Q1 2026 Market Commentary: A Tale of Two Quarters

In our view, investment performance during the first quarter of 2026 was truly a tale of two time frames. Before the conflict in Iran began on February 28, large cap U.S. equities were fairly resilient despite a noisy backdrop, while international markets outperformed by a meaningful margin. Once the conflict began, uncertainty surrounding oil, inflation, and global growth rattled investors and pulled markets lower. However, the decline was more contained than the headlines seemed to suggest. U.S. equities did close the quarter modestly in the red, while both international stocks and domestic fixed income finished near flat.

Before February 28: Broad Participation and a Healthy Rotation

To understand the quarter’s trajectory, we think it helps to look at it in two distinct phases. Prior to late February, the markets maintained a surprisingly upbeat mood. International stocks were off to their best start against U.S. markets in years and, even with high expectations following a stellar 2025, the domestic market held its own. The S&P 500 actually hit an all-time high at the end of January. We were also seeing some sector rotation with software and technology pulling back while “HALO” (heavy asset, low obsolescence) companies were having a moment in the sun. Time will tell when or if some of the pessimism around software companies will retreat but, for now, we think it’s refreshing for domestic market winners to have a bit more breadth.

Market Performance
Q1 2026 Index Returns

January 1-March 31, 2026 – Delineated by the onset of the US-Iran conflict (Feb 28)

Source: Bloomberg. Intra-period path is interpolated from monthly data points.

However, after the conflict in Iran began, attention was redirected and uncertainty took the wheel. International stocks felt this decline more severely than domestic stocks, perhaps giving some truth to the saying “when the US sneezes, the rest of the world catches a cold!” Developed international markets gave up their entire gain from the first two months and retreated close to 11% in the month of March. Domestic large cap stocks, represented by the S&P 500, retreated about 5% in that same time frame. While no one likes to see a red number, historically the market has absorbed geopolitical shocks quite resiliently. Short-term drawdowns remain common, but broadening the time horizon reveals the power of patience.

On Oil: Higher Prices, but a More Resilient Economy Than the 1970s

Selloffs Tied To Oil Shocks Have Been Short-Lived
S&P 500 returns following geopolitical oil supply disruptions, 1990-2024

Sources: Capital Group, Bloomberg, Standard & Poor’s. Events: Gulf War (1990), Iraq invasion (2003), Niger Delta disruptions (2006), Arab Spring + Libya (2011), Hormuz closure risk + Iran sanctions (2011), Saudi drone attack (2019), Russia-Ukraine (2022). As of March 10, 2026. Past results are not predictive of future results.

Oil has been at the center of many conversations this quarter, and understandably so. The closure of the Strait of Hormuz created what analysts described as the largest oil supply disruption in history, surpassing even the Arab oil embargo of 1973 that shaped decades of energy policy thereafter.

That said, today’s U.S. economy is considerably less energy-intensive than it was 50 years ago, and domestic production is substantially stronger. According to the U.S. Energy Information Administration, U.S. crude oil production reached a record annual average of 13.6 million barrels per day in 2025. That doesn’t make consumers immune to higher gasoline prices, but it does suggest the economic impact of an oil shock may be more limited than in past cycles. Higher prices create real pressure for households, while at the same time providing a meaningful tailwind for domestic producers, refiners, and related industries in ways that weren’t as true in prior decades.

The Power of Context: Today’s Headlines in Historical Perspective

Context is one of the most valuable tools an investor can draw on, especially when markets feel unsettled. Since 2020, investors have navigated an extraordinary range of economic conditions: GDP growth surging and then contracting sharply, unemployment spiking to nearly 15% before recovering, inflation climbing as high as 9%, and oil prices swinging from pandemic lows to triple digits. Viewed against that backdrop, while Q1 2026 looks notable, it is not entirely without precedent.

Growth has slowed but remains positive. The labor market has cooled but appears intact. Inflation has come down meaningfully from its peak. And while oil prices moved sharply higher in March, they remain significantly below the worst levels investors have navigated and absorbed recently. That context is not a reason to dismiss today’s risks, but it’s a useful reminder to interpret them in proportion rather than in isolation.

For long-term investors, perhaps the most useful takeaway from Q1 2026 is a familiar one: periods of volatility are a normal part of investing, and those who stay the course have historically been rewarded for their patience. The quarter was uncomfortable, but it was not extraordinary when viewed through a longer lens. Markets absorbed a genuine geopolitical shock, a meaningful energy disruption, and a notable rotation in leadership. Yet most major asset classes ended the quarter within a few percentage points of where they started.

What Q1 reminded us, perhaps more than anything, is that the value of a financial plan isn’t measured in calm markets. It’s measured in moments when the temptation to react is strongest and the case for patience is harder to see. Historical evidence continues to favor staying invested and staying diversified. Staying the course often feels counter-intuitive, but history suggests it is usually the right choice.

As always, we are happy to schedule a time for a catch-up or a portfolio review.

Warmly,

Your TWA Team