Stocks were mostly off in the first quarter of 2026. Large domestic companies, measured by the Standard & Poor’s 500, declined 4.6%. The Russell 2000, reflecting smaller US companies, did better with a fractional gain of 0.6%. The Nasdaq Composite, heavily weighted in technology stocks, dropped 7.1%. Foreign firms, generally speaking, were down slightly as the Dow Jones World Index (ex US) fell 1.2%.
Coming into the new year, investor confidence was high. Economic growth was accelerating, inflation seemed largely tamed and the consensus expectation was for two fed fund rate cuts throughout the year. Investors looked forward to a continued broadening of the bull market beyond the Magnificent Seven tech stocks to the other 493. The majority of market forecasts looked for double-digit returns in 2026. Then, on February 28th, Israel and the US launched coordinated strikes against Iran. Oil prices surged and stock prices tumbled. Market volatility continued throughout March as news snippets on the Middle East conflict were released. Hopes of a quick end to this military incursion came and went with the daily reports. One such report on the final day of the quarter led to the best performing day of the year. However, it was not enough to recoup the March declines. The stock market turned in its worst quarter in nearly four years.
So what do we make of this geopolitical and market turmoil? We recall the old saying “buy on the sound of cannons”, the contrarian investment adage to buy when stock prices are low due to panicked investor selling. Then there’s the old standard from Warren Buffett, “be greedy when others are fearful.” We don’t mean to be flippant about the current state of affairs. Yes, the spike in oil prices and other important commodities (fertilizer, aluminum, etc.) does pose a concern for overall inflation. And that could dash any hopes of the Fed cutting rates this year. But at some point, this war with Iran will come to an end. Shortly thereafter, we should see a return of lower oil prices and a rebounding of market valuations. In the meantime, we caution investors from making any wholesale changes to their thoughtfully constructed long-term portfolios. Such knee-jerk reactions inevitably result in a hit to one’s long-term investment performance.
In times of turmoil, it is especially important to stay close to your trusted fiduciary advisor. As such, we welcome your calls, emails, texts, etc. And, as always, we adhere to our discipline of strategic asset allocation and style diversification; a strategy designed to mitigate overall portfolio volatility and enhance long-term returns.