Here's the Cost of Moving to the Sidelines
Markets rarely tempt investors to make bad decisions when things feel calm.
They tempt investors when the headlines are loud, losses are fresh, and moving to cash feels less like panic and more like prudence.
That is what made the first quarter so difficult.
From its late-January high through the end of March, the S&P 500 fell nearly 10% as the U.S.-Iran conflict pushed oil prices more than 60% higher. Headlines about the Strait of Hormuz, rising energy costs, and the potential economic fallout created the kind of environment where investors naturally begin asking a very human question:
Should I get out before this gets worse?
Market Timing Rarely Feels Like Market Timing
That question is understandable. It is also dangerous.
The problem with market timing is that it rarely feels like market timing in the moment. It feels like caution. It feels like discipline. It feels like protecting what you have built.
But getting out is only half the decision.
You also have to know when to get back in.
And that second decision is often the harder one.
When ceasefire talks emerged in late March, markets quickly began to recover. Investors who moved to the sidelines during the selloff were then faced with a new question:
Do I get back in now, after the market has already bounced, or do I wait until things feel calmer?
That is where many investors get hurt.
By the time the environment feels safe again, the market has often already moved. The recovery does not usually announce itself ahead of time. It often begins while the headlines are still uncomfortable, while the outcome is still uncertain, and while investors are still waiting for confirmation.
The Best and Worst Days Arrive Together
That is why the best and worst days in the market tend to arrive close together.
Figure 1 illustrates this pattern. The chart shows the S&P 500's daily returns over the past 26 years and highlights an important truth: the market's largest moves tend to cluster. The biggest selloffs do not happen in isolation. They are often surrounded by some of the strongest rallies.
We saw this during the 2008 financial crisis. We saw it during the 2020 pandemic. We saw it during the tariff-driven volatility of 2025. And we saw it again during the recent U.S.-Iran volatility, when the S&P 500 posted its strongest daily return since April 2025 on optimism around a possible ceasefire, only days after escalating tensions had pushed stocks lower.
That is the uncomfortable reality of investing through uncertainty.
The same environments that produce sharp selloffs often create the conditions for sharp recoveries.
Missing a Few Days Can Cost You Decades
Figure 2 puts a dollar amount on that lesson. A $10,000 investment in the S&P 500 on December 31, 1999, would have grown to $75,242, despite a period that included the dot-com bust, the global financial crisis, the pandemic, inflation shocks, rising rates, wars, and political uncertainty.
That result did not come from avoiding every downturn.
It came from staying invested through them.
Missing just the 10 best trading days would have reduced the ending value to $33,473, less than half the fully invested result. Missing the 20 best days would have lowered it to $19,443. Missing the 30 best days would have brought it down to $12,358. And missing the 50 best days would have turned the original $10,000 into just $5,607.
In other words, an investor could have lived through a period when the market created substantial wealth, yet still lost money by missing too many of the right days.
That is what makes market timing so costly.
You do not have to be wrong all the time. You only have to be wrong at a few critical moments.
Bottom Line
This year's volatility may feel unsettling, but it reinforces one of the most important principles of long-term investing: the plan has to be built before the panic arrives.
A well-constructed financial plan does not assume markets will always cooperate. It assumes there will be downturns. It assumes there will be recessions. It assumes there will be geopolitical shocks, energy price spikes, scary headlines, and stretches of time when discipline feels uncomfortable.
That is why cash reserves matter.
That is why diversification matters.
That is why rebalancing matters.
And that is why your investment strategy should be connected to your broader financial plan, not just to your feelings about the latest headline.
Selling during a decline may provide temporary emotional relief, but it also locks in losses and creates a difficult re-entry problem. Staying invested does not mean ignoring risk. It means managing risk through a plan rather than reacting to fear.
What the Market Actually Rewards
The market does not reward perfect timing.
It rewards patience, discipline, and the ability to stay anchored when the headlines are loud.
And as the first quarter reminded us, missing just a few of the market's best days can come at a very high cost.
Weekly Market Update: Relief Rally Lifts Markets to New Highs as Ceasefires Hold
Markets surged in April as a series of diplomatic breakthroughs lowered the risk of further military escalation, with the S&P 500, Nasdaq, and Russell 2000 all closing at fresh all-time highs and erasing the first quarter's losses.
Leadership was narrow, however, and the gains were uneven beneath the surface. Growth stocks outpaced value by +8%, reversing the first quarter's rotation, and semiconductors rallied +40% on a 17-day winning streak. The average stock across the S&P 500 underperformed the index by nearly -4.5%, and all ten remaining sectors trailed technology.
