Q1 2026 Post-Mortem From an Investment Adviser: Spring Warms as Markets Cool
GreenRock Advisory founder Prem Patel shares his take on how markets performed in the first quarter of 2026 and what investors should keep in mind for what comes next.
Spring is in the air. The weather is warming up, March Madness basketball is concluding, and baseball has begun. The markets, meanwhile, aren't sharing in the seasonal optimism.
Recent global events have had cascading effects on energy markets, global central banks, interest rates and equities around the world.
The result was a first quarter where few corners of the investable universe were spared and where the traditional hedges many investors rely on largely failed to provide shelter.
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As we close the books on the first quarter of 2026, here are a few takeaways investors should be carrying into the second quarter.
U.S. equities: Buy-the-dip mentality meets its match
The S&P 500 finished the quarter down 4.7% and 7% off record highs, while the Nasdaq is off 10% from record highs.
Despite grabbing headlines with volatility, U.S. markets showed some resilience, aided by a dominant dollar and domestic energy production.
However, look beneath the index level, and you'll see a significant sector rotation. The Magnificent 7 tech giants that led 2025 were hit especially hard.
IGV, made up of software tech, fell 24% in the quarter as the market aggressively seeks out which sectors will benefit from AI integration vs those that will be disrupted.
While corrections are uncomfortable, context is key: The past three years have all seen significant intra-year drawdowns (-10.3% in 2023, -8.5% in 2024 and -18.9% in 2025).
In a psychological tug of war, the current "Extreme Fear" reading on the CNN Fear & Greed Index suggests sentiment has gotten quite negative, but the "buy the dip" ingrained mentality is telling investors to stay in.
Beneath the volatility, the stagflation debate has quietly resurfaced.
Valuations: The silent warning signs
While much of the quarter's headlines focused on tariffs, interest rate policy and geopolitical uncertainty, the more structural risk may be hiding in plain sight: Valuations remain stretched by almost any historical measure.
The Cyclically Adjusted Price-to-Earnings ratio (CAPE), which smooths earnings over a 10-year period to reduce short-term noise, was recently above 40, a level rarely seen outside of the dot-com peak.
High readings have historically been associated with extended periods of below-average forward returns.
By contrast, at prior major market bottoms, P/E ratios have tended to compress into the teens. The gap between where we are today and where markets have historically averaged and found durable floors is significant.
Adding to the picture: U.S. household total net worth now stands at a record $175 trillion, more than doubling over the past decade.
That growth has been driven by a sharp rise in U.S. home prices (up about 88% over the period) and an even more dramatic surge in U.S. stock prices (up about 298%), according to Federal Reserve data.
Warren Buffett's preferred macro valuation indicator, the ratio of total stock market capitalization to GDP, is still over 200%, significantly above fair value estimates.
International equities: The hot streak hits a wall
After a standout 2025, international equities ran into turbulence in Q1. The MSCI EAFE Index finished the quarter down 3.2%, as the tailwinds that powered last year's outperformance, a weakening dollar, improving growth expectations and reasonable valuations began to fade.
Many countries in Europe and Asia remain significant importers of oil from the Persian Gulf, making them more directly exposed to energy price volatility than the U.S.
Meanwhile, as interest rates in key international markets continue to drift higher, the cost of capital is rising in economies that had previously benefited from ultra-loose monetary policy.
After a torrid run in 2025, some consolidation was not surprising. The open question moving forward is whether last year's outperformance was the opening chapter of a longer trend or a mean-reversion trade that has largely run its course.
The Fed and rates: The vibe has shifted
The script is being rewritten. Officially, the Federal Reserve has shifted its posture from debating the pace of rate cuts to weighing what the next move should be.
Unofficially, the vibes have changed considerably as both Consumer Price Index (CPI) and Producer Price Index (PPI) inflation have run at more than double the Fed's 2% target over the past five years.
Federal Reserve Chair Jerome Powell recently said that the current environment simultaneously presents downside risk to the labor market and upside risk to inflation. That is not a comfortable place for a central bank that has only one primary lever to pull.
The 10-year Treasury yield finished Q1 at 4.3%, as rising inflation expectations put upward pressure on longer-term rates.
This dynamic hurt bonds in the quarter: The Bloomberg U.S. Aggregate Bond Index finished Q1 down 1%, a reminder that fixed income is not a risk-free refuge when rates are moving higher.
The broader takeaway: The wave of global monetary easing that defined much of the past few years appears, for now, to have chilled. Other central banks around the world are leaning toward rate hikes rather than cuts.
Gold and silver: After a historic run, a sharp pullback
Gold had a rocky first quarter but managed to pull out gains. After a remarkable run, some profit-taking and reversion were overdue, but the magnitude of the volatility caught many investors off guard.
Gold finished Q1 at about $4,675 per ounce, up 9% for the quarter.
Silver closed the quarter at $75.50 per ounce and is undergoing what some technicians are calling a retest of its massive 45-year breakout level dating back to 1980.
The longer-term structural case for precious metals remains intact. The U.S. national debt recently crossed $39 trillion, more than doubling over the past decade, and global central bank gold-buying continues at a pace not seen in prior generations.
Crypto: Institutional progress meets technical headwinds
Bitcoin finished Q1 at about $68,000, roughly the same price it traded at four and a half years ago. Adding to the frustration for crypto believers: Bitcoin closed in the red for five months before March, an unusual streak that has tested the patience of even long-term holders.
The bulls say the infrastructure underpinning the crypto ecosystem has continued to expand, even as prices have stagnated or declined.
Fannie Mae recently announced that it will begin accepting crypto-backed mortgages, a meaningful step toward mainstream institutional legitimacy.
On the other hand, Google Quantum AI researchers just published a recent paper suggesting the quantum threat to digital assets may be more urgent than previously thought while utilizing significantly fewer resources. This adds urgency to the work the crypto community is doing on quantum-resistant protocols to offset the risk.
Risk management: Concentrated portfolios took the hardest hits
In a quarter where most major asset classes declined together, the traditional diversification playbook offered little comfort. Cash (and gold) was one of the only true safe havens.
The risk backdrop deserves careful attention. U.S. household equity allocation has reached 47.1% of total assets, surpassing the equity concentration seen at the peak of the dot-com bubble in 2000, when the figure stood at 39%.
That level of concentration in a single asset class means that stock market volatility translates directly and powerfully into household balance sheet volatility.
History also offers a sobering benchmark: The median and average presidential midterm-cycle drawdowns have been 15.9% and 16.1%, respectively.
Closing advice: Retain your optionality
In a quarter where few asset classes worked, including the private sector, which was hit even harder, the most valuable asset you can own is optionality. As Buffett famously said, "Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years."
The deeper and longer a market drop lasts, the more important it is to stick to a disciplined dollar-cost averaging strategy if you are building long-term wealth.
Being diversified, not concentrated, and keeping some "dry powder" will allow you to capitalize on the opportunities that the second quarter may present.
Markets have a way of humbling the certain and rewarding the patient. Nobody knows how deep this goes or how long it lasts. That uncertainty itself is the argument for preparing for a range of outcomes, not just the optimistic one.
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