Greetings!
The first quarter of 2026 was another reminder that global events and technological change are constant backdrops to the investment landscape. In recent years we have contended with tariff hikes, the invasion of Ukraine, and the Covid pandemic. Now as we contend with the impact of the Iran conflict and Artificial Intelligence, our focus remains on one question. Does this event fundamentally change how we live and do business? History suggests that while uncertainty is immediate, the resilience of people, businesses and the markets is the enduring story.
Energy, Inflation and Economic Resilience
The immediate impact of the conflict in Iran on the US economy has been at the gas pump. How much the $1 rise in gasoline prices in March will affect the broader economy will largely depend on how long the conflict lasts. Fortunately, the US economy is more resilient than it was in the 1970’s due to our domestic energy independence. The oil shocks of the 1970’s that brought bouts of inflation and recession came at a time when 35% of oil was imported and US industrial output was much greater. Higher oil prices directly impacted an estimated 60% of US economic output during that decade.
The Consumer Price Index report for March, due mid-April, will be the first indication of the impact of rising gas prices on inflation. The February report showed inflation running at a reasonable 2.4% annual rate. Food prices rose 3.1% over the past 12 months but were offset in the index by low home price growth of only 0.4%. Homes are selling at the slowest rate in a decade according to real estate website, Redfin.com.
US Markets: Growth/Value Rotation
After a couple of years of market growth driven by high expectations for Artificial Intelligence (AI), we are seeing the transition to the implementation and execution phase. Investors are becoming more discerning and looking for more clarity on how AI will drive actual revenues. That led to a rotation from growth to value stocks in the first quarter:
- Value Stocks: Rose 3.03% (Morningstar US Value Index), as investors sought stability in energy, materials, and utilities in the wake of the Iran Conflict.
- Growth Stocks: Retreated 6.19% (Morningstar US Growth Index), as investors sold off technology and communication stocks seen as vulnerable to AI innovations.
Overall, the US market was down 4.18% for the quarter, but it remains up a solid 17.9% over the previous 12 months according to the Morningstar US Market Index.
Global Markets and Fixed Income
- International & Emerging Markets: International stocks were down slightly (-0.51%), while Emerging Markets remained essentially flat (-0.33%). Despite the quiet quarter, both remain up 25.8% and 28.1% over the past year per the Morningstar Global Markets ex-US and Morningstar Emerging Markets Indices respectively.
- Bonds: The bond market shifted its focus from when the Federal Reserve would cut rates to whether rates might rise to combat inflation. Consequently, the Morningstar Core Bond Index was essentially flat, rising 0.1%.
- Gold: Gold’s historic run continued into January, peaking above $5,300 per ounce before stabilizing around $4,500 as investors moved to take profits. Even with the correction, gold finished the quarter up approximately 7%.
Planning Ahead to Minimize Taxes
As the April 15th tax deadline passes, most people are eager to put taxes out of their minds. However, this is the most opportune time for adopting a proactive strategy to minimize future taxes.
Whether you are navigating the sale of a business, managing a concentrated stock position, or seeking to reduce future IRA required distributions, the best strategies are implemented as early in the year as possible. We are constantly reviewing client balance sheets for these opportunities, but if you have specific changes on the horizon, please reach out to discuss how we can optimize your plan.
Helping you get there,
Your Boulay Wealth Team
The Fed Funds rate is an interest rate the Federal Reserve charges banks to borrow from it for very short periods of time. The Consumer Price Index measures the change in the cost of living by tracking the prices of a basket of consumer goods and services.
The Morningstar U.S. Market Index measures performance of company stocks comprising 97% of the tradeable universe of stocks in the U.S. The Morningstar US Large Cap Index measures the performance comprising the largest 70 percent of the US stock market in terms of capitalization. The Morningstar Global Markets ex-US Index measures the performance of the top 97% of developed and emerging market stocks outside of the US. The Morningstar China Index measures the performance of the top 97% of Chinese stocks. The Morningstar Emerging Markets Index measures the performance of the top 97% of stocks in 24 emerging market countries. The Morningstar U.S. Core Bond Index represents the performance of a portfolio consisting of U.S. Treasury, mortgage-backed, and corporate bonds with a term of approximately 5 years to maturity. The Morningstar 10+ Year Core Bond Index measures the performance of fixed-rate, investment grade bonds with maturities longer than 10 years.
The opinions expressed in this article are those of the author and should not be construed as specific investment advice. All information is believed to be from reliable sources; however, no representation is made to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss. Indices are unmanaged and do not incur fees, one cannot directly invest in an index.