Written by: Trek Investment Committee
Markets
U.S. equities were volatile in the first quarter, with most of the turbulence concentrated late in the period as the conflict with Iran escalated. Early March brought sharp declines as stocks fell alongside a run-up in energy prices. The sell-offs did not turn into a sustained breakdown. Markets generally recovered once investors reassessed the likelihood of broader economic disruption, which is consistent with how markets have historically responded to geopolitical shocks.1, 2
The year began with modest upward momentum, but sentiment shifted in late February as geopolitical risk became the dominant driver of asset prices. By early March, this had largely displaced economic fundamentals. Energy was the clearest link between events and market behavior. Oil prices surged as the conflict threatened supply routes through the Strait of Hormuz, increasing volatility and tightening the connection between geopolitical headlines and investor sentiment.3
Even at its weakest point, the market remained relatively resilient. The S&P 500 never entered correction territory and rebounded later in the quarter as expectations for de-escalation improved. By quarter-end, major indices were volatile but range-bound. Large swings in both directions offset each other, and late-quarter rallies reinforced how sensitive markets had become to geopolitical developments.2, 4
Beneath the surface, leadership remained narrow. Investors continued to favor companies with strong earnings visibility and solid balance sheets, while overall market participation stayed uneven. This reflects a more cautious and selective environment.5
Economy
The U.S. economy entered 2026 on solid footing, though signs of gradual moderation have become more apparent. Early data continues to point to growth, even as higher rates and global uncertainty weigh on momentum. According to the Bureau of Economic Analysis, GDP expanded into late 2025 supported by consumer spending and business investment, although at a slower pace than earlier in the cycle.6
Recent data shows parts of the economy stabilizing. The Institute for Supply Management, for example, reported that manufacturing returned to expansion in early 2026 after prior contraction. Additionally, inflation has moderated from prior peaks, though progress is uneven. CPI data also shows continued year-over-year cooling, even as services components remain sticky. The labor market has also held up well. Hiring has slowed compared to prior years, but unemployment remains near historic lows, which continues to support consumer activity.While these are positive developments, the pace remains modest and consistent with a slower-growth environment.7,8, 9
There is limited evidence that the economy has stalled. Temporary disruptions, including those tied to federal funding lapses, may weigh on short-term activity but historically reversed once conditions normalize.10
The overall picture continues to support a “slowing, not stalling” environment. Certain sectors are feeling the effects of higher rates and policy uncertainty, but the broader economy remains supported by stable employment, moderating inflation, and continued, if slower, growth.
The Fed
Monetary policy stayed front and center in the first quarter, with the Federal Reserve maintaining a patient and measured approach. At recent meetings, the Fed has held rates steady and emphasized that future decisions will remain data-dependent, particularly as inflation continues to moderate but has not yet reached target levels.
The current stance reflects a balance. Inflation has improved but remains elevated, while economic growth has slowed and policymakers are increasingly aware of the cumulative impact from higher rates.
Geopolitics developments have added complexity. The conflict with Iran introduces potential upside pressure on inflation through energy markets, while also increasing uncertainty around global growth. This reinforces the Fed’s current position. Rather than rushing toward rate cuts, policymakers are maintaining flexibility until there is clarity around both inflation and external risks.11
Market expectations have adjusted accordingly. Earlier assumptions of a more aggressive easing cycle have moderated, with current projections pointing to a gradual, data-driven approach. Overall, the Fed’s posture could be best described as deliberate pause. Policymakers are not signaling further tightening, but they are also not yet in a position but the Fed’s communication points to any shift being gradual and data-driven, not preemptive.12
Geopolitics
Geopolitical risk became one of the defining market drivers of the quarter, particularly after the launch of Operation Epic Fury on February 28. Initial strikes on Iranian military and security targets raised immediate concerns about escalation, energy supply disruption, and broader regional instability.13
Markets reacted quickly. By March 5, the Dow was down more than 750 points, the S&P 500 and Nasdaq both fell, and oil climbed to its highest levels since 2024. As oil prices surged, and equities experienced sharp swings, investors weighed the risk of a wider conflict.14,15
Despite these moves, market reactions remained relatively orderly. The conflict was clearly driving daily price action, however it had not yet produced signs typically associated with systemic stress.
Energy remained the clearest transmission channel. Concerns surrounding the Strait of Hormuz and potential supply disruptions drove oil prices higher and kept markets closely tied to geopolitical developments. By March 12, Reuters reported global shares falling and oil approaching $100 a barrel as tanker attacks and fears of prolonged disruption pushed investors into a more defensive posture.16
The quarter serves as a reminder of how quickly geopolitics can shift from a background factor to a primary driver of market behavior, influencing not only prices but also expectations around inflation, growth, and overall risk sentiment.
Outlook
The first quarter reflected a market environment shaped by competing forces. Economic conditions remained relatively stable, while monetary policy stayed restrictive and geopolitical developments introduced periods of volatility.
Markets responded quickly to new information, particularly around energy prices and global conflict, highlighting how sensitive investor sentiment has become to external events. At the same time, underlying conditions such as employment, inflation trends, and corporate fundamentals continued to provide a degree of stability.
Taken together, the quarter illustrates a market that is navigating uncertainty without clear directional conviction, balancing steady economic conditions against evolving global risks.
Sources:
3 “March 2026 Review and Outlook,” Nasdaq.
4 “Stock market news for March 31, 2026,” CNBC.
5 “6 Charts That Defined US Markets in Q1,” Morningstar.
6 “GDP (Advance Estimate), 4th Quarter and Year 2025,” U.S. Bureau of Economic Analysis.
7 “Manufacturing ISM Report On Business, March 2026,” Institute for Supply Management.
8 “Consumer Price Index Summary — March 2026,” U.S. Bureau of Labor Statistics.
9 “Employment Situation Summary — March 2026,” U.S. Bureau of Labor Statistics.
11 “Federal Reserve issues FOMC statement,” Board of Governors of the Federal Reserve System.
12 “FedWatch Tool,” CME Group.
13 “U.S. Forces Launch Operation Epic Fury,” U.S. Central Command.
14 “US stocks recover, gold rises and oil surges as war with Iran spreads,” CNN, March 2, 2026.
Disclosure :
This overview presents a cautious interpretation of current economic indicators and their potential implications for investors. It’s important for investors to remember that market conditions are inherently uncertain and subject to change. The information provided here should not be considered as personalized investment advice or a prediction of future market movements. Investors are encouraged to consult with their financial advisor to discuss their individual financial situation and goals. A comprehensive investment strategy should consider the investor’s risk tolerance, investment time horizon, and any changes in economic conditions.
Investment Advisory Services offered through Trek Financial LLC, an investment adviser registered with the Securities Exchange Commission. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. Trek 26-89
