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2026 Q2 Investment Commentary

Planning Alternatives Updated on April 4, 2026

Market Insights

Performance

The first quarter of 2026 was a reminder that strong markets do not always move in straight lines. January began on a positive note, with broader participation beneath the surface of the major indexes and leadership extending beyond the concentrated group of large technology companies that drove much of last year’s gains. Small- and mid-cap stocks participated more fully, equal-weight indices outperformed their cap-weighted counterparts, and the market entered the year supported by resilient earnings expectations and still-favorable financial conditions. For a time, it appeared that the year might begin with a healthier and more balanced foundation than investors had grown accustomed to.

That backdrop became more complicated in February. Investors grew more selective, particularly within technology, as questions intensified around whether extraordinary levels of AI infrastructure spending would translate into returns quickly enough to support elevated valuations. At the same time, economic data softened. Consumer spending cooled, and the labor market showed signs of strain as February payrolls unexpectedly declined and unemployment edged higher. What had begun as a quarter defined by improving breadth and optimism shifted toward a more cautious assessment of both growth and valuation risk.

March brought the quarter’s most important turning point. The U.S.-Israel conflict with Iran, which began on February 28, pushed oil prices higher and quickly altered inflation expectations and policy outlook. The Federal Reserve held rates steady at its March meeting and continued to project one cut this year, but markets have since moved in a distinctly more hawkish direction. The February inflation report, which showed consumer prices up 2.4% year over year, offered only partial reassurance because it largely preceded the energy shock that markets were suddenly forced to absorb. The quarter reinforced an enduring principle of long-term investing: disciplined diversification remains a way to help navigate a shifting landscape marked by leadership changes and unexpected risks.

Stocks

U.S. stocks, as measured by the Russell 3000 Index, were lower during the first quarter as investors navigated a meaningful shift in market leadership and the growing implications of the U.S.-Israel war with Iran. Early in the quarter, leadership widened beyond the narrow group of mega-cap winners that had powered much of the prior year’s gains, with energy and other cyclical areas advancing while technology weakened as investors reassessed the durability of the AI-led rally. By late March, the conflict in the Middle East had become the dominant catalyst of sentiment, as rising oil prices, renewed inflation concerns, and a more hawkish reassessment of monetary policy placed broader pressure on equities. By quarter’s end, small-cap stocks (S&P SmallCap 600) outperformed mid-cap stocks (S&P MidCap 400), followed by large-cap stocks (S&P 500).

Factors are enduring determinants of risk and return, rooted in economic theory and consistently observed across different markets and time periods. Factor leadership shifted again in the first quarter, with quality leading, value proving relatively resilient, and both momentum and growth trailing. Quality’s lead reflected investor preference for companies with solid fundamentals, as increased volatility and market stress led investors toward companies with durable balance sheets and reliable cash flows. Value stocks attracted attention as investors grew more valuation-conscious and favored cheaper segments of the market, while growth-oriented leadership came under pressure as enthusiasm cooled around the AI spending narrative that had propelled many of the market’s largest stocks higher in 2025. Momentum lagged amid abrupt market shifts, which disrupted existing trends.
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Source: Planning Alternative, YCharts data

International stocks (MSCI All Country World Index ex-U.S.) outperformed U.S. stocks (Russell 3000 Index) during the first quarter. Emerging market stocks (MSCI EM) held up the best among broad global equity markets, declining the least despite a challenging environment for risk assets, supported by relatively strong corporate earnings momentum and attractive valuations that continued to draw investors seeking diversification from concentrated U.S. equity exposure. Performance within emerging markets remained uneven, however. China continued to be meaningfully less aligned with broader emerging-market peers, reflecting policy uncertainty, property-sector stress, and uneven earnings momentum. International exposure remains an important diversifier, offering access to different economic, currency, and policy dynamics that can help reduce concentration risk.

Bonds

Bonds (Bloomberg U.S. Aggregate Bond Index) posted modest gains early in the quarter, but a sharp pullback in March left the asset class only marginally negative by quarter end. Shorter duration bonds (Bloomberg U.S. Government/Credit 1–5 Year Index) ended the period just above break even, with their lower interest rate sensitivity helping cushion the impact of rising yields late in the quarter. Municipal bonds (Bloomberg Municipal Bond 1–10 Year Blend Index) also gave back earlier gains as the tax-exempt market faced pressure from rising Treasury yields and a heavier new-issue supply backdrop. Across fixed income markets, the Iran conflict and resulting oil shock added to late-quarter volatility by reviving inflation concerns and causing investors to reassess the outlook for monetary policy.

