In our quarterly Economic & Market Update Newsletter, we separate the relevant from the noise, to bring you timely content that helps you on the path to and through retirement!
1st Quarter 2026 Commentary
Stock Market Update
The first quarter of 2026 is now in the books, and it was a very eventful one. U.S. markets started off relatively strong, with the Dow Jones up as much as 5% in early February, and the S&P 500 and Nasdaq also in positive territory.
The tech-heavy Nasdaq was the first index to show weakness in February and fell into correction territory (a drop of 10% or more) by late March. This was not surprising given the strong run in technology stocks over the past several years and high valuations in the sector. The S&P 500 remained modestly higher for the year heading into March, but the Iran conflict quickly shifted market sentiment.
After the escalation of the Iran conflict and a sharp increase in oil prices, the Dow and the S&P 500 suffered their worst quarterly results in nearly four years, falling 3.6% and 4.6%, respectively.
Bond Market Update
The bond market also felt pressure as rising oil prices revived inflation concerns and pushed yields higher. The U.S. Aggregate Bond Index ended the quarter up just 0.04%. While higher yields benefit new investments, they reduce the value of existing bonds. Even so, both stocks and bonds have remained relatively stable since the Iran conflict began, suggesting investors expect it to be short-lived.
Geopolitical Impact
Geopolitical tensions are adding uncertainty to the path of interest rates and straining an economy already facing high valuations, a softening labor market, a housing slowdown, and persistent inflation. If the conflict drags on, markets could remain vulnerable. Offsetting this, a resilient consumer and continued AI-driven investment may help support continued growth, especially if the conflict resolves quickly.
Looking Ahead
As for how we’re navigating the current environment with clients, we continue to favor a diversified approach in stock portfolios, emphasizing value and dividend-paying stocks over higher-growth names.
While the current environment is challenging, it is a good time to re-evaluate your stock exposure and any concentrated holdings. We’ve been working diligently with clients over the last year to identify overexposed and risky areas of portfolios and reduce exposure where appropriate, especially as valuations have grown increasingly stretched. It’s easy to become complacent after several years of strong growth, but one of the benefits of increased market volatility is that it can identify weaknesses in portfolios that should be addressed.
Within fixed income, we are leaning toward short and intermediate-term bonds, which are less sensitive to rising interest rates, while also incorporating inflation-hedge strategies like Treasury Inflation-Protected Securities (TIPS). More conservative fixed income options like CDs also remain attractive for investors, offering stability and FDIC-insured principal protection.
Bottom Line:
Markets are going through a period of heightened volatility driven by geopolitical uncertainty and rising energy prices. But this is not unusual in the context of long-term investing, so consider re-evaluating your risk appetite where appropriate, and focus on what you can control.
