Quarterly Economic Update
First Quarter 2026
Entering 2026, almost every analyst forecasted
that equity markets would experience a rise
throughout the year. Will they be right?
Fueled by the optimism that characterized
2025, in late January of 2026, the S&P 500
reached new highs, and in early February the
Dow Jones Industrial Average (DJIA) hit a record
high, closing above the 50,000 mark for the first
time. These moves were supported by
expectations of interest rate cuts, continued
earnings growth and improving economic and
market trends.
As the quarter progressed, the favorable
backdrop began to shift from momentum to
volatility. By mid-quarter, rising geopolitical
tensions, particularly in the Middle East,
introduced a new wave of uncertainty. At the
same time, evolving expectations around the
Federal Reserve’s policy path added to investor
concern. Together, these factors reignited
volatility, marking a departure from the
relatively
smooth
market
environment
investors had grown accustomed to.
March was a rough month for equities as
indexes suffered significant declines. Although
the S&P 500 staged a strong rally in the final
days of the quarter, it was not enough to fully
recover the losses incurred earlier in the
month. The S&P 500 closed the quarter at
6,539 and despite its late rally, was down
approximately 4.6% for the quarter. The Dow
Jones Industrial Average closed the quarter at
46,254, and even after its end of month rally,
(252) 451-0488
www.StrategicFreedom.com
Anthony (Tony) Engrassia, ChFC, LUTCF, NSSA®
Certified Financial Fiduciary®
finished the quarter down about 4.2%. These
finished numbers were a reflection of a volatile
quarter. (Source: Morningstar.com; cnbc.com)
Federal Funds rates were unchanged in the
first quarter. As we know, Wall Street can
respond significantly to any changes in
monetary policy, but equities remained
unscathed by the Fed’s decision to keep rates
the same.
AI continued to be a strong influencer and
Goldman Sachs Chief U.S. Equity Strategist
Ben Snider forecasts that, "AI investments and
AI cloud services will account for 40% for the
S&P 500’s EPS growth in 2026,” as cited in
Barron’s Magazine on March 19. That’s up from
25% in 2025. (Source: Barron’s, March 19, 2026).
Corporate earnings remained strong, with
many S&P 500 companies expected to deliver
roughly 12% to 13% year-over-year profit
growth, marking the sixth consecutive quarter
of double-digit gains. Growth was driven by
continued confidence in artificial intelligence
and a surge in energy-related profits due to
higher
oil
prices.
Performance
varied
significantly across sectors, with energy and
industrial companies outperforming while a lot
of technology and consumer sectors lagged.
(Source: Marketwatch.com; 3/27/26)
According to the U.S. Bureau of Labor
Statistics, the unemployment rate for February
2026 was 4.4%, holding relatively steady from
January.
The energy sector was a constant in almost all
headlines as oil prices soared during the
quarter due to conflicts in Iran. The uncertainty
around this conflict was a contributing player in
the continued instability in equities.
While March’s volatility may serve as an early
signal of a challenging environment ahead, the
KEY TAKEAWAYS
• Equities started the year making new highs
fueled in part by continued growth in artificial
intelligence,
a
resilient
labor
market,
consistently strong corporate earnings, and
the Federal Reserve still anticipating future
rate cuts. However, a rough March left the
quarter with negative results.
• The Federal Reserve kept interest rates
unchanged at 3.5% – 3.75% after the first two
of their eight annual meetings.
• Released in March, February’s inflation rate
was held unchanged from January at 2.4%.
Recent geopolitical events are expected to
affect this rate moving forward.
• Traditionally viewed as a safer haven, bond
rates rose and prices dropped slightly as they
also experienced some volatility during the
first quarter.
• Oil prices rose heavily during the quarter to
levels last seen in 2022 as the escalation in
Iran continued.
• While we continue to monitor key items,
remember that focusing on your long-term
goals and staying the course of a well-guided
plan can help you stay grounded and
confident during these times of uncertainty.
• We are here for you. Please reach out
with any questions or concerns. Your
financial well-being is always our
priority.
good news is after a rough
quarter,
markets
did
not
experience a sharp correction
like the one last seen in the first
half of 2025. With all of this
being said, the current market
environment
can
be
summarized in two words:
Volatility persists.
