The United States’ conflict in Iran, led by President Donald Trump, dominated headlines, equity and fixed-income markets for the later part of Q1 2026. A spike in energy pricing in large part due to the near closing of the Strait of Hormuz, and the largest since the 2022 surge as a result of Russian invading Ukraine, materialized quickly. Pushing the price per barrel some 60% higher forcing the International Energy Agency to release the largest strategic reserve in history. For the most part to no avail. A jump in energy caused fear of inflation, recession or worse and ultimately took its toll on global markets. Pushing the Nasdaq composite index into correction territory and the S&P 500 index very close.
Similarly, a perceived flight to safety in fixed-income markets drove the 10-Year US Treasury yield below 4% only to whipsaw late in the quarter over similarly perceived inflationary and monetary policy uncertainties.
In short, as with most US driven invasions abroad, volatility drove markets from February 28th on. We covered historical market reactions in our Weekly Market update early on dating back the first Gulf War in 1990.
‘Generally speaking, the first week entails knee-jerk or panic selling on average over the first 19 days. The ensuing recovery on average being an additional 42 days. Leaving markets relatively flat after roughly the first month. Six months later, however, the S&P 500 index has historically marched higher with an average rate of return of 6.3%. And are traditionally only lower in the midst of a recession.’
The good news for our investors is that risk-management measures led to the vast majority of our equity and blended models outperforming their respective benchmarks. The only notable exception being those with 100% equity exposure in accounts with balances of less than $10,000. Risk-management measures remained subtle, often partial reductions in risk, a key component of the updated strategy we rolled out to our clients in January. This first measurable overhaul since 2018. Cash and cash equivalent exposure reached roughly 18% of our various models at its peak and currently sits between 7-10% as we identified new opportunities in biotechnology, materials, information technology and healthcare. It goes without saying periods of elevated volatility generate an above average number of trades as we move towards or away from risk.
Uncertainty remains as we embark on a new quarter, we anticipate more of the same in the near term. Rest assured your bottom line is our top priority and we will continue to manage through relative chaos to the best of our ability. Markets are resilient, we are in this together, and hopefully someday soon we will return to a more growth oriented approach.
We can only hope that the conflict ends quickly and for the safe return of our service men and women overseas.