First Quarter 2026 Review and Outlook

Written by Tim Rigby

According to The Wall Street Journal, the popular stock indexes posted returns for the quarter and year to date as follows:

 			                                                 Quarter		           Year

The Dow Jones Average -3.60% -3.60

The S&P 500 -4.60% -4.60%

The NASDAQ Composite -7.10% -7.10%

The year began very well, but the war with Iran caused a sell-off that led to a market decline. However, even with the strong start, there were already several areas of concern emerging, and the war exacerbated the concerns. Valuations were high, and inflation was running above 3% a year, which is higher than the Federal Reserve’s target of 2%. The biggest contributor is the sharp rise in oil prices as Iran has effectively closed the Strait of Hormuz, which shuts off about 20% of world oil shipments every day. With oil prices more elevated now, inflation will probably track closer to 4%, which is negative for bonds and stocks.

While the year started very well in stocks, Artificial Intelligence (AI) was starting to upend different sectors of the market, such as software companies. The thought is AI will replace many of the functions that a software company currently provides by creating its own programming and coding. Will it replace much of what a company like Microsoft does or will it make Microsoft bigger and better? Time will tell, but we will have more volatility in the interim.

Data centers are being built everywhere. If you drive along any interstate, there are huge swaths of land being cleared and built on. It is a race by all companies to build out their computing power exponentially over the next few years. Several trillion dollars will be spent which should give the economy a big boost if they can find enough electricity to power these massive complexes.

Tax changes Congress implemented last year have started to kick in so consumers will get bigger tax refunds come April 15 and have more cash to spend. This should really help the economy grow strongly once the war in Iran is in the rearview mirror. On the flip side, government shutdowns that drag on like the current one do appear to hurt economic growth so Congress needs to find better ways to score politically than shut down our government routinely.

Bonds have been range bound and it looks like that may continue so we advocate short term types of bonds to improve yields over what money markets pay. Going forward credit quality could be more important.

Things will continue to be choppy in our view until the war in Iran has clarity and the government shutdown ends. Once these things happen, the economic news will again take center stage and it should be strong. Corporate earnings are forecast to grow 12%+ so stocks should have a good second half of the year.

Call with any questions or if we can help by reviewing your financial situation.

Tim Rigby