Bonds were mixed. Treasury bonds produced modest losses as yields drifted higher, while corporate bonds traded higher as credit spreads tightened. Oil whipsawed on geopolitical headlines, with WTI crude rising +7% but trading in a wide $80 to $115 range, and a measure of market volatility fell sharply as investors unwound the geopolitical risk premium.
Ceasefires Drove the Rally, Oil Supply Disruption Remains
Stocks surged as the U.S.-Iran ceasefire was extended, the Israel-Lebanon ceasefire held, and de-escalation rhetoric reduced the risk of a wider ground war. Markets responded by unwinding the geopolitical risk premium that had weighed on equities throughout the first quarter.
The U.S. naval blockade of Iranian ports remains in effect, however, and the Strait of Hormuz remains functionally closed.
Why it matters: The diplomatic track and the physical supply situation are moving in opposite directions. Whether April's rally holds may depend on whether the Strait reopens.
Fed Outlook Shifts from Possible Hikes to Possible Cuts
Markets repriced Fed expectations at each remaining 2026 meeting, shifting from pricing in possible hikes to pricing in possible cuts. The most likely outcome is still no change, with cut probabilities below 15%, but the move reflects a meaningful change in tone driven by oil's pullback easing near-term inflation fears.
The Fed is also preparing for a leadership transition, with Kevin Warsh set to succeed Jerome Powell when his term expires in May.
Why it matters: The Fed's policy path has become harder to read at the same moment its leadership is changing hands, leaving markets to navigate both inflation risk and institutional uncertainty.
Q1 Earnings Off to a Strong Start, Margins Hit Record
First-quarter earnings season started strong, with the quarter on pace for a sixth consecutive quarter of double-digit growth and profit margins reaching a record 13.4%. Analysts now forecast +18% earnings growth over the next 12 months.
Forward valuations rose to 21x from 19.7x at quarter-end, with a meaningful portion of the move tied to rising earnings estimates rather than pure multiple expansion.
Why it matters: With valuations elevated and the geopolitical backdrop still volatile, earnings growth has become the primary path to further upside, and the rising bar means continued delivery will be needed to sustain current levels.
Rally Breadth Narrow Despite New Highs
The S&P 500 reclaimed key trend levels and closed near an all-time high, fully erasing March's -9% drawdown. Risk appetite surged as credit spreads tightened, volatility fell, and institutional equity futures positioning moved to its highest level since late 2024.
Beneath the surface, the rally was concentrated in semiconductors and mega-cap stocks rather than broad-based participation, and some measures of investor sentiment remained subdued.
Why it matters: Sustained rallies historically require broadening participation, and the current concentration leaves the index vulnerable if sentiment around the AI and growth trade shifts.
Economy Rebounds, Inflation Picture Worsens
The U.S. economy grew +2% in the first quarter, rebounding from +0.5% in the fourth quarter as the government shutdown effect reversed. Manufacturing held above the expansion threshold for a third consecutive month, and unemployment edged lower to 4.3%.
The inflation picture is less encouraging. Headline consumer prices surged +0.9% in March, the highest since June 2022, and the Fed's preferred core inflation measure remains elevated at +3.2% year-over-year and trending higher.
Why it matters: The growth picture is firming up at the same time the inflation picture is deteriorating, and the longer oil remains elevated, the harder it becomes for the Fed to ease policy later this year.
May Calendar Brings Fed Transition and Continued Earnings
The month ahead is one of the more consequential on the calendar this quarter. The Fed meets in May for what will be Chair Powell's final meetings before Kevin Warsh takes over, and the second half of Q1 earnings season continues with results from a broad range of companies.
Oil and the status of the Strait of Hormuz remain the key variables outside of corporate fundamentals.
Why it matters: How Powell frames the inflation and growth outlook on his way out, the tone Warsh signals on his way in, and any movement on the physical oil supply situation could each set the tone for markets heading into the summer.
Weekly Market Update: Rally Slows as Geopolitics Take Center Stage
Markets moved higher for a fourth consecutive week, with the S&P 500 and Nasdaq both closing at fresh all-time highs for the second week in a row.
The pace of the rally slowed, however, and the gains were uneven beneath the surface. Small cap stocks outperformed both major indexes, while international stocks traded lower as oil prices rebounded and the U.S. dollar strengthened.
Value stocks modestly outperformed growth stocks, and despite the S&P 500’s new high, 5 of 11 sectors traded lower, with defensive sectors lagging the rally.
Bonds ended the week with modest gains despite yields drifting higher, with Treasury and corporate bonds producing similar returns. Oil prices rose after two consecutive weeks of declines, and a measure of market volatility ticked up as investors responded to geopolitical developments during the week.
Key Takeaways
Week Defined by Geopolitical Whipsaw in Middle East
The week was defined by geopolitical whipsaw as U.S.-Iran tensions swung between diplomatic progress and physical deterioration. The headline was constructive: Trump extended the ceasefire indefinitely.
