Quick Summary: The first quarter of 2026 began with strong momentum but ended with increased uncertainty. Economic growth held up and inflation stayed near target, yet labor data softened and oil prices surged amid geopolitical conflict. Markets shifted from valuation-driven gains to a focus on earnings quality, while expectations for rate cuts were scaled back.
Oil Prices and Geopolitical Tensions
The defining surprise of the quarter was crude oil rising above $100 per barrel by mid-March. This move followed the United States’ armed conflict with Iran, which began on February 28 and disrupted tanker traffic through the Strait of Hormuz, a key global supply route.
The conflict continued through March. President Trump has indicated a willingness to end the war through either negotiations or force, but the timing and outcome remain uncertain.
Equity Markets Shift Direction
Equity markets changed character over the quarter. Early gains extended 2025’s momentum, with major indices reaching or nearing record highs, supported by AI enthusiasm and strong technology valuations. As the quarter progressed, markets became more selective.
Companies with durable earnings and strong balance sheets were rewarded, while speculative growth names saw increased skepticism. Sentiment shifted from optimistic to cautious, with growth- and rate-sensitive sectors correcting and energy and real assets moving into focus.
By the end of Q1 2026, the major indices reflected this transition:
- The S&P 500 declined 4.63%
- The Nasdaq 100 fell 5.98%
- The Dow Jones Industrial Average dropped 3.58%
Economic Conditions: Strength with Signs of Cooling
The U.S. economy entered the year in solid condition. Household finances remained stable, and January’s jobs report came in at nearly twice expectations, indicating strong early momentum.
As the quarter continued, conditions shifted. Consumer sentiment weakened, hiring plans slowed, and February’s jobs report showed a loss of approximately 90,000 positions. Wage growth remained positive, suggesting a gradual cool down rather than a sharp deterioration.
Federal Reserve Holds Steady
The Federal Reserve maintained its policy rate at 3.50–3.75% during both its January and March meetings. While this was expected, market expectations around future rate cuts changed over the quarter.
At the start of the year, markets anticipated steady rate cuts throughout 2026. By March, those expectations had been reduced as the economy showed resilience and inflation remained somewhat elevated. Rising oil prices added further pressure, potentially delaying any policy easing.
The takeaway is that policy may remain restrictive, supporting income from cash and high-quality bonds while providing limited support for equity valuations.
What to Watch in Q2 2026
The second quarter will bring key data releases, including PPI, CPI, and labor market reports, offering additional insight into the economy’s direction. 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.
The longer-term effects of the conflict with Iran are still uncertain, though short-term market impacts are already being felt and may persist as the situation develops.
A Disciplined Approach Moving Forward
This quarter highlighted the importance of diversification and disciplined risk management during periods of market change. As conditions evolve, maintaining a balanced and thoughtful investment approach remains essential.
Command Wealth Management is here to help you navigate these shifts. If you would like personalized guidance or to schedule a portfolio review, we encourage you to connect with our team.
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