Following terrific performance in 2025, the market struggled to find its footing for the first two months of 2026 with mounting concerns over Artificial Intelligence and Private Credit dampening investor enthusiasm. The tone of the financial markets shifted dramatically after February 28 when the U.S. and Israel launched airstrikes and tomahawk missiles against Iran. Crude Oil prices surged leading to a sharp increase in producer prices and a jump in gas prices at the tank for consumers. The overall damage to stock prices was somewhat muted as the S&P 500 declined only 3.6%. There was dramatic dispersion in results between different sectors with on one end of the spectrum the Oil & Gas sector soaring 37% and on the opposite end the Financial sector declining 9.9% and Tech stocks dropping 7.1%. For the second consecutive quarter value stocks outperformed growth stocks, this time by a wide margin of over 800 basis points.
The housing market remained sluggish with mortgage rates beginning to rise along with other interest rates. Cryptocurrencies continued to nosedive, with Bitcoin declining 25% for the second straight quarter. It was a wild ride for Gold and Silver, with the precious metals reaching record highs in January before sliding the rest of the quarter. Gold still finished at +8% while Silver broke even having been +50% during the first four weeks of the year.
The bond market also exhibited some volatility. The yield on the 10-Year Treasury was steady around 4.2% before dipping under 4% briefly in late February, only to spike up to a high of 4.5% in March as the war costs escalated and oil prices skyrocketed. The Federal Reserve kept its benchmark interest rate unchanged at 3.50%–3.75% at both the January and March FOMC meetings. Last year, there were three consecutive 25-basis-point rate cuts. The Fed is likely to continue standing pat until the effects of the war become clearer. Along those lines, it is difficult for us to provide an outlook for the economy. It was in great shape with solid corporate earnings and moderating inflation. Our base case remains that 2026 should show those trends continuing, with a huge asterisk based on the geopolitical uncertainties.
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