Evolving Markets, Expanding Outcomes
The first quarter of 2026 unfolded in distinct phases, highlighting how quickly market
sentiment can shift as world events evolve. The year began with a continuation of the positive
momentum from late 2025, supported by resilient economic data and steady investor
optimism. However, as the quarter progressed, markets were increasingly influenced by
developments surrounding the Iran conflict, broader geopolitical instability, a sharp rise in
energy prices, and growing uncertainty around the Federal Reserve’s path for interest rates.
These forces contributed to a market sell-off in March, with stocks pulling back before
rebounding on signs of potential de-escalation in Middle East tensions and easing concerns
around further escalation of the conflict.
Against this backdrop, we recognize that periods of heightened volatility can feel challenging,
often bringing a sense of uncertainty and fatigue. By quarter-end, investors were navigating a
more complex and less predictable landscape defined by shifting leadership across sectors
and a renewed focus on inflation and global growth risks tied to energy markets. Rather than
pointing to a single, clear outcome, the current environment reflects a wider range of possible
paths forward. This reinforces the importance of maintaining a disciplined and flexible
investment approach while resisting the temptation to react to short-term market swings.
Market Recap
Markets carried their upward momentum through the first two months of the year before
escalating tensions between the U.S. and Iran began to dominate headlines. This shift in
sentiment drove the S&P 500 down nearly 10% from its peak, with the index ultimately closing
the quarter with a loss of 4.33%. The period was marked by sharp swings in both directions
and wide dispersion across sectors and asset classes. Energy stocks (+37.83%) surged
alongside rising oil prices, while quality dividend companies (+12.78%) also outperformed. In
contrast, technology stocks (-7.52%) and the “Magnificent 7” (-12.34%) lagged after an
extended period of strong leadership (Source: Morningstar, associated indexes are noted in
the chart below).
Technology stocks took a meaningful step back in the first quarter as investors grew more
concerned about both elevated valuations and the potential for artificial intelligence to disrupt
existing business models. Microsoft was a notable example, falling 23.4%, its worst quarterly
result since Q4 2008 and its weakest start to a year since going public in 1986. Other AI-exposed
areas of the market also came under pressure, as investors questioned whether advances in
artificial intelligence could lower barriers to entry and reshape competitive dynamics across
industries.
The rotation that began at the end of 2025 carried into the first quarter with Large Cap Value
(+2.10%) significantly outperforming Large Cap Growth (-9.78%). Rather than a broad,
indiscriminate selloff, investors appeared to be repositioning while trimming exposure to more
stretched areas of the market and reallocating toward relatively cheaper segments like small
cap, value, and international equities.
While the broad market posted a loss during the first quarter, it’s clear that investors have
since been leaning toward a more optimistic outcome. Although negotiations are currently on
pause, the US and Iran continue to signal a willingness to re-engage. Throughout the conflict,
markets tended to sell off on negative developments, but encouraging signs of de-escalation
sparked even stronger rebounds, highlighting how quickly sentiment shifted. After bottoming
in late March, the S&P 500 has rallied more than 10% from March 31 through April 21.
Technology stocks (+21.28%) have regained leadership during this stretch, as shown in the
chart below, though other asset classes such as emerging markets (+14.54%) and international
equities (+8.57%) have also participated (Source: Morningstar, associated indexes are noted in
the chart below).
The Economy
Inflation remains a central theme, with energy prices continuing to act as a key driver amid ongoing
geopolitical tensions. Importantly, these pressures are not being felt evenly across the economy. As shown in
the chart below, wage growth has been trending lower even as inflation has moved higher, creating a growing
disconnect for many households and pointing to a more challenging backdrop for real income growth.
At the same time, while the economy and labor market still appear resilient on the surface, there are signs that
momentum is beginning to soften. Job growth has moderated, and global GDP expectations have been revised
downward, suggesting a more measured pace of growth ahead. The International Monetary Fund (IMF) recently
lowered its forecast for world economic growth to 3.1%, down from 3.3% in January, citing the impact of the
Iran conflict (Source: The Economist, International Monetary Fund). Notably, the IMF indicated that growth
would have been revised higher absent the war. This underscores that the drag on the global economy may be
more significant than the
These pressures are becoming more visible in energy markets. As shown below, gasoline prices have risen
sharply relative to historical norms in a short period of time, illustrating how quickly geopolitical developments
can translate into higher costs for consumers. This dynamic is particularly important given that energy costs
tend to have an outsized impact on lower-income households, where a larger share of income is spent on
essentials.
