Quarterly Market Update for Q2 2026: Geopolitics, Oil, and Market Pullbacks
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The first quarter of 2026 is a clear reminder of why we build financial plans before we need them, not after.
After strong gains in 2025, markets ran into a combination of geopolitical shocks, higher oil prices, and renewed economic uncertainty. The conflict in Iran, which escalated at the end of February, became the dominant market story, driving oil prices sharply higher and triggering the first pullback of the year. By the end of March, headlines around a possible ceasefire emerged, and the situation continues to evolve.
Stepping back, markets have delivered strong returns over the past twelve months. Beneath the surface, many parts of the market have historically supported well-diversified portfolios, including energy and defensive sectors. There will be new questions in the coming months, including a change in leadership at the Federal Reserve and the midterm election later this year.
For our clients, the first quarter reinforces what we talk about often: markets rarely move in a straight line, and the principles of disciplined, long-term investing matter most when uncertainty is at its peak. This is exactly the kind of environment your financial plan was designed for.
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Key Market and Economic Drivers
The S&P 500 posted a total return of -4.3% in Q1, with the Nasdaq at -7.0% and the Dow Jones Industrial Average at -3.2%.
The Bloomberg U.S. Aggregate Bond Index was essentially flat for the quarter. The 10-year Treasury yield ended at 4.3% after dipping as low as 3.9% at the end of February.
International developed market stocks (MSCI EAFE) were down -1.1% and emerging markets (MSCI EM) declined -0.1% over the quarter, both on a total return basis in U.S. dollar terms.
Oil prices spiked, with Brent crude reaching $118 per barrel at the end of March after starting the year under $61. WTI ended the quarter at $101 per barrel.
Gold ended the quarter at $4,668 per ounce after climbing as high as $5,417 in January. The U.S. Dollar Index (DXY) strengthened slightly to 99.96 over the same period.
February inflation showed headline CPI rising 2.4% year-over-year and core CPI climbing 2.5%. The core PCE price index, the Fed's preferred measure, rose 3.1% year-over-year in January.
The Federal Reserve kept rates unchanged within a range of 3.50% to 3.75% at both meetings during the first quarter.
Pullbacks Are Part of the Process
It is natural to draw parallels between the start of this year and the beginning of 2025, since both were driven by global concerns. Both first quarter periods experienced S&P 500 pullbacks of 4.3%. Last year's volatility stemmed from tariffs; this year's comes from the conflict in the Middle East. The effect on sentiment has been similar. When uncertainty rises, markets tend to experience short-term swings in response to headlines.
We have seen this before, and we will see it again. Despite the challenges in the first quarter of 2025, the stock market experienced strong gains through the rest of the year, including dozens of record highs across major indices. That does not mean markets always recover quickly. It means that market conversations tend to focus only on negative news, and when rebounds do occur, they often happen when people least expect them.
The most helpful perspective is one we share regularly with clients: pullbacks are a normal and unavoidable part of investing. Since 1980, the S&P 500 has experienced an average intra-year drawdown of around 15%, even though markets have delivered positive returns in more than two-thirds of years. The average year sees four or five pullbacks of five percent or worse. Last year saw six, even though the S&P 500 finished with an 18% total return.
Short-term market swings, especially those driven by headline risk, are simply part of the cycle. Your portfolio is designed for these moments. A well-constructed financial plan does not eliminate volatility. It makes volatility manageable. That will be especially important as we approach the midterm election and fiscal concerns resurface later in the year.
Geopolitics and Oil Prices: The Primary Source of Uncertainty
The most significant market development of the first quarter was the escalating conflict in the Middle East, which drove oil prices higher. Disruptions to the Strait of Hormuz, which carries roughly 20% of global oil from the Persian Gulf, led to production cuts across major oil-producing nations. Brent crude ended the quarter at $118 per barrel, up over 94% year-to-date, while WTI surpassed $100 for the first time since the war in Ukraine began in 2022. Oil will continue to react to geopolitical headlines, including developments around a possible ceasefire.
Higher fuel costs affect consumers directly through the price of gasoline at the pump and indirectly through higher prices for goods and services across the economy. The average price of gasoline reached $4 at the end of March, and diesel prices have risen significantly as well.
