2026 First Quarter Overall Themes:
- Volatility Returned
After a strong 2025, geopolitical tensions have inserted volatility into the markets throughout the first quarter. This uncertainty has made it increasingly difficult for businesses to plan and forecast with confidence. Investors are experiencing this through swings in the market.
- Inflation Concerns Resurfaced
Markets have adjusted to anticipate interest rates remaining higher for longer. This shift has been largely driven by rising energy prices and persistent inflationary pressures.
- Economic Strength
Despite recent turbulence, the fundamentals of the U.S. economy remain strong. Much of the market volatility appears to be driven by uncertainty and external factors rather than weakening corporate performance.
Equity Markets
- Broad Indices Declined
Major indices ended the quarter lower, with the S&P 500 down 4.6%, the Dow Jones down 3.6%, and the NASDAQ declining 8.0%.
- Earnings Remain Strong
Despite the pullback in the first quarter, companies continue to be profitable. Year-over-Year earnings continue to grow, demonstrating strength in many businesses.
- Sector Changes Emerged
Energy, industrials, and materials outperformed expectations, largely due to constraints tied to ongoing geopolitical conflicts.
Fixed Income
- Bloomberg Bond Index
The Bloomberg Bond Index (0.0%) remained flat throughout the first quarter of the year. This provides some downside protection for investors and reflects a relatively stable bond environment.
- Treasury Yields moved Higher
The Federal Reserve outlook shifted from cutting rates to a more cautious, inflation-focused stance. Treasury yields moved higher anticipating delayed rate-cut expectations.
What This Means for Investors
- Volatility is temporary. Historically, a 5%-10% decline occurs about once every 12 months. Investors often do the most damage to their portfolios by reacting emotionally. Remember those who get hurt on a roller coaster are the ones who get off during the ride.
- Minimize your exposure to news outlets during times of market volatility. Media outlets are incentivized to capture attention, often using fear driven headlines that can lead to emotional decision making.
- Continue to spread out the risk you are taking. Having exposure to different types of investments can help smooth out some of the turbulence in the market.
- If possible, consider delaying large withdrawals from investment accounts during downturns. Using cash reserves or alternative savings can help preserve long-term investment growth while markets recover.