Turn out the lights - the party’s over…. on Wall Street, anyway. The traffic jam of oil tankers backed up in the Persian Gulf has caused a chain reaction of skyrocketing petroleum prices leading to a new round of inflation, causing interest rates to reverse higher and pressuring consumer spending and (eventually) corporate profits. Stock and bond traders alike don’t care much for these conditions and have responded by driving markets lower in the first quarter of 2026.
It’s easy to overlook the fact that the US stock market had already stumbled before the first bomb was dropped over Iran on February 28th. The S&P 500 index lost 0.87% in February as technology shares struggled amid closer scrutiny being paid to the AI investment landscape. At the same time, hopes that the Fed would resume cutting interest rates were fading absent economic data to support cheaper money. The outbreak of the Iranian conflict only served to accelerate the pace of selling that had already begun weeks earlier.
Remarkably, a full month into the war none of the major US stock indices had officially descended into ‘correction’ territory (a decline of 10% from a prior peak) as of market close on March 31st. The S&P 500 fell 6.44%, the Dow 30 (DJIA) 7.66%, and the Nasdaq Composite 9.88% from their respective high-water marks. The economic impacts of geopolitical events are typically localized and thus historically have not rattled markets for extended periods nor led to bear markets.
This event, however, has an outsized potential to upset the global economy. A multitude of factors are at play, starting with the crude oil price shock that has quickly impacted consumer prices beyond the gas pump. Producer prices, including agricultural inputs such as fertilizer just ahead of planting season, are greatly impacted and always end up being passed along to the end consumer. Markets are certainly on edge over the possibility of adverse economic impacts lasting long beyond the end of military action.
In a matter of several weeks, recession risk has multiplied while Federal Reserve interest rate cuts are now all but off the table. Already lofty stock market valuations entering the new year cannot be sustained in an environment of reigniting inflation and rising rates even as the economy is slowing down. Fears of so-called ‘stagflation’ are behind the current market correction; if these fears become reality in the months ahead, we’re likely to see a bear market.
Q1 2026 performance for the major market indices follows: S&P 500 -4.63%; NASDAQ Composite -7.11%; Dow 30 -3.58%; Russell 2000 +0.58%; MSCI EAFE -1.24%; MSCI Emerging Markets -0.17%; Bloomberg Aggregate US Bond index +0.36%.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Market data provided by JPMorgan Asset Management and MarketWatch.com.
The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The Dow Jones Industrial Average is comprised of 30 stocks that are major factors in their industries and widely held by individuals and institutional investors.
The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index.
The MSCI EAFE Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI EAFE Index consists of the following developed country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the UK.
The MSCI EM (Emerging Markets) Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of the emerging market countries of the Americas, Europe, the Middle East, Africa and Asia. The MSCI EM Index consists of the following emerging market country indices: Brazil, Chile, Colombia, Mexico, Peru, Czech Republic, Egypt, Greece, Hungary, Poland, Qatar, Russia, South Africa, Turkey, United Arab Emirates, China, India, Indonesia, Korea, Malaysia, Philippines, Taiwan, and Thailand.
The Russell 2000 Index is an unmanaged index generally representative of the 2,000 smallest companies in the Russell 3000 index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.
The Bloomberg Barclays U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.