Quarterly Market Review

The first quarter marked a sharp shift from a stable market backdrop to a more volatile environment. The Iran conflict pushed oil prices above $100 and reignited inflation concerns, while markets rapidly repriced expectations toward a “higher-for-longer” interest rate environment. Volatility increased significantly, with large swings as markets adjusted to multiple competing risks. The defining feature of Q1 wasn’t just volatility–it was dispersion. Leadership rotated, correlations shifted, and traditional relationships broke down, reinforcing the importance of diversification in a market increasingly driven by geopolitics, inflation, and shifting policy expectations. Even in this more volatile environment, diversified portfolios helped cushion the impact, with a balanced global 60/40 portfolio down -2.3% for the quarter.

Global equities were broadly lower for the quarter, with U.S. markets down -4.3%, developed international markets down -1.1%, and emerging markets down at -0.1%. However, since the start of the conflict, both developed international and emerging markets have given back much of their earlier gains as rising oil prices pressured energy-importing economies, while the U.S. held up somewhat better as a net energy exporter.

Within the U.S., leadership shifted noticeably. Energy was the clear standout, benefiting from higher oil prices, while more economically sensitive areas like financials, consumer discretionary, and technology lagged. Many of the large AI-driven stocks pulled back as investors began to question how quickly AI investments will translate into meaningful profits, marking a shift from prior market leadership.

Bond markets also faced pressure as inflation concerns resurfaced. Yields moved higher, particularly as markets scaled back expectations for Fed rate cuts. At the same time, higher yields improved income opportunities for investors, as markets weighed persistent inflation risks against a slowing growth backdrop.

Lastly, commodities were a key differentiator in the quarter. Oil surged on geopolitical risks, while gold’s performance was more muted. Gold sold off as the conflict began but still held on to a portion of its earlier gains, as a stronger U.S. dollar, higher interest rates, and profit-taking weighed on performance.