- Geopolitical risks re‑entered the spotlight in early 2026 with U.S. military intervention in Venezuela and U.S.–Iran tensions escalated, disrupting energy markets and resurfacing inflation concerns. Oil prices and volatility spiked amid fears of supply disruptions through the Strait of Hormuz, though intermittent signs of potential de‑escalation have so far helped limit broader economic spillovers. With negotiations ongoing and outcomes uncertain, the risk of renewed escalation remains elevated.
- Despite elevated headline risk, the U.S. economy has continued to hold up. Growth has moderated but remains supported by consumer spending and business investment, while recent labor market data suggest conditions are easing gradually rather than weakening outright.
- Inflation trends remain uneven. Easing pressures across services and housing had supported expectations for policy easing, but renewed energy price volatility has complicated the outlook and reinforced a more cautious, data‑dependent Federal Reserve stance.
- U.S. equity markets posted modestly negative returns during the quarter amid heightened geopolitical uncertainty and elevated valuations. Weakness in mega‑cap technology held back index-level performance, even as market leadership broadened across smaller companies and non‑mega‑cap segments.
- International equities also ended the quarter in negative territory but remained ahead of U.S. markets, building on the relative outperformance from 2025. Both developed and emerging markets modestly led U.S. equities, supported by broader market participation and more attractive starting valuations, though global uncertainty continued to weigh on returns.
- Fixed income assets produced muted returns so far in 2026, ranging from flat to modest declines depending on market segment. Rate volatility resurfaced following the outbreak of the U.S.-Iranian conflict and renewed inflationary concerns. Despite results, higher quality fixed income presents reasonable starting yields and continues to serve as an important ballast amidst future volatility.
- Municipals delivered modest but stabilizing returns over the first quarter supported by intact credit fundamentals, steady reinvestment demand, and improving technicals despite intermittent rate volatility. A steeper municipal yield curve, historically attractive tax‑equivalent yields, and strong state and local balance sheets position the asset class favorably, particularly for investors able to lean into duration and active security selection.
- Private credit had its share of headlines extending from isolated defaults in 2025 to concerns around future viability for software and related businesses with the advancement of AI capabilities. Manager portfolio fundamentals remain resilient and despite sensationalized headlines, the outlook for the asset class is still constructive with a competitive yield premium over the broadly syndicated loan market.
- The environment for privates outside of credit is constructive but nuanced. Private real estate, which faced similar media scrutiny to private credit during 2021/22, is coming out of trough valuations and has a constructive outlook going forward. Private infrastructure is also a bright spot, benefiting from stabilizing valuations, steepening yield curves, and long‑term structural demand (digital infrastructure, energy transition). Private equity activity is increasing, although still suppressed relative to historical levels, while secondary markets remain attractive and robust.
- After a benign back half of 2025 for investors, 2026 has delivered no shortage of surprises within just the first few months. Change is one of the few constants, and amid heightened geopolitical volatility, evolving tariff dynamics, and the accelerating implications of AI disruption, maintaining discipline has become paramount. This reinforces the importance of core principles including diversification, prudent rebalancing, robust risk controls, and ensuring portfolios remain aligned with long term strategic asset allocations.
