Investment Review for First Quarter 2026

Risky assets pre & post Feb. 28.

The first quarter of 2026 was a story of two very different market environments.

Through February 28, markets experienced a broad “risk-on” rally—meaning investors were willing to take on more risk, and most asset classes performed well. Many areas of the market outpaced the traditional U.S. large company index. While U.S. large companies, as measured by the S&P 500, were relatively flat at +0.7%, equal-weight stocks, smaller companies, and international markets performed strongly. Emerging markets led the way, gaining +14.8%.

However, this environment shifted abruptly in March as the global "risk-on" rally stalled. A broad sell-off swept through equity markets worldwide, with U.S. large companies declining -5.0% and international stocks seeing even steeper double-digit pullbacks. While traditional stocks retreated across the board, "real assets" provided a stark contrast, with commodities surging 11.5% as the market priced in new global risks.

While the volatility in March captured the headlines, the first quarter as a whole told a story of structural resilience. Despite the late-quarter pull-back, investors with a global footprint and a commitment to non-traditional asset classes and strategies found themselves on firmer ground.

Geopolitical chokepoints.

While the U.S. is often described as energy independent, the global oil market tells a different story. Even with U.S. production at record levels (around 13.6 million barrels per day), oil prices are set globally.

This means that disruptions in key regions—such as the Strait of Hormuz, through which about 20% of the world’s oil supply passes—can affect prices everywhere.

In March, rising tensions in this region pushed oil prices higher as markets priced in additional risk. This isn’t just a geopolitical headline—it directly impacts inflation and economic growth.

      •    Higher energy costs act like a hidden tax
      •    Businesses face rising operating costs
      •    Consumers lose purchasing power
      •    Inflation becomes harder to control

As long as this region remains unstable, this volatility may continue. Energy security is increasingly becoming a major factor in market performance and portfolio outcomes.

The Fed's judicial victory.

In a notable development, a federal court recently blocked subpoenas targeting the Federal Reserve. While the government cited an investigation into headquarters renovation costs, the court blocked the move, ruling it was an improper attempt to pressure the Fed into cutting interest rates. 

Why does this matter?

Financial markets rely on the belief that the Fed makes decisions based on economic data—not politics. This trust supports:

      •    The strength of the U.S. dollar
      •    Stability in bond markets
      •    Confidence in long-term monetary policy

By protecting that independence, the ruling helps maintain stability during a period of global uncertainty.

The fiscal burden.

The U.S. reached an important fiscal milestone this quarter: interest payments on government debt hit record highs.

To fund these payments, the government continues to borrow heavily. This creates competition for capital between the government, businesses, and consumers.

The result:

      •    Upward pressure on interest rates
      •    Higher borrowing costs across the economy
      •    Potentially slower economic growth

When the government needs to offer higher rates to attract investors, it effectively raises the baseline cost of borrowing for everyone.

For investors, this suggests that higher interest rates may persist longer than previously expected—impacting mortgages, business loans, and investment returns.

The credit test.

While public markets appeared relatively stable, the private credit market is beginning to show signs of stress.

This market—now roughly $2 trillion in size—has seen rising defaults. According to Fitch Ratings, the default rate reached 5.8% in March 2026, compared to 4.5% in public high-yield bonds.

More concerning is how these defaults are being handled.

In many cases, lenders are allowing borrowers to delay payments using “Paid-in-Kind” (PIK) interest—meaning interest is paid with additional debt rather than cash. While this can provide short-term relief, it may also hide underlying financial weakness.

At the same time, some private credit funds are restricting investor withdrawals (known as “gating”) to manage liquidity.

This creates a challenging dynamic:

      •    Investors accept limited liquidity in exchange for higher returns
      •    But in some areas—like private credit—the return may not fully compensate for that restriction

While illiquid investments can still play an important role in portfolios, investors should carefully consider where that trade-off makes the most sense.