A Volatile Start to 2026
After a decent start to the year, markets dropped sharply during March with the beginning of the war in Iran. As the fighting expanded across the Middle East, selling intensified, with all major equity indices now in correction territory. Fixed-income markets followed equities down as interest rates climbed across the board. The price of oil jumped, as it always does when wars break out in the Middle East, bringing fears of a global economic recession.
Recession fears are well placed, as oil shocks almost always cause one. The price of 96% of American products are affected by rising oil prices. It is important to remember that oil is traded on global energy markets. It does not matter that the U.S. is the world’s largest producer of oil. Disruptions to the supply of oil anywhere in the world upend the entire market for oil, causing prices to rise. The longer the war lasts, the higher the price of oil will go.
If the war ends soon, we will probably see a jump in equity prices, but we still must deal with some significant issues. Chief among these is a U.S. economy that does not look as healthy as we would like. GDP grew at an anemic .7% rate in the fourth quarter of last year. For the entire year of 2025, GDP grew at a rate of 2.2%, well below the average of the past eighty years. The war and resulting jump in oil prices will likely affect GDP for the first quarter of this year. Another area of concern is the jobs market. The U.S. economy produces 200,000 new jobs on average each month. Less than 600,000 new jobs were created in all of 2025, and most of those were in the first quarter. The economy lost 92,000 jobs in February of this year. The lack of job creation, combined with a sluggish economy, is definitely a concern for investors.
Even with this current sell-off, stocks remain at very high valuations by historical standards. While the markets appear to be oversold in the short term, we still need to see lower valuations before stocks look attractive on a longer-term basis. It remains to be seen whether the current problems are the catalyst for a deeper sell-off.
Economic and market forces on the global stage can change quickly, and while the current change has been a negative one, positive changes can happen quickly as well. Increases in productivity due to advances in technology are not going away. Geopolitical disruptions don’t last forever, and changes in the political landscape are never-ending. Successful investing requires a long-term approach and the ability to look past shorter-term problems. While these problems are very often severe, history tells us that things will improve. We are always happy to review your investments with you, so please contact us if you would like to discuss your portfolio.