However, the U.S. naval blockade of Iranian ports remained in place, scheduled peace talks were canceled, and questions emerged about a potential Iranian leadership change.
Why it matters: The diplomatic path forward remains open, but the physical confrontation has not been resolved, and the disruption to oil supply has not been removed. Both factors could continue to impact financial markets.
Oil Prices Rise as Naval Blockade Remains in Place
Crude oil surged more than +5% on the week, erasing a portion of the prior two weeks' decline, and Brent crude, the international benchmark, rose back above $100. The move was driven entirely by geopolitical developments, and the ceasefire extension did little to lower oil prices.
On the economic side, March retail sales showed consumer spending held up despite rising energy costs, a sign of resilient demand.
Why it matters: The two-week decline in oil prices had offered an encouraging signal that energy-driven inflation pressures might ease. That picture changed this week. The longer oil remains elevated, the greater the risk that energy costs begin to weigh on consumer spending, corporate profit margins, and broader economic activity. Oil prices are one of the most important variables to monitor in the coming months.
S&P 500 Continues to Set New All-Time Highs
Stocks reached new highs, but the pace of the rally slowed. The S&P 500 and Nasdaq both closed at fresh all-time highs mid-week, supported by the ceasefire extension and a solid start to first-quarter earnings season. Nearly 25% of S&P 500 companies have reported Q1 2026 results, with roughly 80% beating estimates.
Even so, the market's appetite for additional risk appeared to pause. Volatility edged higher, and high-yield credit spreads were flat after three consecutive weeks of tightening, a sign that markets are digesting recent gains rather than pressing further.
Why it matters: The rally remains intact, and the early earnings results are encouraging. However, the pause suggests the market may need a clearer geopolitical signal, such as a geopolitical resolution or positive diplomatic development, before moving higher.
Treasury Yields Reverse Higher as Oil Prices Rise
The 2-year Treasury yield gave back nearly half of a three-week decline that had built on ceasefire optimism and falling oil prices.
Two factors drove the reversal: the collapse of Iran peace talks and the Senate confirmation hearing for Fed Chair nominee Kevin Warsh, which added uncertainty around the future direction of Federal Reserve leadership.
Why it matters: Last week's Fed policy forecast suggested the Fed could have room to cut rates later this year if oil prices continued to fall. This week, that conviction softened. With oil reversing higher and Fed leadership in transition, markets are weighing both inflation risk and institutional uncertainty heading into next week's Fed meeting.
Next Week’s Calendar is Busy
The main event is the Federal Reserve meeting, which will include Chair Powell's second-to-last press conference. The policy decision is widely expected to be a hold, but Powell's characterization of the inflation and growth outlook will be closely watched.
The week also brings a cluster of earnings reports from major technology companies, including Microsoft, Alphabet, Meta, and Amazon, which will offer a window into the state of AI capital spending.
Why it matters: The Fed meeting and tech earnings together make next week one of the more consequential on the calendar this quarter. How Powell frames the inflation picture, and whether leading technology companies confirm or temper expectations around AI investment, could set the tone for markets heading into May.
Weekly Market Recap: New All-Time Highs as Markets Look Past a Failed Ceasefire
Stocks climbed to new records this week, shrugging off a failed ceasefire deal and a U.S. naval blockade of Iranian ports.
The S&P 500 gained nearly +3%, completing an 11-session V-shaped recovery from the late-March bottom, while the Nasdaq gained nearly +5% to set its own record. Smaller companies participated in the advance but lagged, and defensive sectors along with energy, industrials, and materials declined.
Bonds finished roughly flat, oil ended the week lower despite an early surge, and volatility measures continued to ease as geopolitical risk premiums faded.
Key Takeaways
The S&P 500 Set a New All-Time High
The index traded above 7,000 for the first time since late January, completing a full recovery from the nearly -10% late-March drawdown. Monday was the week's test, with oil briefly surging above $100 on news of the U.S. Navy's blockade of Iranian ports before markets recovered after confirmation that non-Iranian shipping would be unaffected.
The past six weeks were a reminder that trying to time geopolitical events carries a real cost for investors who moved to the sidelines.
Market Risk Premiums Continue to Fade
The VIX, which spiked above 30 at the height of the conflict in late March, has since fallen below 20 and is approaching pre-conflict levels. Credit spreads have tightened steadily, and equity volatility, credit conditions, and interest rate volatility are all improving in tandem.
With the Strait of Hormuz still effectively closed and no official ceasefire in place, these risk metrics will remain closely watched.
Growth and Technology Stocks Have Reasserted Their Leadership
After spending much of the first quarter lagging behind value, smaller companies, and international markets, growth and technology stocks have outperformed value by more than +11% since the late-March low. As a result, the year-to-date performance gap between growth and value has nearly closed.
