April 6, 2026
Market Review: 1Q 2026
Global markets continued many trends from 2025 into early 2026: foreign stocks outperforming U.S. stocks, the U.S. dollar falling, and interest rates trading in a relatively narrow range. However, as geopolitical risk ramped up in the Middle East, several of these trends reversed. The U.S. dollar rallied a bit, and U.S. stocks began to outperform foreign stocks. Markets have been reasonably calm, with pullbacks within the normal range, especially coming off several years of above-average returns. Oil prices moved significantly higher, and riskier asset classes such as emerging market and US small company stocks sold off the most. One surprising element is that gold also sold off as volatility picked up, which runs counter to the narrative of it being a geopolitical hedge.
There are a few market analogues that rhyme with the current environment. The spike in oil prices due to conflict is reminiscent of the 2022 Russian invasion of Ukraine, and the snarling of supply chains brings back memories of the disruptions caused by COVID, though perhaps on a smaller scale. While both of these events did cause significant disruption in the short run, market forces tend to find solutions over time. The complete fallout from the current disruption remains to be seen.
We believe the U.S. economic backdrop heading into 2026 remains constructive, but rising oil prices, if sustained, are likely to pose an incremental headwind to growth. Higher energy prices flowing through to inflation could inhibit the Fed from lowering interest rates. Should energy prices moderate, prior tailwinds of greater tax savings, business investment, and lower policy rates could once again take hold.
Corporate fundamentals remain positive as large U.S. corporations delivered 13% earnings growth in the first quarter of the year. Coupled with a market pullback, valuations have retreated from elevated levels. In fact, the valuation premium of the technology sector relative to the market is at its lowest level since 2020. With a wide range of external variables at play, quarterly results will take a back seat to what companies say about the path forward.
Even in the face of rising interest rates, bond markets offered insulation from stock market volatility. The main story in lending markets, however, was in private markets. Concerns about AI disruption led to outsized redemption requests from investors. Importantly, company fundamentals, by and large, remain sound, leverage is reasonable, and borrowers continue to make interest and principal payments.
International stocks led U.S. stocks for much of the quarter, then sold off more sharply in the wake of Operation Epic Fury. A rising US dollar was a further headwind to international returns. Global investors appear more concerned about vulnerabilities of foreign companies in an extended conflict that cripples supply chains, particularly those reliant on energy imports or petrochemical products for industrial purposes.
In such environments, we remain on the lookout for risks as well as opportunities with an eye on the long term. Please don’t hesitate to reach out to your Fulcrum wealth manager if you have any questions or concerns.
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