Navigating First Quarter Volatility

Highlights include:

• In the first quarter of 2026, the S&P 500 Index declined 4%. After a positive start to the year in January and February, U.S. equities moved lower in March as investors reassessed the outlook for interest rates and responded to rising geopolitical tensions in the Middle East.
• A key development during the quarter was the re-emergence of inflation concerns. While inflation had been trending lower earlier in the year, escalating tensions in the Middle East pushed oil prices substantially higher. Higher energy costs can weigh on consumer spending and increase business expenses, leading to a more cautious and inflationary market environment.
• Interest rate expectations shifted over the course of the quarter. At the start of the year, markets anticipated the Federal Reserve would likely cut rates in 2026. By quarter-end, markets scaled back expectations for rate cuts as inflation remained somewhat persistent and rising oil prices introduced additional uncertainty.
• Sector performance was mixed during the quarter, with six out of 11 S&P 500 sectors finishing higher. Energy led the market, gaining over 38%, supported by higher oil prices, while Financials declined as shifting rate expectations and inflation concerns weighed on the sector.
• Economic data has reflected a slowing, but still resilient, U.S. economy. The unemployment rate remained near 4% and inflation measured 2.4% over the 12 months ending in February 2026.

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Katharine E.W. Dudley, AIF^®
Senior Vice President, Client Advisor

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