21 Apr Market Update: First Quarter 2026

Market Update: First Quarter 2026

I’m grateful to be writing this to you from my new home office! Blue skies above and flowers in bloom outside the large window I chose for this space. While the picture is rosy at my house right now, the first quarter of 2026 gave us no shortage of things to worry about. AI disruption rattled the largest tech stocks early in the year, and by quarter-end the Iran conflict and rising oil prices had taken center stage. If you followed the news closely, you might have expected your portfolio to look a lot worse than it probably did. That gap between headlines and reality is worth understanding, because it shows up again and again in markets.

Here is a look at what moved markets this quarter, why things unfolded the way they did, and what I think is worth keeping in mind as we head into the rest of the year.

What Happened This Quarter

The story of Q1 is really a story about concentration risk playing out in real time. For the past few years, a handful of mega-cap technology companies, often called the Magnificent Seven, drove an outsized share of U.S. market returns. When those stocks fell -12.2% on concerns that AI competition could erode their dominance, the S&P 500 followed them down. The index finished the quarter down -4.4%.

But look beyond the S&P 500 and a different picture emerges. Smaller U.S. companies, as measured by the Russell 2000, were essentially flat at +0.9%. International developed markets (the EAFE index) gained +1.2%. That divergence matters. It is a reminder that the S&P 500 is not “the market” in any complete sense. It is a snapshot of large U.S. companies, and right now those companies are heavily concentrated in a sector that had a difficult quarter.

Fixed income also did what it is supposed to do in times of uncertainty. Short-term Treasuries returned +0.3% while intermediate-term bonds were roughly flat. Not exciting, but steady, which is the point.

Oil, Geopolitics, and What It Actually Means

Oil climbing toward $100 per barrel understandably gets people’s attention. Energy prices touch almost everything: transportation, manufacturing, food, heating. When they rise sharply, they act as a tax on consumers and businesses alike, slowing growth and adding to inflation.

That said, context matters. Most economists place the threshold for a serious global recession at around $150 per barrel or higher, reflecting how much more energy-efficient the global economy has become over the past two decades. At current levels, the impact is meaningful but not catastrophic. Europe and Asia, which import more of their energy than the U.S., face more direct pressure. The U.S. is relatively better insulated, though not immune.

Geopolitical events are genuinely hard to price. Markets tend to react quickly to the news and then recalibrate as the situation becomes clearer. History suggests that most geopolitical shocks, even serious ones, have a shorter economic half-life than they appear to in the moment. That is not a reason to be dismissive of the risk. It is a reason to stay measured rather than reactive. 

Why Hasn’t the Market Crashed?

Given the headlines, it is a fair question. The short answer is that corporate earnings have been more resilient than expected. S&P 500 earnings estimates were actually revised upward during Q1!

There is also a valuation angle worth understanding. Stocks are priced based on what investors are willing to pay for each dollar of future earnings. That ratio, called the forward price-to-earnings multiple (aka PE Ratio), contracted about 16% from its recent high even though stock prices themselves are only about 6% off their peak. In plain terms: prices are down a little, but earnings expectations have held up well, so the market is considerably less expensive than it was at the start of the year. That is not a guarantee of anything, but it is a healthier starting point.

Markets are also forward-looking by nature. They do not wait for crises to be resolved before recovering. This is why it is called a Leading Indicator by economists. Often, prices begin to stabilize and move higher while the underlying situation still feels uncertain. This is uncomfortable for investors who want clarity before acting, but it is simply how markets work.

How to Think About All of This

Quarters like this one are a useful reminder of a few things that tend to get lost during calm stretches.

Diversification is not just a theory. When U.S. large-cap tech struggled, smaller companies and international markets held their ground. A portfolio spread across geographies and asset classes does not eliminate volatility, but it does reduce the impact of any single stock or regional crises. This quarter demonstrated that in a concrete way.

Volatility is the price of long-term returns. It is not a sign that something has broken. Every meaningful gain in the stock market over time has come alongside stretches of uncertainty, drawdowns, and discouraging news. The investors who benefit most are generally the ones who stay invested through those periods rather than trying to time their way around them.

Markets will always give us something to worry about. That is as reliable as Spring following Winter. What matters more than any single quarter is staying diversified, staying patient, and making sure your portfolio reflects your actual goals rather than the mood of the moment. If anything in this letter raised questions or you just want to catch up, please give me a call. I am always glad to hear from you.

Information is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products, or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this post (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of Angela Wright, an Investment Adviser Representative of Gemmer Asset Management LLC (“GAM”) and should not be regarded as the views of GAM, or a description of advisory services provided by GAM or performance returns of any GAM client.  References to securities or market-related performance data are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.  

The information presented herein may contain links to third party websites with which we have no affiliation. A link to any third-party website does not mean that we endorse it, or the quality or accuracy of the information presented on it.