More broadly, rising energy prices are beginning to filter through to other areas of the economy. As illustrated
in the accompanying chart, a wide range of goods and services have experienced price increases since the
onset of the Iran conflict, reinforcing the idea that inflationary pressures are not isolated to a single category
but are becoming more widespread.
Taken together, these trends suggest an evolution beyond the “K-shaped” recovery. The economy increasingly
resembles an “E-shaped” outcome—where some segments continue to expand, others are holding steady, and
a portion are beginning to face more pressure. The result is a more uneven economic experience, with
diverging outcomes for both consumers and businesses, even as the broader market has remained relatively
resilient.
THE BIG PICTURE: THREE PATHS FORWARD
Given the number of moving pieces in today’s environment, we think it is more helpful to frame the path
forward in terms of potential scenarios rather than specific predictions. We see three broad outcomes—not as
forecasts, but as frameworks for understanding what may come next.
The first scenario is one of persistent inflation, where energy prices remain elevated and continue to work
their way through the broader economy. In this environment, economic growth could slow even as price
pressures remain firm, creating a more challenging backdrop for both consumers and markets. Historically,
this type of environment has made it more difficult for markets to find clear direction.
The second scenario is a more pronounced downside shock, where higher energy prices or policy responses
become the catalyst that pushes the economy into a broader slowdown. In this case, what has so far been a
relatively resilient market environment could give way to a sharper correction alongside weakening economic
activity.
The third scenario involves stabilization and continued expansion. A de-escalation in geopolitical tensions
could ease pressure on energy markets, allowing inflation to moderate and growth to continue at a more
sustainable pace. In this environment, markets may be able to regain footing and continue moving higher,
though likely with periods of volatility.
The path forward will likely depend on how these dynamics evolve over time. Rather than attempting to
predict a single outcome, we believe it is more important to remain adaptable and ensure portfolios are
positioned to navigate a range of potential environments.
Roehl & Yi’s Final Thoughts
Regardless of which path ultimately unfolds, the common thread across all scenarios is a higher degree of
uncertainty and a wider dispersion of outcomes. At the same time, the forces shaping this environment are
becoming more apparent. Inflation pressures, geopolitical developments, and shifting economic momentum
are all contributing to a wider range of potential outcomes. Periods like this can feel uncomfortable, but they
are also a normal part of long-term investing. Rather than reacting to short-term headlines or letting emotions
dictate investment decisions, we believe the focus should remain on maintaining a disciplined approach and
staying positioned to navigate a variety of market conditions.
As we navigate this environment, we would emphasize the following:
Maintain a cautious stance and actively manage risk.
Given the range of potential outcomes, maintaining a balanced and intentional approach to risk is important.
Periods of strong market performance can sometimes mask underlying vulnerabilities, making it worthwhile
to reassess positioning and avoid becoming overly aggressive.
Maintain adequate liquidity and flexibility.
Holding sufficient liquidity can provide flexibility to navigate periods of volatility and take advantage of
opportunities as they arise. In an environment where outcomes are less certain, flexibility becomes
increasingly valuable as opportunities present themselves for long-term investors.
Prioritize diversification, particularly in inflation-sensitive areas.
Diversification has been working in the current environment, with commodity-related equities such as energy,
agriculture, and precious metals helping to offset volatility in other parts of the market. Infrastructure and
certain real estate investments can also play a role, as they often have revenue streams linked to inflation or
pricing power tied to essential assets. Maintaining exposure to a broad set of return drivers can help improve
resilience if inflation remains elevated.
Consider an allocation to dividend-paying, high-quality companies.
Dividend-paying stocks tend to be more mature, higher-quality businesses with stronger cash flows. In periods
of uncertainty or rising inflation, these characteristics can provide an added layer of stability and income
compared to more speculative investments.
Firm Update
We are pleased to share a few updates from our team. Mason Young recently passed the Certified Financial
Planner™ (CFP®) exam and Monica Vaughn Fisher has successfully completed her securities licensing exam. In
addition, both Stephen Allen and Mason are now licensed in insurance, allowing us to further support clients
with questions related to life, disability, and annuity planning.
The Roehl & Yi Promise
We remain focused on providing timely insights and thoughtful guidance as markets evolve. Thank you for
your continued trust in Roehl & Yi. As always, please don’t hesitate to reach out with any questions or to
discuss your financial plan.