The first quarter of 2026 is a strong reminder of why preparation is so important in financial planning and investing. After solid gains in 2025, markets faced a mix of geopolitical events, rising oil prices, and fresh economic uncertainty. The conflict in Iran, which started at the end of February, quickly became the biggest market story of the quarter. It pushed oil prices much higher and triggered the first notable market decline of the year. By the end of March, however, reports of a possible ceasefire began to surface, and the situation continues to develop.
Looking at the bigger picture, markets have still performed very well over the past twelve months. Different parts of the market, including energy stocks and more defensive sectors (those that tend to hold up better during uncertain times), helped support investment portfolios. In the months ahead, there will be new questions for investors to consider, including a change in leadership at the Federal Reserve (the U.S. central bank) and the midterm elections later this year.
For long-term investors, the first quarter is a useful reminder that markets rarely go up in a straight line, and that the basics of sound investing matter most when things feel uncertain.
Key Market and Economic Highlights
• The S&P 500 (a broad measure of large U.S. company stocks) had a total return of -4.3% in Q1, the Nasdaq (technology-heavy index) returned -7.0%, and the Dow Jones Industrial Average returned -3.2%.
• The Bloomberg U.S. Aggregate Bond Index (a measure of the broad U.S. bond market) was flat for the first quarter of 2026. The 10-year Treasury yield (the interest rate on a key U.S. government bond) ended the quarter at 4.3%, after falling as low as 3.9% at the end of February.
• International stocks in developed markets (MSCI EAFE) were down -1.1% and emerging market stocks (MSCI EM) declined -0.1% over the quarter, both measured in U.S. dollar terms.
• Oil prices rose sharply, with Brent crude (a global oil benchmark) reaching $118 per barrel at the end of March, up from under $61 at the start of the year. WTI (a U.S. oil benchmark) ended the quarter at $101 per barrel.
• Gold ended the quarter at $4,668 per ounce after reaching as high as $5,417 in January. The U.S. Dollar Index (DXY), which measures the strength of the dollar against other currencies, strengthened slightly to 99.96.
• February inflation data showed headline CPI (Consumer Price Index, a measure of everyday prices) rising 2.4% year-over-year and core CPI (which excludes food and energy) climbing 2.5%. The core PCE price index, which is the Federal Reserve’s preferred inflation measure, rose 3.1% year-over-year in January.
• The Federal Reserve kept interest rates unchanged in a range of 3.50% to 3.75% at both of its meetings during the first quarter.
Markets saw their first pullback of the year
It is natural to compare the start of 2026 with the beginning of 2025, since both were shaped by global concerns. Interestingly, both first quarters saw the S&P 500 decline by exactly 4.3%. Last year’s turbulence was caused by tariffs (fees charged on imported goods), while this year’s is linked to conflict in the Middle East. In both cases, the impact on investor confidence was similar. When uncertainty increases, it is natural for markets to swing up and down in reaction to news headlines.
The past does not guarantee future results, but looking back can help us understand how markets have typically behaved. Despite the rough start to 2025, stocks went on to post strong gains for the rest of the year, with major indexes reaching dozens of record highs. The point is not that markets always bounce back quickly, but that market conversations often focus on the negative. When recoveries do happen, they frequently catch investors off guard.
Perhaps the most useful way to think about this is to recognize that market pullbacks — periods when prices fall from a recent high — are a normal and unavoidable part of investing. Since 1980, the S&P 500 has seen an average decline of around 15% at some point within each year, even though markets have ended higher in more than two-thirds of those years. In a typical year, investors can expect four or five drops of five percent or more. Last year saw six such drops, and yet the S&P 500 still finished the year with an 18% total return.
For investors, the key message is that short-term market swings — especially those driven by news headlines — are simply part of the normal market cycle. Portfolios built around long-term financial goals are specifically designed to handle these kinds of periods. This perspective may be especially important as the midterm elections approach and concerns about government spending return later in the year.
Geopolitics and oil prices are the biggest sources of uncertainty
The most significant market event of the first quarter was the escalating conflict in the Middle East, which sent oil prices sharply higher. Disruptions to the Strait of Hormuz — a narrow waterway that carries roughly 20% of the world’s oil supply from the Persian Gulf to global markets — led major oil-producing countries in the region to cut their output. As a result, Brent crude ended the quarter at $118 per barrel, more than 94% higher than the start of the year, while WTI crude surpassed $100 per barrel — the highest levels since the conflict in Ukraine began in 2022. Oil prices will likely continue to react to developments in the region, including any news about a possible ceasefire.
Higher energy costs hit consumers directly through higher gasoline prices, and indirectly by raising the cost of goods and services throughout the economy. The national average price of gasoline reached $4 per gallon at the end of March, and diesel prices have also risen significantly.
