Apr. 1, 2026

The first quarter of 2026 proved to be a testing period for investors, defined by a "trifecta" of macroeconomic anxieties. Between tariff-related uncertainty, renewed AI valuation concerns, and flickering worries in the private credit markets, volatility remained the primary theme.

Jitters escalated in March as geopolitical tensions in the Middle East reignited stagflation fears, causing hopes for imminent Federal Reserve rate cuts to dissipate. While a strong relief rally on the final trading day of the quarter provided a much-needed breath of optimism, it wasn't enough to erase the earlier damage. The S&P 500® closed the quarter down 4%, marking its toughest quarterly performance since Q3 of 2022.

While the broader market indices faced headwinds, the internal dynamics of the first quarter revealed a significant and ongoing rotation toward smaller companies. Although mid- and small-caps were not entirely immune to the volatility seen in March, they demonstrated remarkable resilience by finishing the quarter in positive territory. The S&P MidCap 400® posted a solid gain of 3%, while the S&P SmallCap 600® outperformed with a 4% increase for the period.

Sector performance remained highly polarized as investors shifted their focus away from previous leaders. Driven by soaring oil prices, the Energy sector was the standout performer of the quarter—surging 38% and notably becoming the only sector to maintain a gain throughout the turbulent month of March. In contrast, the "Big Tech" pillars of Information Technology, Communication Services, and Consumer Discretionary all suffered heavy losses. Financials also struggled, ending the quarter as the primary laggard. This shift underscores a clear defensive sentiment, as dividend-focused and low-volatility strategies consistently led the way while growth-heavy sectors retreated.

See this month's GRAnderson Wealth Management Economic Update for details.

The pressure on equities extended into the bond market. Driven by rising inflation expectations and climbing Treasury yields, all of our reported fixed income indices ended the quarter in negative territory.

Commodity Mixed Bag

Geopolitical uncertainty created a unique environment for hard assets:

• Energy Surge: The S&P GSCI Energy Index surged in March, ending the quarter up a staggering 83%.

Precious Metals: While gold gained overall in Q1, it faced unexpected headwinds in March. This was atypical, as gold usually sees "safe haven" demand during times of turmoil, suggesting a more complex interplay between currency strength and interest rate expectations.

Find details about these trends and other statistical categories in our latest Economic Update.

• A Turbulent Start to the Year: The S&P 500® closed the first quarter down 4%, its toughest performance since 2022, fueled by a "trifecta" of tariff anxieties, AI valuation concerns, and private credit jitters.

• The Rise of Small and Mid-Caps: Despite large-cap volatility, a significant market rotation is underway; the S&P SmallCap 600® and MidCap 400® showed resilience, finishing the quarter up 4% and 3% respectively.

• Energy Sector Dominance: Powered by soaring oil prices and geopolitical uncertainty, the Energy sector surged 38% in Q1, standing out as the only sector to post a gain during the month of March.

• Pressure on Bonds and Tech: Rising inflation expectations and climbing Treasury yields pushed all major fixed income indices into negative territory, while previously dominant "Big Tech" and Financial sectors faced heavy losses.

• Strategic & Defensive Positioning: In response to renewed stagflation fears, dividend and low-volatility strategies led the market, reinforcing the importance of our tactical, behavioral-based approach to portfolio design.

Stay Disciplined. Stay Diversified.