Q1 2026 Market Recap and Economic Overview

The first quarter of 2026 began with strong momentum but ended with increased uncertainty and market turbulence. Economic growth held up and inflation remained near target, yet shifting risk tolerance and geopolitical developments introduced new pressures. By March, markets reflected a more cautious tone as investors reassessed expectations.

Oil Prices and Geopolitical Developments

A defining development this quarter was the rise in crude oil prices, which moved above $100 per barrel by mid-March. This increase followed the United States’ armed conflict with Iran, beginning February 28, which disrupted tanker traffic through the Strait of Hormuz. As the conflict progressed through March, uncertainty around its duration remained, with indications that resolution could come through either negotiation or continued escalation.

Shifting Expectations for Federal Reserve Policy

The Federal Reserve held its policy rate steady at 3.50–3.75% during both its January and March meetings. While this was expected, market expectations for future rate cuts shifted notably. Entering the year, markets anticipated steady cuts throughout 2026, but by March those expectations had been scaled back as inflation remained persistent and economic conditions showed resilience.

Rising oil prices added further complexity, potentially keeping inflation elevated and delaying any policy easing. As a result, the current environment continues to support income from cash and high-quality bonds, while offering limited support for equity valuations.

Equity Markets Reprice Risk

Equity markets transitioned away from the valuation-driven gains that defined much of 2025. Investors increasingly focused on earnings quality, favoring companies with strong balance sheets and consistent performance. More speculative and rate-sensitive areas of the market experienced pullbacks.

By the end of Q1 2026, major indices reflected this shift:

• The S&P 500 declined 4.63%
• The Nasdaq 100 fell 5.98%
• The Dow Jones Industrial Average slipped 3.58%

Economic Conditions Show Mixed Signals

The U.S. economy entered the year on solid footing, supported by healthy household finances and a strong January jobs report that exceeded expectations. However, conditions evolved as the quarter progressed. Consumer sentiment weakened, hiring plans slowed, and February’s labor report showed a loss of approximately 90,000 jobs.

Despite these developments, wage growth remained positive, suggesting a gradual cooling rather than a sharp deterioration in economic activity.

Looking Ahead to the Second Quarter

The coming months will provide additional clarity through key data releases, including PPI, CPI, and labor market reports. The Federal Reserve is also scheduled to meet on April 28–29 and June 16–17, with markets currently expecting no rate change at the April meeting.

While the longer-term effects of the conflict in Iran remain uncertain, markets are already reflecting its near-term impact, which may continue if conditions persist.

This quarter highlighted the importance of diversification and disciplined risk management as market conditions evolved. For personalized guidance and support, don't hesitate to reach out to review your portfolio and discuss strategies aligned with your goals.