What happened in markets

The first quarter of 2026 gave investors a useful reminder that markets do not move in straight lines, even when the broader economic backdrop remains relatively stable. By March 31, the S&P 500 had posted a quarterly decline of 4.6%, its weakest quarter since 2022, even after a strong rally on the final trading day of the month (AP quarter-end recap). That late rebound mattered, but it did not erase a quarter shaped by abrupt shifts in sentiment around interest rates, inflation, economic growth, and geopolitical risk. As of the afternoon of April 2, a widely used large-cap proxy, the SPDR S&P 500 ETF, traded near $654.81, while the iShares Core U.S. Aggregate Bond ETF traded around $99.23, underscoring how quickly prices can recover even when investors still feel uneasy about the headlines. (apnews.com)

Bonds and stocks both felt the effects of shifting expectations. Treasury yields moved higher as March progressed, with the U.S. Treasury’s daily curve showing the 10-year Treasury yield at 4.21% on March 11, 4.26% on March 18, and 4.30% on March 31 before ticking to 4.33% on April 1 (Treasury yield data). At the same time, oil prices became a new source of strain. On March 30, benchmark U.S. crude settled at $102.88 a barrel as Middle East conflict pushed energy prices higher and raised concerns about the inflation outlook (AP market report). In practical terms, the quarter looked less like a collapse in fundamentals and more like a repricing exercise, with investors demanding a wider margin of safety as uncertainty increased. (home.treasury.gov)

Why markets reacted this way

The Federal Reserve remained central to that repricing. At its March 17 and 18 meeting, the Fed left the federal funds target range unchanged at 3.5% to 3.75% and said that uncertainty about the economic outlook remained elevated, specifically noting that developments in the Middle East had uncertain implications for the U.S. economy (FOMC statement). The updated Summary of Economic Projections reinforced the idea that inflation progress has been uneven. Fed officials’ median projection for 2026 PCE inflation rose to 2.7%, with core PCE also seen at 2.7%, while the median unemployment projection for 2026 stood at 4.4% (Fed projections). That combination is not a crisis, but it is enough to keep monetary policy cautious and to make equity valuations more sensitive to every new data release. (federalreserve.gov)

Inflation data helped explain why markets stayed jumpy. The Bureau of Labor Statistics reported that February CPI rose 0.3% month over month and 2.4% year over year, with shelter again the largest contributor to the monthly increase (BLS CPI release). The Fed’s preferred inflation gauge also remained firmer than many investors would prefer. The Bureau of Economic Analysis reported that the core PCE price index was up 3.1% from a year earlier in January, while personal consumption expenditures rose 0.4% in that month (BEA Personal Income and Outlays). In other words, inflation is no longer running at the extremes of the prior cycle, but it also has not cooled enough to give policymakers confidence that a quick return to 2% is assured. That is why higher oil prices and firmer long-term yields carried so much market impact during the quarter. (bls.gov)

Growth data complicated the picture further, because the economy looked slower without clearly looking weak. The second estimate of fourth-quarter 2025 GDP showed real growth at a 0.7% annualized rate, down sharply from 4.4% in the third quarter (BEA GDP release). Labor data also softened. February nonfarm payrolls fell by 92,000 and the unemployment rate was 4.4% (BLS employment release). Yet corporate earnings expectations remained fairly constructive. As of March 19, FactSet estimated first-quarter S&P 500 earnings growth at 12.5% year over year, with revenue growth of 9.6%, led in large part by Information Technology and Financials (FactSet Earnings Insight). That mix, softer macro data but still respectable earnings expectations, helps explain why markets swung so sharply. Investors were not weighing one simple story. They were weighing several conflicting ones at the same time. (bea.gov)

What this could mean for long-term investors

For long-term investors, the key takeaway is that volatility like this is usually less about a verdict on the next ten years and more about a negotiation over the next ten months. When inflation looks sticky, rates stay higher, and growth becomes less predictable, markets compress valuations first and sort out the longer-term earnings path later. That can feel unsettling in real time, especially after a strong prior year, but it is also a normal part of how public markets process new information. The first quarter did not show that discipline has stopped mattering. If anything, it showed the opposite. Higher-quality balance sheets, reasonable valuations, and diversified sources of return became more important as markets adjusted to a world in which policy is restrictive enough to matter and inflation is low enough to be manageable, but not low enough to ignore. (federalreserve.gov)

It also reinforced a point that advisors often make in calmer markets and clients tend to appreciate most in choppier ones: investor behavior can either cushion volatility or magnify it. The quarter ended with a large rebound on March 31, immediately after a period when many investors were feeling most defensive (AP market recap). That sequence is familiar. Some of the market’s strongest days often arrive close to its weakest stretches, which means attempts to step aside after a drawdown can easily turn into missing the early phase of a recovery. None of that means risk should be ignored. It means risk should be managed in a structured way rather than through improvisation. A portfolio built around a plan, with an allocation sized to real spending needs and time horizons, is usually more resilient than one built around the emotional intensity of the latest week. (apnews.com)

Planning lens

From a planning standpoint, this environment favors review over reaction. The rise in yields means fixed income once again offers meaningful competition to equities for capital, which is healthy for portfolio construction. A 10-year Treasury yield in the low 4% range changes the math on future cash flow discounting, but it also improves the income potential of high-quality bonds and short-term reserves (Treasury yield data). For households drawing on portfolios, that can support a more intentional liquidity structure. For accumulators, it can support more balanced rebalancing decisions than we saw during the ultra-low-rate years. In practical terms, this is a good time to revisit whether equity exposure has drifted away from long-term targets, whether cash reserves are sized appropriately, and whether tax-aware rebalancing or loss-harvesting opportunities have emerged after a weaker quarter. (home.treasury.gov)

The broader planning question is not whether the next quarter will be smooth. It is whether a client’s portfolio is aligned with the life it is supposed to support. That includes retirement income timing, required distributions, charitable goals, business liquidity, college funding, and near-term spending commitments. When markets become more headline-driven, the value of integrating the investment portfolio with the financial plan becomes more visible. A client who expects withdrawals in the next few years may benefit from having those needs funded with assets that are less sensitive to equity swings. A client still in accumulation mode may view periods like this as opportunities to keep contributing systematically while valuations reset. In both cases, the discipline comes from matching portfolio structure to purpose, not from trying to predict the next short-term turn in sentiment. (federalreserve.gov)

Closing thought

April begins with markets still balancing several legitimate questions at once: how quickly inflation will cool, how long policy will stay restrictive, whether earnings can keep outpacing a slower economy, and how external shocks may filter through to consumers and businesses. Those are real uncertainties, and they help explain the turbulence of the first quarter. But long-term investing has never required perfect clarity. It requires a repeatable process, a realistic understanding of risk, and the patience to let diversification and compounding work over time. First-quarter volatility did not invalidate the long view. It simply reminded investors that the path to long-term outcomes is rarely linear, and that good planning matters most when markets make patience feel hardest. (federalreserve.gov)

Appendix: Sources

Federal Reserve FOMC statement, March 18, 2026
Federal Reserve Summary of Economic Projections, March 18, 2026
BLS Consumer Price Index release for February 2026
BEA Personal Income and Outlays
U.S. Treasury daily yield curve rates
FactSet Earnings Insight, March 19, 2026