Quarterly Newsletters
Quarterly Newsletter for the 1st Quarter of 2026
The US stock market has been unexceptionally hectic throughout the first quarter. The Dow Jones Industrial Average (DJIA) broke through that illusive 50,000-point mark, retreated into correction territory; yet finished the quarter a loss of only (3.58%) on a price return basis. The Standard and Poor’s 500 (S&P 500) was down (4.63%), and the NASDAQ returned (7.11%) for the period ending 3/31/2026. Even the overseas market, after a stellar 2025, finished the first quarter slightly down with the MSCI All Country World ex-U.S. Index posting a (0.71%) lose and the Emerging Markets Index returning (0.17%). In the fixed income environment, the Merrill Lynch 3-month Treasury Bill Index yielded 0.85% and the Bloomberg Aggregate Bond Index returned (0.05%) for the quarter.
Fixed Income Market (Bonds): The path of the FOMC (Federal Open Market Committee- The Fed) seems to be “steady as she goes”. Chairman Powell’s term at the helm of the Fed ends on May 15, 2026. He just presided over his last Fed meeting and, as expected, there is no change to Fed Funds Interest Rate- it remains stable in the range of 3.50% to 3.75%. President Trump has nominated a successor- Kevin Warsh. It appears that he will be confirmed by Congress and will preside over his first meeting in June. Prior to that, no one foresees an interest rate cut. In fact, many economists and stock market analysts that predicted two to three rate cuts this year, now see no clear reason for even one cut. We believe we could see the Fed and the broader market feel a significant impact from the higher oil prices brought about by the war in Iran. These elevated energy prices will impact near-term inflation rates; however, policymakers will most likely look through these spikes as temporary and conclude that inflation is set to recede later in the year. Consequently, we feel that it is still possible to see one rate cut later this year, with additional cuts following in 2027.
U.S. Equity Markets (Stocks): The onset of the war with Iran has been challenging for the both the stock market and the bond market. Inflation fears, stemming from increased energy costs, continued tariff uncertainty, rising gasoline prices, and concerns of a weaker jobs market have sent equity markets lower during the first quarter. This was a sentiment-based correction, not a correction based on market fundamentals. The U.S. markets continue to ebb and flow with every headline about Iran and the Strait of Hormuz, but the most important message from the market is “resilience”. The market bounced back quickly from its first quarter correction and earnings season seems to be off to a very strong start- 75% of the companies that have already reported are beating their estimates. The AI cycle continues to be strong, jobless claims and weekly ADP data continue to show no signs of a slowdown- the economy is still robust. Increased oil prices may prove to be a concern, but the U.S. is still a net energy exporter. Higher energy prices create income that flows through the economy. Defense spending should offset any part of the energy drag brought on by lower consumer spending. This is a very different era from the gas price problems of the 1970’s when the U.S. was far more dependent on imported energy.
Overseas Equity Markets (Stocks): The conflicts in Iran, Russia and Venezuela have had a profound effect on both the U.S. stock market and the international market. We are not optimistic about a quick, clean resolution in any of these areas. Twenty-five percent of the world’s natural resources are transported through the Strait of Hormuz. China receives 84% of the oil that passes through the strait. Simply stated, the war in Iran seems to be the biggest threat to the overseas markets. Controlling the Strait of Hormuz and a quick resolution to the Iran conflict is of paramount importance. A quick resolution will move the global equity markets upward. A prolonged resolution brings about uncertainty in the foreign markets. Much like the U.S. markets, the overseas market appears to be extremely resilient. Their losses during the first quarter are minimal. Foreign stocks are still priced at value stock levels as their PE Ratios (price/earnings ratios) are extremely low compared to U.S equities. This makes the overseas market very attractive.
In conclusion, provided long-term yields do not move substantially higher and oil prices do not spike for a prolonged period, equities will remain in an uptrend throughout the year. Recognizing the fact that we still have a formula for volatility, we remain very positive toward the U.S. stock market and the Overseas market. Regarding the fixed income environment, we are still neutral- stay the course. We continue to favor short and intermediate term investments. The future of fixed income market and interest rates will become clear when Warsh takes over and at the conclusion of the June meeting.
Permit us to express our sincere appreciation for the opportunity to be of service to you. As always, should you
have any questions or wish to discuss the above in more detail, please do not hesitate to contact us.
Sincerely,
COMPREHENSIVE FINANCIAL PLANNING, INC.