This year has already cycled through two distinct market environments, underscoring the value of maintaining diversified exposure.
Manufacturing Contracted in March, But April Data Signals Recovery
Industrial production pulled back in March as energy costs surged and supply chain disruptions weighed on activity. More recent data offers a more encouraging picture, with the April Philadelphia Fed Manufacturing Index coming in above expectations as tensions eased and energy prices fell.
The March weakness appears tied to conflict-related disruption rather than a broader deterioration in economic conditions.
Bank Earnings Provided an Encouraging Start to Earnings Season
Major Wall Street banks reported strong first-quarter results, driven by elevated market volatility and increased capital markets activity, while consumer credit quality remained healthy.
Several banks did flag the increasingly complex backdrop as a development worth monitoring going forward.
As always, feel free to reach out with any questions or concerns as they come up.
Weekly Market Recap: Ceasefire, Oil Reversal, and the Rally Markets Were Waiting For
Stocks traded higher for a second consecutive week as de-escalation triggered the strongest single day rally in a year. The S&P 500 gained +3.7%, with the Nasdaq and the Russell 2000 both returning +4.3%.
Most of the rally occurred on Wednesday after the announcement of a two-week ceasefire contingent on Iran reopening the Strait of Hormuz. Oil plunged -11%, the VIX dropped below 20, and international stocks rose as energy-importing nations benefited from the oil reversal. Industrials were the top-performing sector, gaining +5%, with broad strength across most sectors excluding energy.
Treasury yields fell modestly, and corporate bonds outperformed as credit spreads tightened to late January levels. However, the ceasefire was already being tested late in the week, with the market closely monitoring this weekend’s talks.
Key Takeaways
The U.S. and Iran agreed to a two-week ceasefire, triggering a relief rally.
Late Tuesday, the White House announced an agreement contingent on Iran reopening the Strait of Hormuz, less than two hours before a stated deadline to launch strikes on Iranian infrastructure.
Markets reacted decisively Wednesday: the S&P 500 surged +2.5%, its best single-day gain in a year, the Dow jumped +2.9%, the Russell 2000 gained +3.0%, and international equities rallied +3.5%. Unlike prior headlines, this was an actual agreement confirmed by both sides, with talks scheduled for this weekend.
Implication: The ceasefire is meaningful, but its durability was tested within hours. Israel launched strikes across Lebanon, Iran accused the U.S. of violating three conditions, and the Strait remained effectively closed Thursday morning. This weekend's talks will determine whether the agreement marks a turning point.
Oil plunged -16% on Wednesday, its largest single-day decline since April 2020, as the market priced in a Hormuz reopening.
WTI fell from $112 to around $94, erasing weeks of the war-driven rally that had pushed oil up over +65% YTD. The decline triggered immediate secondary effects: airline stocks surged, and the odds of a rate cut increased as inflation expectations eased.
However, the physical reopening remains uncertain. As of Thursday morning, the Strait was still effectively closed, and oil was moving back toward $100.
Implication: Oil is the transmission mechanism through which the conflict reaches inflation, the Fed, consumers, and corporate profits. Wednesday's decline showed how quickly the geopolitical premium can unwind, with the market watching for actual follow-through.
Credit spreads tightened and volatility declined, confirming the risk-appetite shift across asset classes.
High-yield spreads compressed during Wednesday's ceasefire rally and are now the lowest since late January after tightening nearly -0.50% over the past two weeks. Credit spread tightening is an indication the market is starting to price in less stress.
The VIX fell to 21, its first close below 22 since late February, after touching 28 intraday Tuesday before the ceasefire was announced.
Implication: Credit and volatility are the market's most reliable stress indicators, and both confirmed the equity rally as broad-based rather than speculative.
Treasury yields barely moved despite the ceasefire rally.
The 10-year yield fell just -0.03% to 4.28%, a muted response given the magnitude of the oil crash and equity rally. The bond market's reaction reflects the Fed's policy forecast. Seven of nineteen Fed members forecast zero cuts in 2026, and the Fed's March minutes, released this week, reaffirmed its patient approach.
Implication: The bond market's restraint suggests it is waiting for confirmation that the ceasefire will meaningfully improve the inflation and growth outlook.
Next week unofficially kicks off Q1 earnings season, with the big Wall Street banks reporting.
The focus will extend beyond the usual revenue and earnings beats to management commentary on the conflict's impacts, from energy costs and supply chain disruptions to consumer demand and forward estimates.
Implication: Earnings calls will provide the first corporate read on how the energy shock is flowing through margins, pricing, and demand. Forward guidance and tone may matter more than the headline numbers this quarter.
