Q1 2026 Market Update
Market Summary¹:
Challenging quarter for U.S. Equities: Russell 3000 Total Return index fell -4.0%, though a late rally prevented an even worse start to the year.
Global Stocks held up better: Select international regions—particularly Latin America—posted strong gains. Despite the strong regional dispersion beneath the surface, Global Stock ex-U.S. (MSCI ACWI ex-USA Net TR) fell -0.7%. Emerging Markets (MSCI EM Net TR) fell -0.2% for the quarter.
Value stocks outperformed Growth stocks: Style leadership decidedly favored value over growth broadly across market capitalization tiers. Large Cap Growth (Russell 1000 Growth TR) stocks were hit hardest, down -9.8%.
¹ Source yCharts.com
Economic Overview:
GDP growth remains solid and near potential, supported by consumer spending, household wealth and AI-related capital investment
FOMC Staff projections were slightly downgraded versus January, siting geopolitical risk and financial uncertainty.
Labor Market:
Unemployment rate has held near 4.4%, with low but steady job growth
US Labor market is broadly seen as in balance, but job creation concentrated in a few sectors (health care, tech). Hiring intentions are cautious
Downside risks to unemployment may be elevated
Inflation:
Inflation is still elevated (core PCE ~3.0%), although several members of FMOC have noted limited recent improvement.
Tariffs contributed to renewed core goods inflation, while non-housing services inflation remains sticky.
Short-term inflation expectations have risen, largely due to surging energy prices tied to Middle East tensions.
Longer-term inflation expectations remain well anchored around 2%
Monetary Policy:
The Committee kept the federal funds rate unchanged at 3.50%–3.75%.
One dissent favored a 25 bp cut, citing weak labor demand and downside employment risks.
Most participants viewed policy as near neutral, following 75 bps of cuts in the second half of 2025.
Future Outlook:
The Fed is in wait-and-watch mode. The hurdle for near-term rate cuts has risen, but cuts remain the base case – just later and more conditional.
Small businesses and lower-credit-score households face tighter conditions
Concerns are rising around private credit exposures to tech and AI disruption
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