While these kinds of events do affect household budgets, economists generally view these “supply-side shocks” (sudden disruptions to the supply of a key resource) as temporary when considering the overall health of the economy. This is because oil prices tend to stabilize once the geopolitical situation calms down. This was seen in 2022, when gas prices hit $5 before falling within a matter of months. While certainly unwelcome, current gasoline prices are not expected to cause serious financial hardship for the average American household.
History also shows that geopolitical events, while unsettling in the short term, have generally not derailed markets over the long run. This includes the U.S. operation in Venezuela in January, which surprised markets but had little lasting effect on investments. While the current situation is still unfolding and the human consequences are significant, investors who made major changes to their portfolios in response to past events often did so at the wrong time.
Economic growth is slowing but still positive
Swings in energy prices are just one part of a broader economic picture. Other signs suggest that the economy has slowed compared to recent years but remains fundamentally healthy — even after many years in which economists and investors predicted recessions (periods of significant economic decline) that never arrived.
One of the most closely watched areas is the job market. The latest data show that the U.S. economy added 92,000 fewer jobs in February, and the unemployment rate (the share of people looking for work who cannot find it) rose slightly to 4.4%. Notably, the number of people looking for jobs now exceeds the number of open positions for the first time in years. As recently as 2022, there were two job openings for every unemployed person, reflecting a very tight labor market. That balance has now shifted.
Context is important here. Fewer people are entering the workforce due to lower immigration and an aging population. In other words, both the supply of workers and the demand for workers are cooling at the same time, which has helped keep the unemployment rate near historically low levels. Investors pay close attention to jobs data because employment directly affects household income, consumer confidence, and spending. Consumer spending — what households buy — makes up more than two-thirds of the overall U.S. economy (GDP), and it has remained stronger than many expected over recent quarters.
Different sectors of the market are performing very differently
While the overall S&P 500 has pulled back, performance across different sectors (groups of companies in similar industries) has varied widely. In fact, six of the eleven S&P 500 sectors are positive for the year so far, and the gap between the best and worst performing sectors grew to nearly 50 percentage points in the first quarter.
The Energy sector has been the clear standout, gaining nearly 40% through the end of March, as higher oil prices are expected to boost company revenues and attract new investment. Other sectors showing strength include Consumer Staples (everyday household products), Utilities (electricity and water companies), Materials (raw materials producers), and Industrials (manufacturing and infrastructure companies). Many of these are considered “defensive” sectors because they represent more stable businesses with reliable cash flows that are less tied to swings in the broader economy.
On the other hand, the Information Technology sector has declined approximately 9%, and many of the large technology companies that make up the Magnificent 7 have underperformed. This is a shift from recent years, when a small group of large technology firms drove the majority of market gains.
As always, it helps to keep these moves in perspective. As the chart above shows, sector leadership changes based on market and economic conditions. Energy was the top-performing sector in 2021 and 2022 when technology stocks struggled, and then that dynamic reversed over the following three years. Just as with different types of investments, it is very difficult to predict which sector will lead or fall behind in any given year. This is why a well-diversified portfolio — one that is spread across many sectors — is better positioned to handle different market environments.
The trade policy picture continues to shift
Trade policy also shifted at the end of January after the Supreme Court ruled 6-3 that broad tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unlawful. In response, the administration put in place a temporary global import duty under a different law — Section 122 of the Trade Act of 1974. The administration also launched new Section 301 trade investigations in March, while around a dozen Section 232 investigations are still underway.
For investors, the key takeaway is that while the legal foundation for tariffs has changed, the overall direction of trade policy is likely to continue. Tariffs will probably keep affecting the economy through consumer prices, business costs, and investor confidence. That said, last year showed that markets are capable of adjusting to these kinds of policy changes over time. Regardless of how the tariff story develops later this year, the most important thing for investors is to stay invested and avoid overreacting to policy changes.
The bottom line? The first quarter of 2026 has tested investors with geopolitical shocks, higher oil prices, and economic uncertainty. Yet markets have shown resilience, with well-balanced portfolios and financial plans doing exactly what they were designed to do. Investors should continue to stay focused on their long-term goals in the months ahead.
We are an independent financial services firm helping individuals create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives.
Advisory services offered through EGSI Investment Management, Inc., a Registered Investment Advisor with the State of Ohio. Insurance services offered through EGSI Financial, Inc.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. None of the information contained on this website shall constitute an offer to sell or solicit any offer to buy a security or any insurance product.
Any references to protection benefits, safety, security, or steady and lifetime income streams on this website refer only to fixed insurance products. They do not refer, in any way, to securities or investment advisory products. Annuity guarantees are backed by the financial strength and claimspaying ability of the issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by insurance company. Annuities are not FDIC insured.
The information and opinions contained in any of the material requested from this website are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. They are given for informational purposes only and are not a solicitation to buy or sell any of the products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.