The Treasury yield curve remained positively sloped through the first quarter but shifted higher overall as markets moved away from the view that lower rates would come easily and toward a more uncertain inflation outlook. That change was fueled largely by the late-quarter surge in oil prices, which pushed investors to question how soon policy easing could resume. The Fed left rates unchanged in March at 3.50%-3.75%, raised its inflation outlook to 2.7%, and emphasized the instability created by developments in the Middle East. By quarter-end, the possibility of a rate hike reentered the conversation, reflecting mounting concern that oil-driven inflation could delay Fed easing. Higher market rates increase borrowing costs and create a more challenging environment for longer-duration bonds and other rate-sensitive assets.

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Source: Planning Alternative, Treasury.gov

Alternatives

Alternative assets delivered strong results in the first quarter, lifted by commodity strength, geopolitical disruption, and improving real estate fundamentals. Commodities (Bloomberg Commodity Index) led the way, as the Iran conflict disrupted flows through the Strait of Hormuz and sent oil prices sharply higher. Natural resources equities (S&P Global Natural Resources Index) also advanced strongly, supported by exposure to energy and metals as well as mining companies that benefited from rising commodity prices. Global real estate (S&P Global REIT Index) posted a modest gain, as robust underlying fundamentals and constrained supply supported rental growth outlooks despite macro uncertainty.

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Source: Planning Alternative, YCharts data

Source: Planning Alternatives, YCharts data

Perspective

“You can’t predict. You can prepare.”

– Howard Marks

The first quarter was a reminder that markets are often unsettled not by the risks investors are debating, but by the ones that suddenly become unavoidable. What began as a quarter defined by rotation, valuation resets, and broadening participation took a different tone as the U.S.-Iran war escalated and oil prices surged. As the chart below illustrates, Middle East conflicts have often been accompanied by sharp swings in oil, while equity-market responses have been less consistent and often more temporary. Whether this episode follows that pattern remains unclear, but by quarter-end the latest oil shock had become large enough to materially alter inflation expectations and the market’s view of monetary policy.

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The quarter reinforced why diversified portfolios are built for resilience rather than precision. Leadership broadened beyond the small group of winners that had dominated much of the prior year, and the elements that give a diversified portfolio its balance and resilience were on display. The lesson was not that risk can be avoided, but that durable portfolios are designed to absorb it, so investors are not forced to make their most important decisions during their most uncertain moments.

Looking ahead, meaningful crosscurrents remain. Policymakers are navigating a more constrained backdrop, as persistent geopolitical risk, elevated energy prices, and a labor market that appears stable but increasingly fragile complicate the outlook. If the Middle East conflict persists, higher-for-longer oil prices could further tighten financial conditions, weigh on growth, and leave markets more vulnerable, particularly if investors are forced to recalibrate expectations for policy, earnings, and the broader economic outlook.

At its core, long-term investing acknowledges uncertainty as a constant and focuses on building portfolios that do not hinge on precise forecasts. Even after a quarter marked by war, the stock market (S&P 500) has only experienced one 5% pullback so far, compared with a historical average of 4.6 such pullbacks per year since 1980 (as shown in the chart below). That perspective matters, because periods of volatility are not unusual interruptions to investing; they are part of the experience. The lesson of the quarter was not simply that geopolitical shocks can disrupt markets. It was that discipline, diversification, and patience can remain more dependable than reaction, concentration, or prediction when conditions become more difficult.

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Positioning

Our positioning evolved during the first quarter through a series of targeted equity adjustments. Most notably, we exited our dividend-focused position and reallocated that capital toward areas we believed offered stronger forward-looking characteristics: domestic large-cap momentum, developed international momentum, and emerging markets ex China. These changes were designed to reflect our consensus research views, incorporating both institutional third-party and internal research.

Portfolios shifted from an overweight position in U.S. equities to a slight overweight in international equities relative to benchmark. Our research suggests the shift was warranted given attractive valuation discounts outside the U.S., improving growth and earnings trends abroad, and continued price momentum internationally. The first quarter’s results were broadly consistent with that view, as international equities outpaced domestic markets. Within emerging markets, we continued to emphasize ex China exposure. That remains consistent with our view that China-specific challenges still justify a more selective approach.

The first quarter reinforced that investors who are prepared for uncertainty tend to be better positioned to navigate it. We remain committed to avoiding impulse-driven adjustments. Our decisions are grounded in research and aligned with clients’ long-term objectives. We continue to monitor evolving conditions and will make thoughtful adjustments as opportunities emerge. Strategic asset allocation, diversification, and long‑term discipline remain the foundation of our process — guiding portfolios through uncertainty and supporting the pursuit of True Wealth for our clients.

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