Please remember, volatility is
an expected part of the
investment experience. Also, it
should not be construed as
entirely negative, as it can
allow for good opportunities.
As always, investors need to
carefully choose portfolios that represent their
unique objectives. As conditions evolve,
maintaining a disciplined and well-structured
investment approach remains essential. Our
role as financial professionals is to closely
monitor market developments and ensure your
portfolio remains aligned with your time
horizon,
risk
tolerance,
and
financial
objectives. We remain committed to keeping
you informed and well-positioned to navigate
evolving market conditions with confidence.
Inflation & Interest Rates
Key Points:
• Federal
funds
rates
remained
unchanged in the first quarter of 2026.
The benchmark federal funds target
rate range remains at 3.5 - 3.75%.
• The direction of inflation remains a
concern, with added strain coming
from oil prices.
• The economy remained strong despite
potential drawbacks.
Through their first two sessions of 2026, the
Federal Open Market Committee (FOMC)
kept their benchmark federal funds target
rate range at 3.5 - 3.75%. After enjoying three
rate cuts in the last half of 2025, interest rates
remained unchanged in the first quarter of
this year.
During the March FOMC meeting, the
committee also adjusted some previous
views on the economy, notably, a slightly
faster pace of growth and higher inflation
projections for the remainder of 2026.
Despite the elevated forecast for inflation, the
Fed noted during this meeting that they still
anticipate the possibility of future rate cuts.
The U.S. economy has remained remarkably
resilient. Labor markets once again continued
to show strength, and consumer spending
remained healthy. This played into the Fed’s
decision to hold rates steady.
Looking ahead, the Fed anticipates there could
be additional rate cuts, however, the timing
and magnitude are unclear, and they are, of
course,
not
guaranteed.
Interest
rate
movements will continue to be based upon the
trajectory of inflation, labor market conditions,
and the overall health of the economy.
In addition, how the conflict in Iran will affect
the U.S. economy is “uncertain” according to
the FOMC’s statement following the March
meeting. Chair Jerome Powell shared during
the subsequent press conference that it was,
“too soon to know,” and continued that for the
near term, measures of inflation expectations
did rise due to the “substantial rise in oil prices
caused by the supply disruptions in the Middle
East.”
February’s Bureau of Labor Statistics data for
the year-over-year core Consumer Price Index
(less food and energy) rose as expected at
2.4%. Food prices were up 3.1% from a year
ago and the price of shelter, which is the single
largest component of CPI, posted a 3% annual
gain. (Source: cnbc.com; 3/11/26)
Movements in interest and inflation rates
are critical for investors' financial planning,
and we will continue to closely monitor
these key economic indicators.
The Bond Market and
Treasury Yields
Key Points:
• U.S. Treasuries experienced notable
volatility in Q1 2026, with longer-
duration bonds declining while shorter-
term bonds provided relative stability.
• Amid persistent inflation and interest
rate
uncertainty,
the
yield
curve
continued to modestly steepen.
The first quarter of 2026 delivered a mixed
environment for fixed income investors,
particularly within U.S. Treasuries. While the
year began with modest optimism and some
early gains, the quarter ultimately turned
negative for many segments of the bond
market, especially longer-duration treasuries.
At the core of this volatility was the continued
sensitivity of bond markets to interest rate
expectations and inflation trends. Although the
Federal Reserve did not implement any rate
cuts during the first quarter, it suggested that
rate cuts remain possible later in 2026.
In basic terms, bond prices move inversely to
yields, so when yields rise, bond prices fall,
and vice versa. During the first quarter, several
factors contributed to upward pressure on
yields, including:
•
Renewed inflation concerns, largely
driven
by
rising
oil
prices
and
geopolitical tensions,
•
Continued economic strength,
•
The Federal Reserve holding policy
rates steady.
These
dynamics
impacted
longer-term Treasuries, which
are more sensitive to changes
in interest rates.
As the quarter ended, the 10-
year Treasury yield rose to
4.35%, the 5-year Treasury was
3.97% and the 30-year treasury
was 4.91%. (Source: treasury.gov
resource center)
For investors, bonds continue
to play a meaningful role in
portfolio diversification. While
recent volatility highlights that bonds are not
risk-free,
especially
in
a
rising
yield
environment, they can still provide relative
stability compared to equities during periods of
market stress.
