April 14, 2026

Financial Markets

  • U.S. equities were down for the first quarter of 2026, with growth stocks underperforming value stocks across all market capitalizations. In the U.S., the financial and consumer cyclical sectors fell the most (-9%). Non-U.S. equities outperformed U.S. equities and value outperformed growth overseas as well.
  • Bonds started the quarter strong, but rising yields and inflation concerns reversed gains, which, by quarter end, left fixed income investors with only modest returns and significant volatility. As the quarter progressed, inflation concerns and geopolitical shocks pushed yields higher across all maturities.

Overview of the Economy

  • U.S. gross domestic product (GDP) grew at approximately 1.9% annualized. Consumer spending grew, but at a rate lower than expected. This was partially offset by greater investment spending in equipment and technology. U.S. consumer sentiment fell and consumers increased their spending on services more than on goods.
  • The official U.S. unemployment rate was 4.4% in February 2026, which is close to the Fed’s target, but up slightly from earlier in the year. Job openings and hiring both declined in February to their lowest levels in several years. Some analysts describe the market as being in a “low-hire, low-fire” equilibrium with weaker momentum.
  • U.S. inflation was moderate in the beginning of the quarter and then ticked upwards due to higher energy prices to 2.4%, which is above the Federal Reserve’s 2% target. Core inflation (which excludes food and energy) rose by about 2.5%. Apparel prices jumped as firms raised prices to pass higher tariff costs on to the consumer.

Notable Events

  • Though providing a steady source of income, U.S. bonds were not a safe haven during the late-quarter selloff. Instead of rallying, bond prices fell, which is unusual in risk-off environments.
  • Escalation of the Middle East conflict led to a spike in oil prices, which renewed inflation concerns.