Parker and Kevin review first quarter 2026 market performance, highlighting volatility driven by geopolitical tensions, rising oil prices, and inflation concerns. We also share our outlook for investors and key expectations for the remainder of the year.
Q1 2026 Market Update: Overview and Key Themes
Parker G. Trasborg:
Hello, thanks for joining us today. My name is Parker Trasborg. I’m a Principal with CJM Wealth Advisers. And today, as always, I’ve got Kevin Donovan, our Portfolio Research Director. We wanted to spend a couple minutes today talking about markets in the first quarter of 2026. Today is April 7th. Lots of uncertainty occurring, so just want to put the date out there. Kevin, it was another eventful first quarter. When we chatted a year ago, the tariffs were just being announced, which were recently struck down by the Supreme Court. Can you tell us a little bit about how markets performed here in the first quarter of 26?
Market Expectations Entering 2026
Kevin E. Donovan:
Sure. Let’s start by talking about what the expectations were at the beginning of the year. So the market expected international stocks to continue their outperformance. And last year, if you remember, they outperformed the US markets pretty strongly for the first time in a long time. And the markets expected that to continue based on the weakening dollar and the improved economies internationally and better corporate earnings growth outside of the US, but still strong growth in the US, but better growth outside the US. Also, they expected smaller company stocks, so small cap and mid-cap stocks to outperform large cap stocks as inflation eased, the Fed cut interest rates. And the valuations from some of the large technology companies were getting a little bit too high. The AI bubble fears were out there.
Q1 2026 Market Performance and Geopolitical Impact
And that’s the way things played out for January and February. And then the US and Iran … I’m sorry, the US and Israel attacked Iran, and a lot of those assumptions went out the window. So let’s look at the performance chart for the first quarter of the year. And as you can see here, that light blue line is international. And for the first two months of the year, you see the great outperformance of international stocks. But once March, that pretty much disappeared and everything finished negative for the quarter. So the green line there is bonds, which were flat for the year. You expect that in a bit of a flight to safety.
But the S&P 500 was down over 4%. The DOW was down just under 4%, and the NASDAQ was down 7% for the year, with international down about 2%. The NASDAQ performance, it’s a very tech-heavy index, and most of that underperformance was during the first two months of this quarter. As we can see in the next chart, which shows just the market index performance since the start of the Iran attacks, so just for March, we can see how international stocks really underperformed the US market here. So international stocks ended March down 11% for the month, where the US indexes were all bunched around the 5% loss area, and bonds were down about 2%. So what happened with international, obviously everyone’s relying on oil, but some of the European countries and Japan are very reliant on imported oil. And the oil price spike that happened once the Iran attacks occurred was seen as having a much greater impact on their economies than the US economies where we produced a lot of our own oil at this point.
Another factor is that the dollar became a safe haven, so that caused the dollar to go up in value. And when the dollar rises, international earnings are worth less when they’re priced in US dollars, so international stocks usually decline in periods like that.
Oil Prices, Inflation, and Consumer Impact
Parker G. Trasborg:
So with everything going on over in Iran, the price of oil has shot up, and we’ve all seen that at the gas pump. Driving home from spring break, we saw that diesel was over $6 a gallon or very close to that along I- 95. How will that maybe translate to inflation potentially, or will it not?
Kevin E. Donovan:
It may. That’s one of the big fears. It’s not just gas prices when oil prices go up. You have everything that has to be transported, as you mentioned, diesel that has to go in trucks. And the big thing is food. If food prices rise, that really impacts inflation a lot, and that is very closely tied to the price of oil. And that will increase as time goes on. As long as these high oil prices remain, you’ll see more and more impact on inflation. And that’s leading to concerns about is this going to impact the federal reserve on when they can cut interest rates because their biggest tool when they’re fighting inflation is to raise interest rates. So is that going to reverse what the Fed is going to do going forward? I mentioned international stocks did poorly in March, but we didn’t really see too much of an impact on small cap and mid-cap stocks in their relation to large-cap stocks.
Small-cap stocks are usually more inflation-sensitive, but they’ve performed pretty much exactly the same as large-caps stocks have over this month. So maybe the market’s seeing a quick end to the conflict and not that much of an impact on increased inflation going forward. It’s hard to tell. These things can change very quickly as we’ve seen in the past with tariffs, so we’ll just have to sit and wait and see on that one.
Market Volatility and Long-Term Perspective
Parker G. Trasborg:
Yeah, we will. So a difficult first quarter, start to the year for markets who certainly hate uncertainty. If we broaden the view out a little bit and just take a look back over the last 12 months, how did the numbers stack up?
12-Month Market Performance Review
Kevin E. Donovan:
Yeah, even with these losses in the first quarter, there were pretty mild losses. And last year’s gains were so large that looking back to March of last year, the S&P is still up 16% over this time last year. International stocks are up 18%. The NASDAQ is up 25% versus this time last year. So we’re still looking at very strong returns over the past year, and we’ve seen poor quarters in the past. So hopefully this Iran thing will end fairly quickly and we can get back to focus on strong corporate earnings, which are still expected to occur this year. Strong corporate earnings, then for international stocks, hopefully a little bit of softening in the dollar.
Investment Outlook for the Rest of 2026
Parker G. Trasborg:
Which I think this all highlights, again, just the importance of taking a broader view and not just focusing on the day-to-day news as we’ve got plenty of uncertainty, plenty of volatility occurring in markets. We’ve talked a little bit about it, but what are we expecting on your side, Kevin, through the end of the year?
Kevin E. Donovan:
Well, I didn’t expect this in the first quarter. Not many people in the market did, but looking forward, as you said, we were diversified. We hold assets in many different asset classes. Some performed better when others performed poorly. It paid off well when we stayed in international, and last year international started paying off. It’s paid off well this year when we didn’t go all in on large cap growth stocks, and we’ve seen a sharp decline in some of those big software names. So we’re remaining diversified and we’re hoping that things internationally and geopolitical risks will settle down for the rest of the year. We’re prepared for either eventuality based upon our diversified portfolios.
Closing Remarks and Upcoming Webinar Announcement
Parker G. Trasborg:
Right, we are. And certainly not to make light of anything happening overseas. Kevin, thank you very much for your insights today. Viewers, thank you so much for your time, and we hope you enjoy the spring. Looking ahead, just a quick little note. On May 14th, we are planning to host Capital Group/American Funds for a webinar event, and we will send out some more details on that here in the coming weeks. Again, thank you so much for joining us today, and we hope you have a wonderful spring.
Kevin E. Donovan:
Bye-bye.
Social Media