What Happened in the Economy and
Markets in the First Quarter of 2026?

The first quarter of 2026 offered a useful reminder: even when the economy is holding up reasonably well, markets can still become choppy.

After a strong run in prior periods, investors entered the new year with a more cautious tone. Stock prices pulled back, attention shifted back to inflation and interest rates, and geopolitical tensions—particularly in the Middle East—added another layer of uncertainty.

And yet, the economy itself did not appear to be unraveling.

Job growth remained steady. Unemployment stayed relatively low. Inflation, while still higher than we would prefer, was well below its recent peaks.

In other words, this was not a quarter defined by crisis. It was defined by uncertainty.

A Resilient Economy—But Slower Growth

Through the first quarter, the U.S. economy continued to expand, albeit at a more measured pace.

That is not necessarily a negative development. In fact, a gradual slowdown is often exactly what policymakers hope for—enough to ease inflation pressures without tipping the economy into recession.

The labor market remained one of the more stable elements. Unemployment stood at 4.3% in March, suggesting that employers were not pulling back in a significant way.

Inflation also continued to trend lower compared to the highs of recent years, though it remained above the Federal Reserve’s long-term target. This left the Fed in a familiar position—balancing the need to control inflation while avoiding unnecessary pressure on economic growth.

So while the economy looked relatively sound, investors were focused on a forward-looking question:

Not “Is the economy okay today?”
But rather, “Will it remain resilient if inflation proves sticky and global risks persist?”

Markets Reacted to Uncertainty

That shift in mindset showed up clearly in market performance.

Stocks declined during the quarter, with technology stocks leading the pullback. Larger-cap indexes experienced meaningful declines, while smaller companies held up somewhat better, though still negative overall.

Bonds provided limited support. While they were only modestly negative, they did not offer the kind of cushion investors often hope for during equity declines.

Gold, however, stood out as a bright spot, benefiting from increased demand for perceived safe-haven assets.

Here’s a snapshot of returns by asset classes as represented by the relevant ETF through March 30:

These results serve as a reminder that markets do not move in a straight line. Even in an environment where economic growth continues, investor sentiment can shift quickly when uncertainty increases.

The Role of Geopolitics

Geopolitical developments played a meaningful role during the quarter, particularly concerns tied to the Middle East and global energy markets.

Tensions surrounding the Strait of Hormuz raised fears about potential disruptions to oil supply. That matters because energy prices can have broad ripple effects—impacting transportation costs, corporate margins, consumer spending, and ultimately inflation.

This is one of the reasons geopolitical events carry such weight in financial markets. Even when the conflict itself is geographically distant, the economic consequences can be global.

Trade policy also remained a concern. Ongoing uncertainty around tariffs and global trade relationships can make businesses more cautious, slowing investment and hiring decisions.

Gold’s positive performance during the quarter reflected this broader mood. When uncertainty rises—whether economic or geopolitical—investors often shift a portion of assets toward perceived safe havens.

What Investors Should Take Away

The key takeaway from the first quarter is not that something is broken.

Rather, markets are adjusting to a more complex environment—one where:

• Inflation is lower, but not fully resolved
• Interest rates remain elevated
• Geopolitical risks are still present

That combination naturally leads to periods of volatility.

And volatility, while uncomfortable, is not unusual.

For long-term investors, environments like this reinforce the importance of focusing on what can be controlled:

• Maintaining an appropriate asset allocation
• Ensuring the portfolio aligns with goals and risk tolerance
• Rebalancing when needed
• Avoiding emotional decisions driven by short-term headlines

It’s important to remember that markets have navigated wars, inflation cycles, policy shifts, and economic uncertainty many times before.

Final Thoughts

The first quarter of 2026 is best described as a period of recalibration.

The economy remained relatively stable, but markets became more cautious. Inflation stayed somewhat sticky, the Federal Reserve faced a delicate balancing act, and geopolitical tensions reminded investors that global risks still matter.

The bottom line is this:

A well-constructed financial plan is not designed just for favorable conditions—it is built to withstand periods like this.

And while uncertainty may persist, staying grounded in a disciplined, long-term approach remains one of the most effective ways to navigate it.