictable near-term outcomes can be: Energy stocks and some commodities led, cash outperformed stocks and bonds.
As discussed on last month’s platform call, geopolitical risk and valuation concerns have influenced investor behavior and, in turn, asset prices driving outcomes that diverge from established trends. Within our portfolios and investment platform, we aim to provide a broad set of exposures, combining traditional and alternative assets to help navigate market complexity across both short and long horizons.
Despite elevated volatility and headline risk, we remain focused on long-term objectives. We will monitor asset prices and take advantage of declining prices where it makes sense.
The rally in stocks after March 31st, is a good reminder why trying to time a war or any geo-political event with consequences doesn’t make sense. Stocks are up 12% this month!
Equity Market Commentary
Equity markets experienced more volatility in the first quarter of 2026, as a pullback in technology stocks and the outbreak of the US-Iran conflict led to selling of stocks during the quarter. Overall, the S&P 500 declined 4.34% in the first quarter, while the internationally focused MSCI ACWI Ex-US Index retreated from an early-year rally to end the quarter up 1.63%, reflecting the relative resilience of non-US markets during the domestic tech rout.
This divergence highlighted both sector-level and regional differences, as U.S. equity performance was disproportionately impacted by technology sector repricing, while international markets benefited from stronger exposure to energy, commodities, and value-oriented sectors.
The quarter marked a clear pivot away from AI-related exuberance toward more cautious positioning. The technology sector declined approximately 9%, driven by increased scrutiny of capital expenditure intensity and questions around the timing of returns on large-scale investments in data centers and AI infrastructure. Investors increasingly demanded near-term cash flow visibility, leading to underperformance across both hardware- and software-oriented segments, even as long-term fundamentals remained intact.
In March, the U.S.–Iran conflict became the dominant market driver. Energy markets responded immediately to disruptions in the Strait of Hormuz, which handles roughly one-fifth of global oil shipments, pushing crude prices above $120 per barrel during the period. The energy sector rallied approximately 37% year-to-date through quarter-end, while higher fuel costs weighed on consumer sentiment and economically sensitive sectors.
Entering the second quarter, risk assets, like stocks have shown improvement, following a temporary ceasefire and renewed diplomatic efforts. The stock market has reminded us how stock price movement can be disconnected from economic and world events.
Source: Standard & Poors, MSCI
Fixed Income
Early-year optimism around disinflation and policy easing supported shorter average maturity bonds, but this backdrop shifted sharply following the escalation of Middle East tensions. Rising energy prices disrupted inflation expectations, forcing markets to rapidly reassess the Federal Reserve’s policy and interest rate path. By quarter-end, the yield curve reflected both elevated inflation risk and uncertainty around growth, with front-end yields rising more rapidly than longer maturities.
Within credit markets (corporate and municipal bonds), fundamentals remain generally healthy. Elevated absolute yields continued to attract demand, while municipals stood out as a relative bright spot due to favorable supply-demand dynamics and tax-sensitive investor flows. The quarter reinforced the importance of managing your bond portfolios average maturity and flexibility, particularly in an environment where macro assumptions can shift quickly due to external shocks.
Alternative Investments
There are investment strategies that do very well when market volatility increases and that was certainly the case during the first quarter. Having investments in hedge funds that benefit from volatility and don’t correlate to the stock market made a difference.
There was a lot of discuss about the private credit market during the first quarter. This is a big market, assets measured in the 100’s of billions of dollars so not all funds are the same. Still, investors were reminded that in some fund structures there is such as thing as a “gate” which may prohibit an investor from getting all the money they’ve requested out of a fund. This illiquidity has a return benefit but also introduces risk. We’ve followed this news closely and will monitor our holdings to ensure we understand what those risks are.
April reminds us that markets and economics can diverge sometimes for longer than investors may understand. This is why trying to time events like the war in Iran are challenging. We believe that if your financial plan and investment portfolio are properly set, you can use events like these to test your resolve and find opportunities to reposition if they become available.
This commentary is provided for informational and educational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. All investing involves risk, including the potential loss of principal. Market and economic conditions are subject to change without notice.
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