While these events impact household budgets, economists tend to view these types of supply-side shocks as temporary when evaluating the health of the broader economy. Oil prices tend to stabilize once the underlying geopolitical situation resolves. We saw this play out in 2022 when gas prices hit $5 before declining within months. While not pleasant, significant financial hardship is not expected at current gasoline levels for the average American household.
History also shows that geopolitical events, while creating short-term instability, have not typically derailed markets over the long run. This includes the U.S. operation in Venezuela in January, which surprised markets but had little lasting impact on investment returns. While the current situation is still evolving and the humanitarian consequences are significant, investors who made dramatic portfolio changes in response to past events often did so at exactly the wrong moment.
At Ducere, we help clients think through these situations clearly rather than react emotionally. Our approach is to evaluate how events affect the fundamentals of your portfolio and your long-term plan, not to chase headlines.
Economic Growth Is Slowing but Remains Positive
Volatile energy prices are one piece of a broader economic picture. Other indicators point to an economy that has cooled over the past year but remains fundamentally healthy. This follows many years during which investors and economists predicted recessions that never materialized.
The labor market remains the most closely watched area, and the latest data shows that February job gains fell by 92,000 while the unemployment rate edged up to 4.4%. Job seekers now outnumber job openings for the first time in years. As recently as 2022, there were two job openings for every unemployed individual. That ratio has now reversed.
Context matters here. Fewer people are entering the workforce due to lower immigration and an aging population. Both the supply and demand sides of the labor market are cooling, which has helped keep the unemployment rate near historically strong levels. Employment data matters because it directly affects household income, consumer confidence, and spending. Consumer spending makes up more than two-thirds of GDP and has been stronger than many expected over the past several quarters.
The economy is transitioning, not breaking. That distinction is important, and it is something we monitor closely on behalf of our clients.
Sector Performance Has Diverged
While the overall S&P 500 is in pullback territory, performance at the sector level has shown wide variation. Six of the eleven S&P 500 sectors are positive for the year, and the gap between the best and worst performing sectors widened to nearly 50 percentage points in Q1.
The Energy sector has been the clear leader, gaining nearly 40% through the end of March, with higher oil prices expected to boost revenues and encourage further investment. Other sectors showing strength include Consumer Staples, Utilities, Materials, and Industrials, all of which have benefited from a more cautious market environment. Many of these are considered "defensive" because they represent more stable businesses with steadier cash flows that are less dependent on the economic cycle.
In contrast, the Information Technology sector has declined approximately 9%, and many of the mega-cap Magnificent 7 stocks have underperformed. This is a meaningful shift from recent years when a small number of large technology companies drove the majority of market gains.
This is exactly why we believe in diversification. Sector leadership rotates based on market and economic conditions. Energy was the best performing sector in 2021 and 2022 when technology stocks struggled. That reversed over the next three years. Predicting which sector will lead or lag in any given year is extremely difficult, which is why a well-balanced portfolio is better positioned to weather different market environments.
The Tariff Story Is Evolving
Trade policy took a significant turn at the end of January after the Supreme Court ruled 6-3 that the broad tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unlawful. The administration responded by imposing a temporary global import duty under a different law, Section 122 of the Trade Act of 1974. New Section 301 trade investigations were opened in March, and about a dozen Section 232 investigations remain ongoing.
The key takeaway: while the legal basis for tariffs has changed, the broader policy direction will continue. Tariffs will likely impact the economy across consumer prices, business costs, and investor confidence. That said, last year demonstrated that markets adapt to these types of policy changes over time. Regardless of how the tariff story plays out, the goal is to stay invested and not overreact to policy moves.
The Bottom Line
The first quarter of 2026 brought geopolitical shocks, higher oil prices, and economic uncertainty. Yet markets have shown resilience, and client portfolios are generally behaving in line with their intended design.
At Ducere, we are actively monitoring these developments and evaluating how they affect each client's specific situation. Our role is to help you move through periods like this with clarity rather than anxiety, staying focused on what matters most: your long-term financial goals.
If you would like to review how the current environment fits into your plan, or if someone you know could benefit from a clear-headed conversation about their financial picture, we are always here. Reach out to our team at connect@ducerewealth.com or call us at (949) 418-7118.
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This commentary is intended for informational and educational purposes only and should not be construed as personalized investment, tax, or legal advice. All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. The views expressed are those of the author as of the date of publication and are subject to change without notice.
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