1st Quarter 2026: Market and Economy

For years, the story for investors has been written on silicon—chips, data centers, and the promise of artificial intelligence. The first quarter of 2026 proved that the traditional economy still matters. This time, it wasn’t technology leading markets. It was oil.

The S&P 500 has gotten off to a rough start in 2026, falling 4.3% in the first quarter, but the losses weren’t evenly distributed. Growth stocks bore the brunt of the selling while value stocks held their ground, leading to a gap of nearly 12 percentage points between the two in just one quarter. Small-cap stocks also held up better than large cap, managing a small gain.

Over the last three years, the majority of the market’s returns have been concentrated in a limited number of technology stocks but as 2026 gets started, that dynamic has shifted. As Benton explains in his commentary, trade in “HALO” stocks—standing for Heavy Assets, Low Obsolescence—was one of the defining features of the first quarter. The old economy is far from being displaced by the new, and nowhere is that clearer than in oil.

The World Still Runs on Oil

On February 28, the United States and Israel launched a coordinated series of strikes against Iran, with the stated goals of prompting regime change and targeting Iran’s nuclear and ballistic missile programs. As I write this on April 2, the campaign is ongoing and has severely weakened Iran’s military.

Iran’s response has been calculated. While targeting US and Israeli military installations, Iran has also opted to inflict maximum economic pain by launching missiles and drone attacks aimed at energy infrastructure throughout the Middle East and halting oil tanker traffic through the Strait of Hormuz. The Strait is a narrow waterway between Iran, Oman, and the United Arab Emirates through which 17 to 20 million barrels of oil normally pass every day. That accounts for nearly a fifth of all the oil produced in the world. Closing the Strait has choked the world’s oil supply and the costs have been significant.

Brent crude oil, the global benchmark for oil prices, has risen more than 50% from the days before the initial strikes. Even though most of the oil we use is produced here in the US, domestic energy prices have been affected along with the rest of the world, as you’ve likely noticed at the pump. With oil prices up, oil and gas stocks were the best performers in the first quarter as the S&P 500 Energy Sector rose 37%, per Standard & Poor’s.

For decades, the world has been trying to move beyond oil through investments into alternative energy. It hasn’t yet. The most obvious effects are seen at the gas station, where gas prices have jumped to the highest levels since Russia invaded Ukraine in 2022 but nearly every product and service we buy, from fertilizer to food to electronics, are affected by an energy shock.

This may be the largest supply crunch in decades, but shocks like this are far from unusual. There have been several in recent decades. In each case, once the crisis subsided, oil prices eventually fell back to more normal levels, though often more slowly than they rose. We expect that to happen again here. If it does, the elevated prices of the energy stocks that are up so much this year are likely to come back down as well.

The big question is when. The longer this conflict drags on, the higher oil prices could go. Oil wells can take weeks or months to restart and rebuilding or repairing infrastructure, such as refineries and pipelines, could take years. President Trump has said recently he believes a ceasefire could be reached in the next two to three weeks. We are hoping that is the case but the situation is changing from day to day and no one can say for sure.

Whether it takes weeks or months, the current conflict does not change our long-term outlook for markets. Higher inflation driven by higher energy costs will likely prove temporary and not leave a lasting impact beyond 2026.

Above all, we hope for a durable resolution that eases the economic issues but more importantly, keeps our American service people safe and protects lives and reduces instability across the Middle East.

Finding Value in Volatility

For now, the Iran conflict will continue to weigh on both consumer and investor confidence. The average price of a gallon of gas in the US has jumped from $2.90 in mid-January to over $4.10 at the end of March. It’s hard not to feel the sting when you fill up your tank. I know I do.

We will continue to see bouts of volatility from day to day as markets add or erase billions of dollars of value on the latest headline until a lasting resolution is reached.

The good news for investors is that earnings momentum remains strong. The hundreds of billions of dollars that both technology and HALO companies are directing into AI tools continue to boost growth forecasts. After growing 14% in 2025, S&P 500 earnings are projected to grow another 17% this year, according to FactSet.

Between falling stock prices and rising earnings, valuations of the companies we invest in have become more attractive over the past three months. Add to that the breadth of market leadership expanding beyond just a handful of technology companies and the combination improves the foundation for investors thinking in terms of years, not weeks. History suggests moments of dislocation are often when the best opportunities can be found.

Oil shocks end. Earnings grow. Markets recover. We are watching closely, managing carefully, and hopefully positioning your portfolio to benefit when the dust settles. In the meantime, we appreciate your trust and patience.

This information is believed to be accurate at the time of publication but should not be used as specific investment or tax advice as opinions and legislation are subject to change. You should always consult your tax professional or other advisors before acting on the ideas presented here.