Spring 2026 Commentary
Market Recap
For the quarter, U.S. stocks fell with the S&P 500 declining –4.3%. International stocks also sank, with the MSCI EAFE sliding –1.2%. Bonds also dipped slightly, with the Bloomberg Barclays Aggregate Bond Index losing –0.1%.
Outlook
The market began the year on positive footing with the S&P 500 rising 1.5% in January. The market stalled in February as tensions began to build between to the U.S. and Iran, with the large cap index falling –0.8% for the month. The market turned sharply negative in March with the abrupt and largely unexpected attack of Iran by the U.S. The sudden military attack caused the S&P 500 to fall by almost 10% from its all‐time high, registered earlier this year. A late rally in the final days of the month brought the March decline to –5.0%. For the quarter, the index fell a total of ‐4.3%. International stocks followed suit, declining ‐1.2% for the quarter, after being up as much as 10% earlier in the year.
*This graph is not intended to recommend any investment or investment activity.
The attack of Iran has not only caused financial markets to decline, it has caused oil prices to spike by more than 80% as WTI Crude Oil rose from about $57 per barrel at the beginning of the year to about $105 per barrel at the end of the quarter. This increase is a result of Iran retaliating to U.S. aggressions by threatening to attack cargo ships traveling through the Strait of Hormuz. This has effectively shut down all traffic through this strategic waterway, cutting off the flow of most of the energy supplies coming out of the Persian Gulf. Strategists are hopeful the conflict will end soon, and oil prices will decline. But the longer the Strait of Hormuz is closed, the more damage there will be to the global economy.
The global energy shock, along with the President’s tariffs imposed on our global trade partners have reignited concerns about inflation. Although the Supreme Court struck down much of President Trump’s “liberation day” tariffs, he has levied new tariffs under different temporary actions. As the chart below shows, the average tariff rate now stands at around 12%, down from the 30% peak a year ago, but still far higher than the pre “liberation day” level of about 4%, and the highest average rate since the 1940’s. As of the last reading in February, inflation was about 2.4%, this is expected to rise in the coming months as higher energy prices work their way through the economy. In the short‐term, inflation is expected to rise. In the longer‐term, strategists are hopeful inflation will drift back down to about 2%.
*Source: JPMorgan. This graph is not intended to recommend any investment or investment activity.
The bond market has also responded to the energy shock with interest rates climbing and bond prices dropping. The yield for the benchmark 10‐year U.S. Treasury has climbed to 4.4% after reaching a low of 4.0% for the year in February. At the beginning of the year, the Federal Reserve was expected to lower interest rates 2‐3 times this year. Now they are expected to hold off on making any rate cuts until after the conflict in Iran has stabilized.
A silver lining for diversified investors during the quarter was a notable change in the market’s leadership. For the past three years, the market has been dominated by a small handful of technology stocks dubbed the “magnificent 7.” For the first quarter of this year, the “mag 7” stocks fell an average of –11%. Meanwhile other, long‐neglected areas of the market, such as value and small‐cap stocks rose with the Russell 1000 Value Index returning 2.1% and the Russell 2000 Index returning 0.9%
Despite many sources of concern and volatility, the market has only suffered modest declines so far. The economy and investor sentiment has remained remarkably resilient in the face of uncertainty about trade policy, war with Iran, and a multitude of policy changes. The hope among investors is that the conflict with Iran will be short‐lived, and that once the situation has stabilized, the market and economy can continue on an upward path.
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