Quarterly Market Review

The Markets

The first quarter of 2026 saw a shift in market preference. After years of index performance dominated by a handful of tech giants and AI companies, investor preference moved toward value, small caps, and real economy sectors. The three major U.S. indexes, the Dow, the S&P 500, and the NASDAQ, each declined by the end of March. Conversely, the Russell 2000's relative resilience and the strong performance of energy and defensive sectors underscored the investor preference shift. Energy, utilities, and consumer staples outperformed, replacing consumer discretionary, information technology, and communication services. The energy surge was driven by a sharp spike in oil prices following the escalating conflict involving Iran, including disruptions in the Strait of Hormuz, which accounts for 20%-30% of global crude flows. The primary drivers of the stock market in the first quarter were an escalation of Middle East tensions, sustained triple-digit oil prices, and a sharper-than-expected deterioration in the labor market.