2026 started with strong market expectations for economic growth and corporate earnings.
But then Middle East headlines rocked financial and oil markets. Once the conflict subsides, we expect stock prices to recover. The sharp rise in energy prices will not correct as quickly. More expensive oil leads to higher prices for everything, not just gas. This puts pressure on consumer spending, which has been the leading force in economic growth and stock returns.
Markets are reacting to uncertainty. Stock prices adjust not just to what is happening, but also to quickly changing expectations. The S&P 500 Index® finished the first quarter of the year down 4.3%. The tech-heavy Nasdaq 100 declined 6%. However, small-cap and international stocks held up relatively well. Given the backdrop, market resilience was remarkable, as one might normally expect a larger and broader decline. Interest rates moved up sharply as investors reassessed inflation risks and economic growth.
Not because we anticipated global conflict, we made changes to client portfolios at the end of 2025. Last December we took gains from the overvalued tech sector and invested the proceeds into lower-priced market areas including small caps and international stocks. This is one benefit of having a disciplined advisor who will harvest gains and look for opportunities.
If you like, you can read more in our previous quarterly commentary.
As of this writing, markets are expecting an end to hostilities soon, though this can change quickly. Once conditions do stabilize, we expect a gradual return to normal market dynamics, including more investment beyond the tech sector.
Our clients benefit from having cash for near-term spending, distanced from market risks. With that foundation in place, you can have peace, even when markets are scary. If this resonates with you, we’re always here to have a conversation.
