Key Points
- The quarter was difficult, but the bigger picture is encouraging. Most of the indices we follow in this blog experienced modest declines in Q1, but zooming out to the past twelve months tells a different story. Emerging markets, international stocks, and US small-caps all delivered strong double-digit returns over the trailing year. One turbulent quarter doesn’t erase that progress.
- Diversification worked exactly as it was designed to. Investors concentrated in US large-cap stocks felt the full weight of Q1’s decline. Those with globally diversified portfolios experienced a meaningfully softer landing. This quarter demonstrated why we build portfolios the way we do.
- The Iran conflict is the biggest variable to watch. Rising oil prices, evaporating expectations for Fed rate cuts, and elevated market volatility are all direct consequences of the conflict. A diplomatic resolution could remove significant headwinds. A prolonged stalemate could sustain them.
- Volatility is not the same as permanent loss. Markets drop. They recover. The investors who fare best over the long run are often those who resist the urge to make permanent decisions in response to temporary conditions.
- Your plan was built for this. And we’re here to help you hold to it. Nothing about the current environment changes the fundamental logic of your financial plan. If you’d like to talk through your specific situation, please reach out to your advisor.
Editor’s note: This post was finalized for publication on April 21, 2026. The situation in Iran and the Strait of Hormuz continues to evolve rapidly. The developments described below reflect the most current information available at the time of writing.
The first quarter of 2026 tested investors in ways that few could have anticipated. What began as a continuation of the strong momentum we’d enjoyed over the prior twelve months gave way to one of the more jarring geopolitical disruptions in recent memory: the outbreak of armed conflict between the United States, Israel, and Iran in late February. The quarter ended with oil prices nearly reaching $115 a barrel, their highest level since 2022, elevated bond yields, and broad equity market declines.
If you’ve felt unsettled watching this unfold in the markets, in the news, at the gas pump, that reaction is completely understandable. Geopolitical conflict of this scale carries weight that goes well beyond portfolio statements, and we don’t take lightly the uncertainty you may be feeling. That’s why we want to offer some clarity on what happened, what it means for your investments, and why we believe the right response is to stay the course and remain confident in the path forward.
From Stability to Shock: What Shook Markets in Q1 2026
Markets entered 2026 in relatively good shape. Through most of January and February, many of us were focused on familiar questions: Where would the Federal Reserve take interest rates? Could AI-driven earnings growth hold up? And would stock market gains continue to spread beyond the largest tech companies?
That changed on February 28th, when the United States and Israel launched coordinated strikes against Iran. The conflict escalated rapidly. Iranian forces launched retaliatory strikes across the Gulf region, the Strait of Hormuz, a critical artery for global oil supply, was effectively closed, and fighting between Israel and Hezbollah resumed in Lebanon.
The market reaction was swift and severe. Oil prices surged more than 60% from pre-war levels by the end of March. Brent crude, the international benchmark used to price most of the world’s oil, finished the quarter near $118 a barrel, its largest monthly gain on an inflation-adjusted basis since at least 1988. Bond yields rose as inflation concerns mounted, with the 10-year Treasury yield climbing from below 4% in late February to above 4.4% by the end of the month. Stocks sold off, particularly in March.
For many investors, the quarter ended on an anxious note. The combination of geopolitical conflict, prices rising at the pump, and turbulent markets is the kind of environment that can make even the most seasoned, long-term investors pause. It’s natural to wonder whether something has fundamentally changed and whether your portfolio is prepared for what comes next. Before drawing any conclusions about what it all means for your financial future, it’s worth taking a closer look at what the numbers actually show, because the full picture is more encouraging than the headlines alone might suggest.
Q1 2026 Market Performance: What the Numbers Actually Show
Despite the late-quarter disruption, it’s important to put the numbers in context. The quarter was modestly negative for most equity and fixed income categories, but the trailing twelve-month returns tell a meaningfully different story.
Source: Dimensional Fund Advisors. Data 1/1/2026 to 3/31/2026. Performance in USD.
Source: Dimensional Fund Advisors. Data 1/1/2025 to 12/31/2025. Performance in USD.
Source: Dimensional Fund Advisors. Data 1/1/2001 to 3/31/2026. Performance in USD.
When you look past the quarter’s results, a few things stand out. US large-cap stocks, which led global markets for much of the past two years, were actually the weakest major equity category in Q1, down 4.33%. Meanwhile, US small-caps, international developed stocks, and emerging markets all held up better, with small-caps actually posting a slight gain.