1Q26 Market & Economic Recap & 2Q26 Outlook
Key Updates on the Economy & Markets
The first quarter of 2026 was one of those periods that reminded investors why markets don't move in a straight line.
Stocks started the year on solid footing with January modestly positive, February quiet, and then March arriving with a jolt. The escalation of geopolitical tensions in the Middle East, including the closure of the Strait of Hormuz, sent oil prices surging and rattled markets in ways that few anticipated heading into the year.
By the time the quarter closed, the S&P 500 was down -4.3%, with the bulk of that decline concentrated in a single month. And if you looked only at that headline number, you might walk away with a grim picture.
But the quarter was more nuanced than the index suggests, and I think it's worth taking a step back to understand what actually happened and what it means for your portfolio going forward.
Higher Oil Prices Changed the Rate Cut Conversation
Indeed, to understand why March felt so disruptive, you have to start with oil.
Crude prices had already been moving higher before tensions escalated with supply concerns tied to Venezuelan output pushing prices up nearly 13% in January, and climbing another 4% in February as geopolitical risks continued to build.
Then March arrived.
The conflict between the U.S. and Iran intensified, and the closure of the Strait of Hormuz, a waterway that carries roughly 20% of the world's oil, sent crude prices surging nearly 50% in a single month. For the full quarter, oil prices rose more than 70%, reaching levels not seen since mid-2022.
And why does that matter for your portfolio?
Because oil prices don't exist in a vacuum. Higher energy costs flow through to what consumers and businesses pay for goods and services. And as a matter of fact, you've likely already noticed it at the pump, as gasoline prices have risen nearly a dollar per gallon since late February.
And this is happening at a moment when inflation was already showing signs of firming before the conflict began. The Federal Reserve's preferred inflation measure, Core PCE, remains near 3%, and producer prices have been trending higher.
So then, coming into 2026, the market expected the Federal Reserve to cut interest rates two to three times by year end.
That expectation quietly eroded as the quarter progressed.
And by the time March ended, those rate cuts had been priced out entirely, and there was even early discussion about whether a rate hike might come back into the conversation.
The situation is still evolving.
The Strait of Hormuz remains closed as of quarter-end, negotiations are ongoing, and oil is trading near $100 per barrel, a signal that the market expects the disruption to persist for some time.
The April and May inflation reports will be the first data to fully reflect the energy price surge, and they'll go a long way toward shaping the Federal Reserve's next move. In the meantime, headlines out of the Middle East are likely to continue influencing how both stocks and bonds behave in early Q2.
Diversification Quietly Did Its Job
Now, one of the most important, and most overlooked, stories of Q1 was what happened beneath the surface of the S&P 500.
The S&P 500 is a market-cap weighted index, meaning the largest companies carry the most influence over the index's return. When those large companies, particularly those in the technology sector, sold off, the headline number felt worse than what most diversified investors actually experienced.
To put it in perspective, the average S&P 500 stock outperformed the broad index by nearly 5% in Q1. Small-cap stocks, as measured by the Russell 2000, actually gained nearly 1%. And international stocks finished the quarter with a gain of nearly 1% as well, outperforming the S&P 500 by more than 5 percentage points.
And what drove that gap? Well, there were two competing forces at work.
The first was a rotation away from mega-cap tech stocks. For the past two years, a handful of the largest companies drove the majority of the market's gains.
In January, investors started moving away from that concentrated trade. The rotation accelerated in February when concerns about artificial intelligence disruption spread through the software sector, and markets began to price AI not just as a productivity enhancer, but as a potential replacement for entire categories of professional services.
The software sector has now declined nearly 30% from its peak last October, one of the largest non-recessionary drawdowns in over 30 years.
The second force was a genuine improvement in manufacturing activity. After spending nearly a year in contraction, the ISM Manufacturing Index crossed into expansion territory in February and held there in March.
That's a meaningful sign for the economy and potentially for corporate earnings.
Indeed, the manufacturing sector had been a soft spot in the economy since 2022, and the data suggested it was gaining real traction before the conflict began. Industrials was one of the few sectors to set a new all-time high during the quarter.
Across the broader equity market, six of the eleven S&P 500 sectors outperformed the index, a sharp contrast to recent years when gains were driven by just a few names. Energy led everything with a 38% return as oil surged.
Materials, Utilities, and Consumer Staples each gained more than 7.5%. On the other end, Technology, Consumer Discretionary, and Financials each declined more than 9%.
The gap between the best and worst sectors was wide. But for investors with diversified exposure across company sizes, sectors, and geographies, the quarter felt more moderate than the S&P 500 return alone would suggest.
Diversification didn't eliminate the volatility. It helped manage it, and that's exactly what it's designed to do.
Bonds Navigated a Volatile Quarter
The bond market had its own version of the quarter's turbulence.
