The Brave Report: Market Commentary for Q1 2026

Is the party over? Markets finally took a tumble in March, and all it took was a war.  The bombing campaign in Iran spiked oil prices and sent equity markets lower.  Markets had climbed in a straight line since last April’s bottom, and even prior to the Iran conflict, many traders were starting to look for a reason to take some profit.  The disruption in oil markets raised fears of increased inflation and muted global growth.

Going into the conflict, the underlying economic data was coming in stronger than expected, and earnings growth exceeded expectations.  However, fears of a frothy market and a bubble in AI-related names were keeping a ceiling on market returns.  The question traders and pundits alike are now trying to sort through is how long this conflict will last and whether there will be more systematic damage to the economy than just a short-term spike in oil prices.

Market Overview

The markets finally saw a bit of a pullback in the first quarter, ending a three-quarter winning streak.  During the first quarter, we saw the S&P 500 give up 4.6%, the DOW industrials give back 3.6%, and the NASDAQ drop more than 6%. The majority of these drops were concentrated in the month of March after posting slightly positive returns for the first two months.  The conflict in Iran was the big catalyst, but it is important to point out that the markets had been on quite a run leading into the quarter, so it wasn’t going to take much to see traders take some profits and regroup.

On the fixed income side, we saw a spike in yields during the month of March, after dropping to start the quarter. All things considered, the move in treasuries was relatively muted considering the spike in oil prices and the fear of a drawn-out conflict in Iran.  We did not see the standard rush to safety that usually accompanies a pullback in equity markets as fears of oil-driven inflation weighed on sentiment.  These initial price moves echoed the correlation between stocks and bonds that we saw in 2022, but for vastly different reasons. At this point, I expect rates to be relatively tied to the conflict in Iran, and if we see any quick resolution, rates should fall back down.

While I think the markets were due for a pause or a pullback, the catalyst was not what we all expected.  The US-Israeli campaign against Iran sent oil prices up sharply as oil supply through the Strait of Hormuz went to basically zero.  We saw oil prices rise to almost $120 a barrel.  This reignited short-term inflation fears and reversed expectations of more rate hikes this year.

As we tend to see during global conflicts, stock indices pulled back sharply. However, it is important to look closer at the market pullback.  I would characterize it more as market rotation and not a pure market pullback.  We saw rapid selling in Technology, Financials, and Consumer Discretionary names, but saw buying in many other areas.  Six of the eleven major sectors were actually positive in the quarter, with Energy up 38% and Materials up 10%. Further, the equal-weighted S&P 500 and the Russell 2000 were actually up around 1%, far outpacing the cap-weighted S&P 500.

During the quarter, many people were worried that we were going to see a repeat of 2022 because both stocks and bonds sold off, muting the diversification effects.  However, diversification within the equity markets definitely paid off.  The majority of the losses were concentrated in the mega-cap tech names (which have been up dramatically over the past few years). I look at this pullback as an excuse to take profit.  We saw the recent winners take the biggest hit. This is common during short-term shocks.

Outside of the Iran conflict, other economic data continued to come in positive and secular trends are still intact.  GDP growth is still tracking above 2%, and unemployment has been stable.  Earnings and productivity continue to support continued corporate performance.

The big elephant in the room now becomes how long this conflict drags on and how long oil markets are disrupted.  I expect markets to remain volatile and will probably move rapidly on any new developments in either direction.  The shorter the crisis, the lower the impact on economic fundamentals, and the more stocks should be able to weather the storm.  However, if oil remains disrupted for an extended period, we will start to see erosion at the corporate level.  Energy and more defensive names should still perform well, but they are not immune to an overall weaker economy.

I will continue to maintain a patient stance.  I think some of the names that have been sold off now offer attractive long-term entry points, but sentiment in those names is still poor, so I am not rushing out to buy them.  The rotation to other sectors is positive for markets in the long term and will bring some new leaders should we see a recovery.

Strategy Commentary

My overall equity allocation remained unchanged during the quarter.  I did start putting some new money to work on the market weakness, but this was in line with current allocations. I am still exercising patience as I think we will continue to see volatility while the Iran crisis continues to evolve.  The daily swings have been large, which makes timing the market a fool’s errand.  I will continue to add on weakness unless we see signs that this conflict will intensify.

Domestically, I continue to hold my overweight to technology. I did trim some of my communication services exposure earlier in the quarter, but this was simply due to the weight getting too high.  Technology did underperform during the month of March as investors rotated away from technology names and into Energy and Utilities.  I think this is simply a product of short-term fear around the war and not something more fundamental, long-term.  If the war looks like it will turn into a long, drawn-out campaign, then I could see some rotation into more defensive sectors, but I do not think we are there yet.

I continued to maintain my international allocation as we saw developed international and emerging markets end the quarter close to flat.  These international markets are much more dependent on Middle Eastern oil, so I will be watching closely to see how long the supply chain in the region is disrupted before adding to any positions.

With the conflict spiking inflation fears, I continue to favor the short end of the curve. However, if oil prices retreat quickly, I will move out on the curve a bit.  Additionally, if the conflict escalates and the stock market sells off rapidly, I expect to see a rush to safety, and I will try to increase fixed income allocations.

Click here for .pdf version: The Brave Report-2026Q1