This is a useful reminder that diversification across geographies and market segments isn’t just a theoretical exercise; it’s a practical tool for managing drawdowns. Investors who were concentrated solely in the S&P 500 likely felt the full weight of the quarter’s decline, while those invested in globally diversified portfolios likely experienced a meaningfully softer landing.
The longer-term numbers make this point even more clear. Over the past 12 months, emerging markets led all major equity categories with a nearly 30% return. International developed stocks returned almost 23%. US small-caps posted a strong 25.72%. The S&P 500, despite its dominance in financial media coverage, trailed every other equity category over that same period.
On the fixed income side, both US and global bonds were essentially flat for the quarter, a relatively good outcome given the sharp rise in yields during March. Over the past 12 months, bonds have delivered modest positive returns and continued to play their role as a stabilizing force in a well-constructed portfolio, even amid interest rate uncertainty.
If there’s one lesson this quarter reinforced, it’s that diversification across geographies, market segments, and asset classes wasn’t just a theoretical concept; it was a real and measurable advantage. And while no single quarter defines a financial plan, this one serves as a timely reminder of why we build portfolios the way we do. If your portfolio is globally diversified, it was designed for quarters exactly like this one.
How the Iran Conflict Is Affecting Markets
We recognize that the situation in Iran carries deep moral and emotional weight far beyond portfolio returns. Many of you may have strong feelings about the conflict itself, and we respect that. Our responsibility as your investment advisors isn’t to minimize those concerns; it’s to help ensure they don’t drive financial decisions that could harm your long-term strategy.
With that in mind, here’s what we’re watching closely and what it means for your investments.
The Oil Price Surge
The closure of the Strait of Hormuz, through which roughly 20% of global seaborne oil transits, has created what the International Energy Agency has called the largest supply disruption in the history of the global oil market.
Brent crude ended March near $118 a barrel, up from around $72 before the conflict began. Gasoline prices in the US rose more than 30% since the war began, surpassing $4 per gallon nationally by the end of March. For investors, this matters beyond the pain at the pump. Energy prices touch nearly every corner of the economy, from the cost of shipping goods to corporate profit margins.
Since the quarter ended, the situation has remained volatile. On April 8th, the US and Iran agreed to a two-week ceasefire mediated by Pakistan, and Iran indicated it would reopen the Strait. However, the first round of peace talks in Islamabad ended on April 12th without a deal, with the two sides unable to agree on terms for Iran’s nuclear program or the future of the Strait.
The US subsequently imposed a naval blockade on Iranian ports on April 13th, and Iran responded by reasserting control over the Strait, firing on commercial vessels and effectively closing it again. Oil prices have pulled back from their March highs. Brent is trading around $96 a barrel as of April 21, 2026, but remains roughly 30% above pre-war levels.
As of today, the ceasefire deadline is set to expire imminently, and it remains unclear whether Iran will send a delegation to a second round of talks. President Trump announced that he would extend the ceasefire while awaiting a response from Iran, though the naval blockade will continue. The situation remains fluid, and the path forward for energy markets will depend heavily on whether a lasting agreement can be reached.
For your portfolio, the direction of oil prices from here is one of the most important variables to watch. A lasting diplomatic resolution could bring prices down meaningfully and remove one of the key headwinds facing markets right now. A prolonged stalemate or further escalation could keep energy prices elevated, sustain inflationary pressure, and continue to weigh on consumer spending and corporate earnings. We don’t know which path this takes, and anyone who claims certainty is overreaching. What we do know is that your Abacus portfolio was built to navigate both scenarios and that making significant changes in response to an unresolved situation has historically done more harm than good.
The Ripple Effect: Inflation and Interest Rates
Higher energy prices don’t stay contained to the gas pump; they ripple through the broader economy, pushing up the cost of goods, transportation, and services. Before the conflict, markets were pricing in the possibility of Fed rate cuts in 2026. That expectation has largely evaporated. Bond yields have climbed, and some analysts are now questioning whether the Fed might need to raise rates if inflation proves persistent, a scenario that could put additional pressure on equity valuations and make the economic environment more challenging to navigate.