As always, bond investments should be
evaluated within the context of an investor’s
risk tolerance, time horizon, and overall
financial objectives. Bonds remain a core
component of many well-balanced portfolios,
and we will continue to monitor developments
in inflation, Federal Reserve policy, and
Treasury markets as conditions evolve.
Oil
Key Points:
•
U.S. oil prices, as measured by futures
contracts for May deliveries of West
Texas Intermediate, rose 77% to
$101.38 for the quarter. (Source: Barron’s
3/31/26)
•
The national U.S. average price for one
gallon of regular unleaded gasoline
ended the quarter at $4.02, the highest
level since June 2022. (Source: Barron’s
3/31/26)
Oil prices ended the quarter at levels not seen
since 2022. Rising energy prices are a
concerning factor for both businesses and
consumers. The ongoing fighting in the Middle
East has led to the closing of the Strait of
Hormuz, which typically sees about 20% of the
world’s oil supply flow through it.
While it is still too early to predict the full impact
on economic growth, a lengthy continuation of
highly
elevated
oil
prices
cannot
be
underestimated. Kristen Dougherty, Fidelity’s
Energy analyst feels “in the longer term, the
global oil market remains deep and liquid”,
however, investors still need to be mindful of
developments in the Middle East and their
impacts on markets. Obviously, oil and energy
prices are an area we are monitoring
carefully.
Investor’s Outlook
Key Points:
• While we ended the quarter without
reaching
“correction”
territory,
volatility is likely to persist, making
discipline and perspective essential.
• Maintaining a long-term focus and
avoiding short-term distractions has
historically been one of the most
reliable ways to pursue financial goals.
Looking forward, the trajectory of equities in
2026 will likely depend on several variables,
including the path of inflation and interest
rates, corporate earnings, stability in the
energy sector and of course the turmoil in Iran.
Geopolitical
Conflict:
The
geopolitical
conflict in the Middle East, particularly the war
in Iran and its impact on global oil markets,
took center stage in the first quarter and could
continue to shape how market conditions
move forward in Q2 and beyond. Any
escalation or de-escalation could trigger
reactive moves across equities, commodities,
and currencies. The quarter closed with some
optimism around a possible end or easing of
geopolitical tensions, however, we need to
keep a close eye on this matter.
Interest Rates and Inflation: As always,
Federal Reserve policy remains a central
influence. Any changes in the timing or
magnitude of rate cuts could significantly
impact market direction. While cuts are still
anticipated, we may experience a “higher for
longer” stance from the FOMC.
Corporate Earnings: Let’s also not forget
about AI and its impact. According to Goldman
Sachs Chief U.S. Equity Strategist Ben Snider,
the “biggest current question for U.S. equity
investors”
is
whether
the
significant
investment in AI will ultimately translate into
meaningful revenue and earnings growth.
(Source: Barron’s, March 19, 2026).
While there is currently a high degree of
volatility and short-term uncertainty, for the
long-term, we remain positive. Moving forward,
the media might continue repeating many
words that could raise fear and concern, such
as “dip”, “correction”, and “bear market”.
Please remember, volatility is part of the
investment
experience
and
long-term
investors know that the upward climb is never
a straight line. A long-term mindset can help
shield you from succumbing to media
pressures and swaying from your financial
goals and plans.
As you navigate through the next few months,
please keep in mind that, as you can see from
our chart, in an over seventy-year span, the
S&P 500 has experienced a dip about twice per
year; a correction about once every 18 months;
and a dip of 20% or more once every six years.
Volatility
can
also
present
potential
opportunities. Periods of market weakness
can bring the ability to invest at more attractive
prices, rebalance portfolios, or harvest losses
to help offset capital gains.
We believe an informed client is the best client.
Our commitment is to exceed our client’s
expectations by delivering exceptional service,
maintaining
consistent,
meaningful
communication throughout the year, and
proactively planning to help them navigate the
changing economic environment. We keep our
clients informed about developments that
could impact their personal situation.
If you would like to explore our services,
please contact us. We always recommend
discussing any potential changes, concerns, or
ideas that you may have with a qualified
financial professional prior to making any
financial decisions so they can help you
determine your best strategy and make sure
your plan is still aligned with your goals.
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advice.
Sources: Barron’s; Business Insider; marketwatch.com; cnbc.com; Morningstar; U.S. Department of Treasury.
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