Author: Davis Finke, CFA
After beginning 2026 with two consecutive months of positive returns, the U.S. stock market ended the first quarter with its weakest quarterly performance since 2022. Since the onset of the Iran conflict on March 7, the S&P 500 has declined more than 5%, while the Nasdaq has fallen over 6%.
The ongoing conflict in Iran has become the primary driver of market sentiment. Investors’ main concern is the potential impact on energy prices and the resulting pressure on inflation. Approximately 30% of global seaborne crude oil passes through the Strait of Hormuz—a critical waterway connecting the Persian Gulf and the Gulf of Oman. Due to the conflict, shipments through the strait have declined significantly, creating supply constraints that have pushed Brent crude oil prices above $100 per barrel for the first time since 2022.
Higher energy prices are likely to be felt directly by consumers and may place additional pressure on spending. Over the past month, the average gasoline price in the U.S. has risen from approximately $2.80 to nearly $4.00 per gallon—an increase of about $20 per tank for many drivers. Because oil plays a role in the production and transportation of a vast majority of goods, elevated energy costs could also lead to higher prices across a wide range of everyday products. If these pressures persist, consumers may see reduced disposable income, which could weigh on overall economic growth and corporate earnings.
Concerns about corporate profitability have been a key factor behind recent market weakness. The extent of the impact will largely depend on how long the conflict continues. While near-term concerns are understandable, it is important to remain grounded in current data. As of the end of March, the estimated year-over-year earnings growth rate for the first quarter of 2026 is approximately 13%. While this is below the five-year average of 15.9%, it remains above the ten-year average of 9.9%. This suggests that, so far, corporate earnings have remained resilient, though a prolonged conflict could eventually affect results.
Events like this serve as a reminder of a fundamental investment principle: markets are difficult to time. Maintaining a long-term perspective and a well-diversified portfolio has historically been more effective than attempting to react to short-term volatility. Over the past 15 years—despite numerous global disruptions—the U.S. stock market has delivered an average annual return of over 12%.
We will continue to monitor developments closely and manage portfolios in alignment with each client’s individual goals, emphasizing diversification and risk management in the face of ongoing uncertainty.
