Market Update: First Quarter of 2026

Hello everyone, and welcome to our Q1 2026 Market Update! Markets started the year with optimism, but the first quarter ended as one of the weakest for U.S. stocks in four years. Pullbacks like this are a normal part of investing and a reminder to stay focused on the long term.

What Made Q1 2026 Stand Out?

Here is a quick look at what shaped the first quarter:

• US/Iran conflict: Tensions in late February pushed oil prices up about 70 percent, shaking the markets. 
• Tech and AI pullback: Investors became more cautious about high tech and AI stock prices, leading to declines in the S&P 500. 
• Small and mid-cap stocks held up: Smaller companies performed better than large tech stocks and even showed gains. 
• Energy stocks surged: Energy companies were the standout, rising roughly 38 percent thanks to higher oil prices. 
• Strong corporate earnings: S&P 500 companies are expected to report about 13.2 percent growth compared with a year ago, showing profits remain strong. 

Overall, the market shifted from last year’s excitement about tech and AI to a focus on energy, smaller companies, and steady corporate profits.

Q1 Performance Snapshot

US Stocks

• S&P 500 -4.4 percent
• Nasdaq Composite -7.1 percent
• S&P MidCap 400 +3 percent
• S&P SmallCap 600 +4 percent
• Energy Sector +38 percent

Fixed Income
U.S. Aggregate Bond Index +0.05 percent, essentially flat as yields moved modestly higher
10-Year Treasury Yield 4.32 percent, rose by approximately 15 basis points

Looking Ahead to Q2 and Beyond

While the first quarter was challenging, there are several reasons for cautious optimism:

• The Fed is on hold: After holding rates steady in March, most investors now expect the Federal Reserve to remain patient and avoid rate cuts until inflation trends are clearer. 
• Tech valuations normalized: The pullback in large-cap tech has brought the S&P 500 forward P/E closer to historical averages, which could support steadier performance. 
• Earnings remain strong: Corporate profits continue to grow at double-digit rates, which can help buoy the market even during volatility. 
• History suggests patience pays: Years that begin with a weak Q1 often rebound strongly by year-end. 2025 is the most recent example.

Key Takeaways

• Diversification showed its value this quarter. Investors holding energy stocks, small caps, and defensive sectors like utilities and consumer staples fared far better than those concentrated in large-cap tech 
• Bonds provided stability. Even with rising yields, the bond market held relatively steady, a reminder that fixed income plays an important role in balancing a portfolio during equity volatility 
• Short-term declines are normal. A 4 to 5 percent quarterly pullback happens roughly three times per year on average. The bull market that began in October 2022 remains intact with the S&P 500 still substantially higher than its prior trough 

As always, we continue to focus on balance and long-term planning. Markets will continue to surprise us in the short run, that is simply the nature of investing. What matters most is staying disciplined, staying diversified, and keeping perspective. We are here to help you do just that.

[Video Thumbnail Image Description: There is a cutout of a man in a suit smiling at the camera. He has brown hair, a goatee, and is wearing glasses. The background shows a red-tinted stock market graph with numbers in various of places. There are rectangular boxes on the bottom right which are in red and white. Text reads: “Quarterly Marketing Insights, Q1 2026, With Jeremiah Thompson.”]