First Quarter 2026 Market Update

Global equity and fixed income markets faced headwinds in the first quarter of 2026, as geopolitical shock, renewed inflationary pressure, and a reassessment of interest rate expectations converged to cause concerns about global growth. The MSCI All Country World Index returned -3.2% while the Bloomberg U.S. Aggregate Bond Index declined -0.1%, a rare outcome in which both asset classes moved lower simultaneously. The escalation of the U.S. and Iran conflict in the Middle East damaged regional energy infrastructure and effectively closed the Strait of Hormuz, driving Brent crude to over $110 per barrel, an increase of more than 85% year-to-date, and reignited global inflation concerns. The U.S. Federal Reserve held interest rates steady throughout the quarter as energy driven inflation threatened to reaccelerate, and market implied expectations shifted the anticipated timing of any further easing toward the latter part of the year.

Domestic equity markets, as measured by the S&P 500 Index, returned -4.3% for the quarter, though aggregate index performance understated the dispersion of outcomes beneath the surface. Market leadership broadened away from the mega-cap growth names that have dominated performance for prior periods, with the equal-weighted S&P 500 outperforming the capitalization-weighted S&P 500 Index by 5.0%. The broadening trade extended across the capitalization spectrum, with the Russell Midcap Index advancing +1.3% and the Russell 2000 Index gaining +0.9%, as investors favored companies with greater domestic earnings exposure, attractive relative valuations, and lower sensitivity to AI capital expenditure cycles. Smaller-cap companies experienced drawdowns in March, however, underscoring continued fragility in risk appetite and sensitivity to the abrupt repricing of interest rate expectations. From a sector perspective, energy was the standout performer, returning +38.3%, the largest single-quarter advance since the first quarter of 2022, as crude oil’s rally translated directly into earnings upgrades across the sector. Prior sector leaders reversed with information technology, communication services, and consumer discretionary sectors declining -9.1%, -6.9%, and -9.2%, respectively. Financials also lagged, returning -9.3%, reflecting concerns around credit quality and funding conditions as interest rate hike expectations re-emerged. A pronounced value versus growth rotation developed during the period, with the Russell 1000 Value Index advancing +2.1% against a -9.8% decline for the Russell 1000 Growth Index. Dividend-oriented and low-volatility strategies outperformed while momentum and growth factors unwound alongside crowded AI-related positioning.

International equity markets proved more resilient than their domestic counterparts during the quarter, extending a trend of non-U.S. equity leadership that gathered momentum in 2025. Developed international equities, as measured by the MSCI EAFE Index, declined -1.2%, as higher energy costs weighed on growth prospects across import-dependent economies, though markets with greater commodity-linked sector exposure demonstrated relative resilience. Emerging market equities, as measured by the MSCI Emerging Markets Index, declined -0.2%, modestly outperforming developed international, albeit with meaningful dispersion across sectors. Early quarter AI tailwinds supporting technology-oriented economies gave way to risk-off sentiment in March, as markets recalibrated Asia’s exposure to Middle Eastern energy supply disruptions. Across both regions, sector composition and energy trade orientation proved the dominant drivers of relative return.

Fixed income markets moved modestly lower for the quarter as inflation reemerged as a primary policy consideration, prompting a sharp reversal in rate-cut expectations and pushing yields higher across the yield curve. Markets entered the year anticipating a multi-cut easing cycle, but quickly repriced expectations in March as central banks reassessed their trajectories in response to rising commodity prices. Duration was a headwind across core fixed income as bond yields moved higher. The Bloomberg U.S. Aggregate Bond Index returned −0.1% for the quarter, and the Bloomberg High Yield Corporate Index declined −0.5%. The Bloomberg Municipal Bond Index returned -0.2%, as rate volatility and heavy supply dynamics weighed on tax-exempt valuations. Credit spreads widened modestly, particularly in lower-quality segments, as investors began pricing in the increased chances of a recession and potential impact of elevated energy costs on corporate margins.

Commodity markets delivered strong performance during the quarter, with the Bloomberg Commodity Index advancing +24.4%, driven predominantly by a historic energy supply shock. Disruption to Strait of Hormuz transit reduced global tanker traffic and pushed transportation costs higher, reinforcing inflationary pressures across supply chains worldwide and contributing to the energy sector’s outsized gains. Industrial metals were mixed, reflecting uncertain global growth signals. Precious metals ended the quarter modestly higher despite an atypical weakening in gold late in the period, as liquidity-driven selling and rising real yields countered safe-haven demand. For multi-asset portfolios, commodities provided a meaningful diversification benefit during a period where equity and fixed income indices generated negative performance.

As always, we welcome the opportunity to discuss your portfolio in detail and appreciate the trust and confidence that you have placed in Prairie Capital. We look forward to connecting with you soon.

Sincerely,

Prairie Capital Management Group, LLC

Important Disclosures
Past performance is not an indication of future results. This publication does not constitute, and should not be construed to constitute, an offer to sell, or a solicitation of any offer to buy, any particular security, strategy, or investment product. This publication does not consider your particular investment objectives, financial situation, or needs, should not be construed as legal, tax, financial or other advice, and is not to be relied upon in making an investment or other decision.

Certain information contained herein has been obtained or derived from unaffiliated third-party sources and, while Prairie Capital Management Group, LLC (“Prairie Capital”) believes this information to be reliable, makes no representation or warranty, express or implied, as to the accuracy, timeliness, sequence, adequacy, or completeness of the information. The information contained herein, and the opinions expressed herein, are those of Prairie Capital as of the date of writing, are subject to change due to market conditions and without notice and have not been approved or verified by the United States Securities and Exchange Commission (the “SEC”), the Financial Industry Regulatory Authority (“FINRA”), or by any state securities authority. This publication is not intended for redistribution or public use without Prairie Capital’s express written consent.

Definition: “YTD” = Year-to-Date.