Interest rates rose in January as tariff concerns resurfaced, then fell sharply in February as growth worries, particularly around AI disruption, pulled investors toward safer assets.
March reversed that move quickly.
And as oil prices spiked and rate cut expectations faded, yields climbed again. The 10-year Treasury yield ended the quarter near 4.32%, its highest level since mid-2022. The 2-year yield rose nearly 0.35% for the quarter, reflecting how quickly rate cut expectations shifted.
The Bloomberg U.S. Aggregate Bond Index finished the quarter flat, a meaningful step down from the 1% or better returns it produced in each of the prior four quarters. Corporate bonds modestly underperformed higher-quality Treasuries, and credit spreads widened to their highest levels since early 2025.
That widening reflects caution, not crisis, with corporate spreads remaining well below the levels reached during past recessions and financial dislocations.
And what are we to take of all this data?
Well, the bond market is telling us that investors are being careful, but it's not telling us something is broken yet.
What to Watch in Q2
As we move into the second quarter, the central story remains the same: the Middle East, oil prices, inflation, and what the Federal Reserve does next.
Progress toward resolving the Strait of Hormuz closure would ease energy costs and give the Fed more room to maneuver on rates. However, a prolonged disruption means higher oil prices have more time to work through to consumers and businesses, keeping inflation elevated and leaving the Fed in a difficult position.
From a data perspective, the April and May inflation reports are the ones to watch. They'll be the first readings to capture the full impact of higher energy costs, and they'll shape the rate outlook for the rest of the year.
While you're watching those headlines, I want to offer some perspective on the bigger picture.
Over the past 26 years, corporate earnings and stock prices have moved together with a 96% correlation.
When earnings rise, prices generally follow.
When earnings deteriorate, as they did in 2001, 2008, and 2020, prices tend to fall with them. What's notable about today's environment is that earnings estimates have continued to rise even as the S&P 500 has pulled back.
Analysts still expect earnings growth in the coming quarters, and profit margins to remain healthy.
Put differently, the market's decline in Q1 was driven by uncertainty around oil, inflation, and Federal Reserve policy, not by a deterioration in the underlying fundamentals that drive stock prices over time.
And that distinction matters.
Certainly, uncertainty is uncomfortable, but it's different from a breakdown in the economic foundation.
The quarter also reinforced something I believe deeply in that staying invested, staying diversified, and keeping a long-term perspective is one of the most effective strategies available to investors. The areas of the market that led over the past two years underperformed in Q1.
Investors with broad exposure across company sizes, styles, and geographies experienced a meaningfully different quarter than the headlines suggested.
When it comes down to it, markets will work through the uncertainty in the Middle East. The data will come in, the Fed will respond, and conditions will shift, as they always do.
In the meantime, your plan was built for periods like this one, and I remain confident in the approach we have in place.
Weekly Market Recap: Oil Shock, Jobs Data, and a Holiday Pause
Market trading this week was driven by a rebound in stocks, rising oil prices, and Friday’s jobs report.
Stocks moved higher through Thursday, even as energy markets reacted to renewed geopolitical tension. Then today, with stock markets closed for Good Friday, the latest payrolls data showed the labor market is still holding up, while bond markets remain open for a shortened session.
By Thursday’s close, the S&P 500 had gained 3.4% for the week, the Nasdaq rose 4.4%, the Dow added 3.0%, and the Russell 2000 climbed 3.3%. That rebound helped markets recover from part of last week’s weakness, but the tone underneath the surface was still shaped by geopolitics.
Oil surged sharply after the latest U.S. rhetoric on Iran reduced confidence in a near-term diplomatic resolution. WTI crude closed Thursday at $111.54 per barrel, while Brent ended at $109.03.
Then on Friday morning, the March jobs report showed payroll growth of 178,000, an unemployment rate of 4.3%, and average hourly earnings up 0.2% month over month and 3.5% year over year.
The week’s other key data reinforced the idea that the economy has not rolled over. ISM Manufacturing came in at 52.7 in March, marking a third straight month of expansion. That matters because it suggests the economy is still holding up even as oil prices rise.
In other words, recession fears did not get confirmed this week, but the inflation side of the equation became harder to ignore.
Key Takeaways
Oil Prices Remain the Market’s Pressure Gauge: Last week, falling oil supported hopes that the conflict might cool off. This week, that changed. The renewed spike in crude is a reminder that geopolitical risk is still feeding directly into inflation concerns and broader market sentiment.
Markets Rebounded, but the Backdrop Is Still Fragile: This week’s rally was constructive, especially because gains were broad enough to include small caps. But the rebound happened alongside a major jump in oil, which means the recovery in stocks did not come with a clean improvement in the macro backdrop.
