Insights

Quarterly Market Review

April 15, 2026

As we move into the second quarter of 2026, geopolitics has once again taken center stage in the global economy and financial markets. The conflict involving Iran that began on February 28 quickly became the defining macro story of the quarter. The humanitarian impact is severe, and the economic implications are meaningful, though the ultimate path forward remains uncertain.

Markets responded as they often do during periods of geopolitical tension. Volatility increased as investors worked to digest rapidly evolving headlines and the potential ripple effects across global energy markets, inflation, and economic growth.

U.S. equities declined through much of March, with the S&P 500 finishing the quarter down 5.1% and the Nasdaq Composite briefly entered correction territory, falling 12.07% from peak to trough. Beneath the surface, however, market leadership shifted meaningfully. Small-cap value stocks staged a notable resurgence as investors rotated away from large-cap technology companies, with the U.S. small-cap value index returning 4.72% for the quarter.

Outside the U.S., performance was somewhat more resilient. International developed markets declined only modestly, finishing the quarter down 0.51%, while emerging markets posted a positive return of 3.51%. As uncertainty rose, the CBOE Volatility Index moved sharply higher, reaching its highest level since last year’s market turbulence.

Energy markets have been at the center of the disruption. Roughly 20 million barrels of oil per day, about one fifth of global supply, typically moves through the Persian Gulf. With shipping flows constrained following the outbreak of conflict, oil prices rose sharply. Brent crude climbed more than 40% between late February and the end of the quarter as investors weighed the risk of supply shortages and broader economic spillover.

A Market Environment Defined by Unknowns

The environment ahead is shaped by a range of variables that are inherently uncertain. A quick resolution to the conflict could ease pressure on energy markets and bring oil prices down. A prolonged conflict could keep prices elevated and place further strain on supply chains. The trajectory of oil prices matters because it feeds directly into inflation, which in turn influences Federal Reserve policy.

Before the conflict began, markets were expecting two to three Federal Reserve rate cuts in 2026. That outlook has already shifted. If higher energy prices push inflation higher, the Fed may have less room to ease policy. Interest rates ultimately affect borrowing costs, economic activity, and corporate earnings, which means monetary policy remains an important piece of the broader economic picture.

The Temptation to React

Periods like this often create the urge to respond to every headline. In practice, that rarely improves outcomes.

Financial markets process new information quickly, and by the time investors react, prices have often already adjusted. Attempting to trade around fast-moving geopolitical developments can introduce more risk than it removes. Investing is not about predicting short term market movements. It is about building and preserving wealth over time.

Why Diversification Matters

Your portfolio is designed with environments like this in mind.
Diversification across asset classes, sectors, and geographies helps manage uncertainty. When one part of the market faces pressure, another may provide stability or even benefit. Rising oil prices, for example, may weigh on some industries while supporting energy producers.

Fixed income also plays an important role during periods of equity volatility, helping stabilize portfolios and smooth overall returns. Just as importantly, much of the portfolio is invested with a long time horizon, meaning short term fluctuations are less relevant to long term financial goals.

A Longer-Term Perspective

History offers helpful perspective during periods of geopolitical stress. Research examining major geopolitical shocks, from Cuban Missile Crisis to Russia’s invasion of Ukraine, found that U.S. equities returned roughly 10.5% on average in the year following those events, broadly in line with long term market returns.

Markets and economies have historically proven resilient even in the face of significant uncertainty. While headlines will continue to evolve, staying disciplined and focused on long term objectives remains the most effective way to navigate environments like this.

We are sincerely grateful for your continued trust and partnership.

THE LOURDMURRAY TEAM