Despite entering 2026 with a constructive backdrop for markets – resilient growth, strong corporate earnings, and easing inflation expectations – the first quarter of 2026 served as a reminder that geopolitical events, such as the current conflict in Iran, can temporarily drive market performance. The S&P 500 Index® posted a -4.3% return for the quarter, only the third negative quarterly return for the Index since 2022.
A closer look at S&P 500 Index® performance highlights a notable shift in market leadership. Large cap growth stocks (Russell 1000 Growth Index®) suffered a -9.8% return as AI-driven disruption fears drove weakness, in addition to conflict-related uncertainty. In contrast, other segments of the market delivered positive results: large cap value stocks (Russell 1000 Value Index®) gained +2.1% and small cap stocks (Russell 2000 Index®) advanced +0.9%.
International indices also delivered negative returns. Developed markets (MSCI EAFE) and emerging markets (MSCI EM) posted declines of -1.1% and -0.1%, respectively, yet continued their recent trend of outperformance vs the S&P 500 Index®.
Fixed income returns were muted or slightly negative, ranging from +0.9% for short term Treasury Bills to -0.5% for the High Yield Bond Index. With the uncertain outlook, policy makers appear to be on hold for rate cuts in the near term.
The situation in Iran remains fluid as markets navigate this period of uncertainty with caution. While headlines have been unsettling, the broader economy remains on solid footing. The key risk to global capital markets largely revolves around the potential for a prolonged conflict to push inflation higher.
Historically, investors have been rewarded for maintaining a long-term perspective through periods of geopolitically driven volatility. Markets typically look past conflicts before they are fully resolved, setting the stage for improved performance as visibility increases.
To close, we are reminded of the importance of preparation over prediction. As Howard Marks, co-founder and co-chairman of Oaktree Capital Management, aptly notes:
“You can’t predict, but you can prepare.”
For more detail, please click on this link: Q1 2026 Review & Outlook. And, please click here for your individual performance report or set up a call. We look forward to connecting with you soon.
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