by: Brad Swinsburg, Partner + Chief Investment Officer
The first quarter of 2026 reminded investors, fairly abruptly, that markets never move in a straight line. Over the past three months, two forces stood out in driving portfolio outcomes: the escalation in geopolitical risk tied to the Iran conflict and the role of diversification beyond traditional U.S. assets.
Taken together, those two dynamics created a market environment that was less about steady trends and more about sharp rotations and uneven results across portfolios.
Geopolitics quickly became the main driver of market direction and volatility. The conflict involving Iran and the closure of the Strait of Hormuz put pressure on a key global energy route that carries roughly 20% of the world’s oil supply.
The market reaction unfolded in stages:
At the same time, the quarter highlighted something just as important: diversification.
Investors concentrated in U.S. large-cap equities – particularly mega-cap technology – experienced sharply negative returns, even as other segments of the market performed better. In fact, while headline indices such as the S&P 500 were negative, underlying breadth told a different story, as portfolios with broader global exposure or allocations to commodities and alternative assets delivered notably better results than those tied closely to mainstream U.S. benchmarks.
In this type of environment, diversification was not just about reducing risk. It played a direct role in driving outcomes. With correlations shifting and some traditional relationships breaking down, where you were invested mattered just as much as the general market direction.
Equities
Somewhat surprisingly, military conflicts often have a positive impact on equity markets over the long term. Rebuilding efforts tend to increase fiscal spending, which can support economic growth and, in turn, corporate earnings. In the short term, though, the start of a conflict almost always introduces uncertainty, and markets tend to react negatively. That was clearly the case this quarter.
Global equities were up close to 5% through February but gave back those gains in March, finishing the quarter down -2.8%.
Before the conflict escalated, there was a fair amount of variation in performance across equity markets. International equities, both developed and emerging, were outperforming U.S. markets, and value stocks were ahead of growth. Once the conflict began, some of those differences narrowed, and in certain areas disappeared altogether as markets sold off more broadly.
One trend that did continue was the gap between value and growth stocks. Growth had already been lagging heading into the conflict, and that remained the case through quarter-end. The difference was most noticeable in U.S. large-caps, but it was not limited to that segment.
As we mentioned in our video updates this quarter, the push and pull between excitement and reality around Artificial Intelligence has investors currently leaning more toward a risk-off stance. That has weighed on growth stocks, especially within U.S. large-cap stocks.
Strength and meaningful outperformance in international markets last year and weakness in U.S. large growth stocks early this year had begun to shift long-running valuation-based narratives within equities. For the first time in a very long time, international stocks were beginning to skew more expensive, while U.S. large growth stocks were beginning to get more reasonable (not attractive, just no longer such an expensive outlier). The global selloff in March again shifted that storyline, in particular with international markets. International developed and emerging market stocks still outperformed for the quarter, but by a much smaller percentage than had been the case through February.
Fixed Income
Fixed income markets started the quarter on solid footing. There was growing confidence that central banks would begin lowering short-term interest rates. That outlook changed quickly once the conflict in Iran escalated.
Concerns around inflation came back into focus, especially with the potential for prolonged disruption in energy markets. As a result, expectations for central banks shifted meaningfully. Rate cuts were pushed out, and in some cases, markets began pricing in the possibility of rate hikes.
Bond prices move in the opposite direction from yields. As rate expectations moved higher, yields increased, and bond prices declined. That reversal erased earlier gains and left the broader fixed income market roughly flat for the quarter.
While the short-term performance was not particularly strong, the move higher in yields does improve the longer-term picture. Yields are now at more attractive levels, income potential has increased, and the starting point today is much better than it was several years ago.
A lot of attention has been given to the fact that bonds did not provide much protection during 2022. A big part of that was simply where yields started. Today, yields are meaningfully higher, which gives fixed income a better chance to play its traditional role as a stabilizer within portfolios.
Commodities, Real Assets, and Alternatives
Commodities were heavily influenced by the Iran conflict, but not all areas moved in the same direction or as might have been anticipated.
Energy prices moved sharply higher. Oil rose from about $67 before the conflict to as high as $119, before finishing the quarter around $100.
Precious metals told a different story. Gold declined 10.3%, and silver fell 14.2%, with the broader category down 11.1%. This was somewhat unexpected given that precious metals often benefit during periods of geopolitical stress. Both gold and silver remain positive for the year, but those gains occurred before the conflict began.
Real assets performed better overall. REITs delivered relatively steady results, while MLPs and energy pipelines showed strong performance. Although pipeline businesses are typically less sensitive to commodity price movements, larger swings like those seen this quarter can still have an impact.
While oil and energy infrastructure investors fared well during the quarter, they were not alone, as several other strategies that we typically employ also enjoyed positive performance. The primary components of most investor portfolios, global equities and U.S. bonds, may have fallen during the quarter, but several of our preferred alternative strategies made money and showed their ability to produce uncorrelated returns. There is never any guarantee that these types of strategies will “zig” when the market “zags”, but this past quarter is further proof that they remain capable of delivering – when it is most needed.
Final Thoughts
The first quarter of 2026 reinforced a few important points. While we believe valuations provide the best foundation for making capital allocation decisions, we recognize and respect the impact that geopolitical events can have in the short term. Diversification is also not just about managing risk. In periods like this, it can play a meaningful role in driving returns too.
In the end, outcomes this quarter were shaped as much by positioning as by overall market direction.
Unless stated otherwise, any estimates or projections (including performance and risk) given in this presentation are intended to be forward-looking statements. Such estimates are subject to actual known and unknown risks, uncertainties, and other factors that could cause actual results to differ materially from those projected. The securities described within this presentation do not represent all of the securities purchased, sold or recommended for client accounts. The reader should not assume that an investment in such securities was or will be profitable. Past performance does not indicate future results
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