Update on the Markets:
| Index | 1st Quarter 2026 | Full Year 2026 |
|---|---|---|
| S & P 500 (Large US Stocks) | -4.33% | -4.33% |
| Russell 2000 (Small US Stocks) | 1.38% | 1.38% |
| FTSE All-World ex-US (International Stocks) | 11.09% | 11.09% |
| Barclays US Aggregate (Bonds) | -0.71% | -0.71% |
April 2026
Key takeaways
► Shaky start
► Stocks and bonds fall
► Any Fed cuts this year?
► Stagflation?
► Stay the course through chaos
Large US Stocks and bonds struggled
The S & P 500 index lost 4.8%, the Dow Jones 4.2%, and the Nasdaq 7.1%. It was a lot worse before a huge rally on March 31, the last day of the quarter. On that Tuesday, the Dow rose 2.5%, the S & P 500 2.9% and the Nasdaq 3.8%. The quarter started out mildly bullish. US stocks, especially US Growth, were not cheap, but the outlook for solid corporate earnings, a strong economy and a few more interest rate cuts by the Federal Reserve made for a supportive base.
Then the AI-everything trade (think Alphabet, Amazon, Microsoft, Meta), which had driven the stock market higher over the last two years, began to slow. For example some stocks-such as Microsoft which fell over 23%-fell dramatically. This led to concern whether the tremendous capital expenditure on AI will eventually pay off: how much and when, if ever. Moreover, AI stocks were also expensive, priced for perfection and rising yields didn’t help propel valuations. Although these are big, cash-rich, world-class companies that aren’t going away anytime soon, they definitely lost some of the luster.
Then Iran happened – the biggest shock of the quarter. Overnight on February 28, oil prices surged, and bond yields followed. Soon, all eyes were on the Strait of Hormuz, through which 20% of the world’s oil as well as liquid natural gas and fertilizer is transported.
At first, the war was supposed to last only a few weeks. However, by the end of the quarter, it continues and shows no clear resolution. The Strait of Hormuz remains largely closed, and Iranian missiles have crippled major energy production sites in Qatar, the UAE, and Saudi Arabia. The duration of this situation is crucial to future developments in stocks, bonds and global stability.
Will the Fed cut?
Bond yields rose (prices fell) as the war in Iran started. Some of you may be wondering, but wait, I thought bonds are supposed to rise when stocks fall. Bonds were to be a stabilizer in my portfolio. Not this time. Inflation remained persistent. The war in Iran contributed to higher oil and commodity prices, as well as other supply shocks. The Fed may hold steady or even raise rates to cool inflation. A notable shift.
G7 bond yields surged in March
10-year government bonds
In January, the Federal Reserve paused its interest rate cuts amid its view that the economy was stable, consumer spending was strong, and the labor market was not collapsing. With all the disruption in the Middle East, even if tensions stopped today, it may take months, if not years, for many damaged production facilities to return to full capacity. Opening the Strait of Hormuz will help, but it’s not enough. Hence, I think higher inflation will trickle into the general level of prices for at least the next twelve months.
What to do?
The global economy faces a challenging environment. Despite the recent sell-off, US stocks are still relatively expensive. Developments in the private credit market warrant attention. Ongoing concerns of stagflation may influence the Fed approach to rate cuts this year.
If the war ends soon, then the US economy (and stocks) may regain its growth momentum. If the war drags on with $100+/barrel oil, then inflation and slower growth, i.e., stagflation, will set in. Maybe even a recession.
US growth stocks are still expensive, and I’m not sure we’ve seen the last of the AI correction. Investors are growing impatient with the timing of returns on the massive AI spend. AI stocks may remain under pressure even if the war ends soon. We’re also entering a historically slower part of the year, where moves up and down can be exaggerated. The midterm elections will add even more uncertainty.
While staying fully invested, I’m keeping new cash in short-term investment-grade bonds – the 2-5 year area. I will also emphasize inflation protection through exposure to energy, real estate (hoping the worst is over), and real return funds.
Throughout these chaotic times staying the course remains key to long-term success. Remember, our long-term plan is designed to help weather periods like this, supporting steady progress toward your goals regardless of short-term market fluctuations.
Thank you for your trust and confidence. I am committed to supporting you now and in the future. Please let me know if you have any questions or comments.
Sincerely,
Henry
Henry Gorecki, CFP®
HG Wealth Management LLC
401 N Michigan Ave, Suite 1200
Chicago, IL 60611
312-723-5116
