Economic & Market Update

As 2026 has gotten underway, geopolitical conflict, inflation, and oil have created conditions for the year's first market pullback. Pullbacks (-5-10%) and even bear markets (-20+%) are part of a normal investor experience over time, but nevertheless it is unsettling to experience.

See the chart below for a look at how markets performed in the 1st quarter. It's a good representation of how diversification can buffer news headlines that tend to focus only on the S&P 500. It is also a good reminder of the large swings we have experienced as investors while still experiencing positive returns in the long run.

An interesting development is that the Federal Reserve Board is in a tough spot. Inflation is rising again, which would typically indicate a need for higher interest rates to curb inflation. However, there are also ongoing concerns about the labor market slowing down. That would typically indicate a move to lower interest rates. Add to that the extremely unusual and dangerous position of the Executive Branch of government trying to strong-arm and intimidate the Fed Chair to lower rates, and they are in a tough spot.  

Earnings growth within the S&P 500 remains strong, with some noticeable shifts in sector strength (those highfliers of the last few years are not immune to corrections). Even after last year's stellar international market growth, valuations internationally are still at a discount to US equities.

Within just the last week or two, we have seen +/- 2% swings in the S&P 500. That can make anyone nervous. We're short-term skeptics, and long-term optimists! No one knows what the next, but we always remain confident in long-term ingenuity, innovation, and growth. It's also important to remember that the typical bear market lasts roughly 1/3 of the time a bull market does!

If you have questions or would like to schedule a time to discuss, please feel free to reach out—we’d be happy to connect.