What this means for you is straightforward: the economic backdrop has shifted since the start of the year. We don’t know exactly how the Fed will respond or how long elevated energy prices will persist, and we’re skeptical of anyone who claims they do. What we do know is that your portfolio was built with this kind of uncertainty in mind, not just the favorable conditions that preceded it.
Making Sense of the Market Swings
The S&P 500 has been experiencing the kind of dramatic intraday swings that tend to test even the most disciplined investors. It’s worth keeping some historical perspective close at hand: Since 1980, the average intra-year decline in the S&P 500 has been roughly 14%, yet the market has still finished the year in positive territory in about three out of every four years. Remember that volatility is the price of admission for equity returns. While it is uncomfortable, it is also a normal and expected part of investing.
For your portfolio, the most important thing to understand is that short-term volatility and long-term damage are not the same thing. Markets drop. They recover. The danger isn’t the decline itself, it’s making permanent decisions in response to what are often temporary conditions. If your portfolio is properly diversified and aligned with your long-term goals, the current swings are noise, not a signal to change course.
Perspective and Guidance: Why We’re Not Changing Course
The events of the past several months have been jarring. But our guidance and our confidence in the investment principles that underpin your financial plan and investment strategy has not wavered. Here’s why.
What History Tells Us
History gives us some useful context. Markets have weathered wars, oil shocks, and geopolitical crises before, from the Gulf Wars of 1991 and 2003 to the oil embargo of 1973. In most cases, the disruptions that felt permanent in the moment proved shorter-lived than feared.
Markets have historically posted gains in the months following the onset of military conflicts. For example, the S&P 500 rose more than 10% in the three months after the start of US wars since the Gulf War.
It’s worth noting, however, that the two historical conflicts most analogous to today, the 1973 oil embargo and the 1990 Gulf war, both of which involved direct disruptions to energy supply, were exceptions, with markets taking longer to recover. That doesn’t mean this time will follow the same pattern in either direction. But it does suggest that making portfolio decisions based on the headlines of the moment has historically been a losing strategy, regardless of how those headlines feel in real time.
Why Today Looks Different From the 1970s
One meaningful distinction between now and prior energy shocks is worth highlighting. The United States is now a net energy exporter and the world’s largest oil producer, a structural shift that has significantly reduced our economy’s sensitivity to oil price spikes. The US economy’s sensitivity to oil price shocks has declined meaningfully over the past several decades. Higher gas prices are real and affect consumer spending and sentiment. But the broader economic impact is more contained than it would have been in the 1970s or even the early 2000s. That’s not a reason for complacency, but it is a reason for measured optimism.
Abacus’s Guidance and Philosophy
Our guidance remains consistent with what we’ve communicated through every period of uncertainty. Your portfolio wasn’t built for the good times alone; it was built for moments exactly like this one.
Stay disciplined. The urge to reduce risk or move to cash during periods of volatility is entirely human. But the cost of acting on that impulse, missing the recovery when it comes, has historically far exceeded the benefit of avoiding short-term losses. As we’ve noted before, recoveries can come as quickly and forcefully as the declines that precede them.
Stay diversified. This quarter demonstrated the real-world value of diversification. A portfolio tilted toward smaller, less expensive stocks and spread across global markets experienced a meaningfully different quarter than one concentrated in US large-caps. Diversification doesn’t eliminate risk, but it does help reduce the impact that any single market event can have on your financial plan.
Stay focused on your plan. At Abacus, your financial plan was built to withstand periods exactly like this one. It strategically accounts for the reality that markets decline, sometimes sharply, and that the timing and cause of those declines is never predictable. If your financial situation or goals have changed, talk to your financial advisor. If they haven’t, the plan remains sound.
Our Commitment to You
We understand that the current moment feels different: the images from the conflict zone, the uncertainty about whether the ceasefire will hold, the rising prices at the pump. Those concerns are valid, and we share them. What we also know, from decades of experience and data, is that the investors who fare best over the long run are those who resist the impulse to act on what they can’t control.
Your plan was built for this. And we’re here to help you hold to it. If you’d like to talk through your specific situation, please don’t hesitate to reach out to your advisor. These are exactly the conversations we’re here for.
If you’re not yet a client and you’re reading this wondering whether your current portfolio is built to weather moments like this one, we’d welcome that conversation too. Market turbulence has a way of revealing whether a financial plan or investment strategy is truly built for the long run, and there’s no better time to find out. Schedule a call to learn more about partnering with Abacus.