The Labor Market Still Looks Resilient: Friday’s jobs report helped reinforce that the economy is still holding together. That may ease immediate recession concerns, but it also makes it harder to argue that the Fed will have clear room to turn more dovish if energy prices stay elevated.
Weekly Market Update: Middle East Ceasefire Headlines, Volatile Oil Prices, & Stock Market Rotation
Weekly Market Recap
Market trading was influenced by ceasefire headlines this week.
The S&P 500 rose early after the administration reported talks with Iran, then reversed to close down nearly -0.5% as Iran denied negotiations and the diplomatic window narrowed.
Meanwhile, the market rotation from early 2026 resumed, with small caps, value stocks, and the equal-weight S&P 500 outperforming. Oil dropped nearly -10% on Monday's ceasefire headline before recovering to close the week down roughly -5%.
Treasury yields ended the week higher despite falling mid-week, credit spreads tightened modestly, and the VIX remained elevated.
The week ahead brings the expiration of Trump's five-day strike pause on Iranian energy infrastructure, along with consumer confidence and ISM Manufacturing PMI, the first major economic data releases that will capture the full impact of the war and the oil shock.
Key Takeaways
Oil Prices Remain Volatile
Oil markets whipsawed this week as ceasefire headlines between the U.S. and Iran drove sharp swings in both directions. Prices plunged more than -10% early in the week after President Trump described productive discussions and announced a five-day pause in strikes, raising expectations for a diplomatic resolution.
Those gains reversed when Iran denied active negotiations and later rejected a formal U.S. ceasefire proposal that included reopening the Strait of Hormuz, which remains closed. Iran's counteroffer signals that diplomatic channels are open, but no agreement is imminent.
Bottom Line: Oil prices are unlikely to stabilize until there is clarity on whether negotiations can produce a lasting agreement. Each headline-driven swing is a reminder of how much geopolitical premium remains embedded in energy markets, as well as the stock market.
Markets Traded on Ceasefire Headlines
U.S. equities traded higher early in the week, but reversed lower as the week progressed. The S&P 500 rose over +1%, with most of the advance coming Monday after reports of U.S.–Iran negotiations sparked a broad relief rally.
Markets then pulled back the following session as oil rebounded and uncertainty around a deal resurfaced, staged a rebound when news of a formal ceasefire proposal emerged, and ultimately traded lower as tensions escalated again.
Bottom Line: Stocks remain highly sensitive to ceasefire signals, with the direction of oil prices serving as the most reliable real-time indicator of investor confidence in a diplomatic outcome.
The Stock Market Rotation Resumes
Market leadership broadened again this week as the rotation away from mega-cap stocks reasserted itself. The Russell 2000 outpaced the S&P 500 during the early week rally, and the equal-weight S&P 500 outperformed the cap-weighted index as value stocks pulled ahead of growth.
The divergence is consistent with the trend that emerged in early 2026, when investors began moving toward smaller companies, value stocks, and more economically sensitive areas of the market.
Bottom Line: The rotation paused during the market volatility, but it started to reappear this week. One week doesn't confirm a trend, but the broadening is showing up across multiple measures simultaneously, which is more credible than small-cap leadership alone.
Rate Hike Probabilities Creep Into Fed Pricing
Interest rate expectations shifted again this week as investors began pricing in the possibility that the Federal Reserve could raise rates later in 2026. Futures markets showed rate-hike probabilities rising above 50% in late 2026, with the market starting to price in a rate hike due to concerns that a sustained rise in oil prices will reignite inflation.
At the same time, inflation expectations have reversed slightly lower, suggesting markets still view the current inflation pressures as temporary rather than structural.
Bottom Line: The debate has shifted from the timing of cuts to the possibility of a brief hike, and that repricing matters for duration positioning. If oil stabilizes and inflation expectations remain anchored, the probability of a rate hike could fade.
Market Update: Geopolitical Tensions & Your Financial Plan
Given the deeply concerning headlines about the conflict in the Middle East, I imagine this is a time of worry for you as it is for many.
While the violence and loss of life is distressing, I want to reassure you that your financial plan is designed to weather turbulence, and I’m watching the situation closely on your behalf.
There are still many open questions about how the geopolitical situation will unfold, and near-term market volatility is likely amid the uncertainty.
Some Historical Context
However, in times like these, the chart below offers important historical context in that the U.S. has navigated many challenging periods in the past, so staying focused on your long-term plan is critical.
Indeed, history has shown the wisdom of sticking to your investment discipline and not overreacting to short-term events, difficult as that can feel in the moment.
