In this latest installment of our newsletter, we share our observations of the markets and the economy in the first quarter of 2026. Click here to go to the full April 2026 report on our website. Following are the highlights:
- Uncertainty was the closing theme of the first quarter of 2026, with all major indices selling off sharply in March amid heightened concerns about the length and breadth of the war in the Middle East.
- For the quarter, the S&P 500 Index, the broadest measure of the U.S. equity market, after a 5% decline in March alone. It was the weakest first-quarter performance by the S&P 500 since 2022.
- The bond market, as represented by the Bloomberg Aggregate Bond Index, ended the quarter flat, though it also experienced significant volatility during the quarter. Overall, yields climbed while prices fell, with the benchmark 10-year Treasury hitting a high of 4.4% in late March.
- The CBOE Volatility Index, or VIX, captured these swings, starting at a low point of 14.5 in January and peaking at a high of 31 in late March. The historical average of the index, which is a forward-looking measure of equity volatility, is 19.5.
- Finally, crude oil spiked during the quarter from roughly $60 per barrel, where it hovered for most of January and February, to over $100 per barrel by mid-March, reflecting traders’ fears of a prolonged disruption in global shipments of crude oil through the Strait of Hormuz, where roughly 20% of worldwide oil and gas shipments pass.
- The U.S. economy now faces heightened uncertainty in the near term due to the geopolitical risks coming out of the Middle East, and the impacts are already being seen in higher inflation and slowing growth.
- The U.S. Consumer Price Index (CPI), the broadest measure of inflation, surged to 3.3% year-over-year in March, due to the sharp rise in oil and gas prices.
- The U.S. GDP growth rate slowed to just 0.5% in the fourth quarter of 2025, significantly lower than the 4.4% growth registered in Q3 and primarily due to the federal government shutdown in October and November. The growth rate for the first quarter of 2026 is currently projected at a more normalized 2% by the Atlanta Fed GDPNow forecast, but that does not yet factor in the impact of higher energy and related costs on economic growth during March.
- Despite the short-term uncertainty, there is some good economic news worth noting. Corporate earnings, which are the main driver of long-term stock market performance, have remained strong and resilient. The estimated growth rate for S&P 500 corporate earnings in Q1 2026 is 13% year-over-year which, if it occurs, would mark the sixth straight quarter of double-digit earnings growth for the index.
- Given the heightened volatility in equity markets, we are maintaining a cautious stance for the near term. However, we are also keenly aware that the sell-off in certain sectors does present the potential for finding new opportunities, which we are actively evaluating. All of this underscores the importance of our active approach to individual security selection, particularly in a volatile and uncertain market environment.
- In addition, we believe the income securities, bonds, and high dividend-paying stocks that we own for clients with balanced portfolios have performed well amidst the market volatility. With target yields of 4% – 6%, these securities offer a nice income cushion in client portfolios. Additionally, we continue to find 6-to-12 month Treasury bills with annualized yields of 3.7% – 3.8% attractive.
- Overall, our long-term investment philosophy continues to favor value-oriented, dividend-paying stocks and other securities of companies that have strong revenue and cash flow characteristics, leading market shares, wide economic moats, and solid growth prospects.
- While our near-term outlook is guarded, we remain optimistic about the long-term strength and resiliency of the U.S. economy and the innovative, productive, and profitable companies that drive it forward.
The Edgemoor Team