What to Do Next
As a next step, I would recommend reviewing last week’s email (see link below) because the key takeaways bear repeating:
- Maintain your long-term asset allocation and diversification
- Keep appropriate cash reserves so you're not pressured to sell at bad times
- If needed, we can discuss adjusting your spending temporarily to relieve stress
https://franklinmadisonadvisors.com/cio-corner/market-volatility-heres-what-to-do-about-it/
Rest assured, if I’ve personally worked on your plan with you, your portfolio is built to withstand choppy markets, and we are monitoring developments diligently and ready to make prudent adjustments if warranted.
If You Still Need Help
Ultimately, I'm here as a resource and sounding board for you.
Please don't hesitate to schedule a quick call or reply to this email with any specific questions or concerns you have, I'm happy to talk things through and revisit any details of your plan so you can feel more confident.
While the macro situation is troubling, I have deep faith in the resilience of our country and economy. We will get through this, and I remain optimistic about the long-term future.
Weekly Market Update: Rally Extends to Six Weeks as Iran Talks Advance
Markets traded higher for a sixth consecutive week, extending the rally that began in late March and pushing several major indexes to new highs.
Technology and growth stocks led the advance, with the Nasdaq gaining nearly 4%, outpacing the S&P 500 and small-cap stocks, which each rose roughly 1.5%. Technology, consumer discretionary, and communication services were the top-performing sectors, all of which carry significant exposure to the largest companies in the market.
Beneath the surface, the picture was more mixed. Six of eleven sectors finished the week lower, highlighting how the rally has been driven by a relatively narrow group of market leaders. Bonds produced modest gains as interest rates drifted lower, and oil fell more than 8% on reports of progress toward an Iran deal.
The week closed with a stronger-than-expected April jobs report, adding to the picture of an economy that continues to hold up despite the geopolitical backdrop.
Key Takeaways
The Middle East Conflict, Now in its 10th Week, Remains the Top Story in Financial Markets
The week opened with Iran's most serious provocation since the April ceasefire, including strikes on the UAE and attacks on commercial ships in the Strait of Hormuz. The tone shifted quickly as regional allies pressed for de-escalation and reports emerged of a framework agreement to end the conflict.
Oil fell nearly 10% early in the week, trading near $90 per barrel for the first time since mid-April.
Why it matters: The acute market stress from earlier in the conflict has eased, but the situation continues to drive significant swings in oil prices and broader market sentiment. Progress toward a resolution would be a positive development for markets, while a breakdown in talks could trigger more volatility.
Major U.S. Equity Indices Continue to Set New Highs
U.S. stocks extended their rally to six consecutive weeks, with three of the four major indexes reaching new highs. The S&P 500 gained 2.0%, the Nasdaq rose 4.0%, and small-cap stocks climbed 1.5% to set a new high of their own.
Most of the week's gains came in a single session, following reports of progress on an Iran deal.
Why it matters: The pattern has been consistent through this stretch of geopolitical uncertainty. Headlines create short bursts of volatility, but the market has recovered as conditions stabilize. Six consecutive weeks of gains, including new highs across multiple broad equity indexes, reflects a market that continues to look through near-term uncertainty toward the underlying fundamentals.
Leading Tech Companies Report Strong Earnings and Increasing AI Capital Expenditures
The largest technology companies reported earnings over the past two weeks, and their commitment to AI infrastructure spending continues to grow. Alphabet, Amazon, Meta, and Microsoft all beat estimates, but the capital spending figures drew the most attention.
Meta raised its full-year capital spending guidance to $125 to $145 billion, Microsoft spent nearly $32 billion in a single quarter, and Alphabet's cloud backlog nearly doubled. Combined, the top four U.S. cloud providers are now projected to spend over $660 billion on infrastructure in 2026.
Why it matters: The spending isn't speculative in the way it once appeared, with the group posting strong revenue growth. Given these companies' large index weights, the reported growth is one of the forces pushing broad market indexes higher.
April Payrolls Beat Expectations as the Labor Market Holds Steady
The April employment report came in stronger than expected. Nonfarm payrolls rose by 115,000, down from the 185,000 created in an unusually strong March but better than the 55,000 forecast in the Dow Jones consensus estimate.
The unemployment rate held at 4.3%, further proof that the labor market has reached a point where only modest job creation is needed to keep the jobless level steady, given little growth in the labor force. Average hourly earnings came in lower than expected, increasing 0.2% for the month and 3.6% on an annual basis.
Beneath the headline, the picture was softer. A broader measure that includes discouraged workers and those holding part-time jobs for economic reasons rose to 8.2%, and the participation rate declined to 61.8%, the lowest since October 2021.
Why it matters: The labor market continues to defy expectations for a slowdown, but the softer details, slower wage growth and falling participation, point to a more cautious picture underneath. For investors, the report supports the view of a stable but cooling labor market, one that doesn't pressure the Fed in either direction at a time when policymakers are already navigating an oil shock and ongoing geopolitical risk.