Resilience Through Volatility
April 28, 2026

The first quarter of 2026 saw heightened volatility as tensions between the U.S. and Iran escalated in late February, resulting in a military campaign in the region. In response, Iran closed the Strait of Hormuz, a key strategic location for global energy supply. It is estimated that roughly one-fifth of the world’s oil supply passes through the strait, and the closure sent energy prices sharply higher, with national gas pump prices increasing ~45%. The S&P 500 fell ~10% as a result, with highly valued sectors such as technology, health care, and communication services experiencing the most downside.

Federal Reserve's Monetary Policy Outlook

As March advanced, however, political tensions eased and negotiations began to occur. While the conflict is ongoing and energy prices remain elevated, the market appears to have digested the potential impact. With fewer concerns about the conflict spilling onto the global stage, the market staged a rally in April and now sits back at all-time highs, erasing all of March’s downside.

Despite oil’s continued elevated price, the overall health of the U.S. economy heading into 2026 gives us confidence that recession risk remains low. Retail sales, wage growth, truck shipments, and financial conditions all suggest that the economy remains resilient to energy shocks such as these. Early earnings calls have shown that corporations can withstand the impact of a short-term energy shock, though modest concerns remain should the conflict keep prices elevated later into the year.

Since the 1980s, energy has become less of a burden for the American consumer. With improved fuel efficiency and growth in household incomes, energy expenditures now represent just 3.7% of consumer spending, down from nearly 10% in prior decades.

Historically, geopolitical conflicts like the one experienced in March have often created attractive entry points for long-term investors. Going back to 1950, the S&P 500 averaged a 3% return in the three months following a conflict’s inception, and a 6% return in the following six months.

Federal Reserve's Monetary Policy Outlook


We maintain healthy exposure to energy stocks within equity portfolios. This, alongside allocations to high-quality international and U.S. small- and mid-cap companies, helped our factor-based portfolios mitigate a large portion of the downside experienced in March. We continue to see strong opportunities in those areas of the market in the months ahead.

Elsewhere, Artificial Intelligence (AI) continues its strong trajectory. AI leaders such as OpenAI (makers of ChatGPT) and Anthropic (makers of Claude) are exploring potential IPOs later this year, with media reports suggesting valuations could approach $1 trillion-plus levels. The market continues to reward companies for investing in AI initiatives, but questions of profitability remain. Capital expenditures are approaching historic levels, and investors will want to see a meaningful return on invested capital. Upcoming earnings reports will be key to understanding how much patience the market will have with leading tech giants.


Amid recent market volatility, Kevin Warsh has been nominated as the next Federal Reserve (Fed) Chair to succeed Jay Powell. Warsh has been vocal in advocating for one to two rate cuts in 2026, but higher inflation and potential labor market instability tied to oil prices may limit the Fed’s flexibility. His preference for a smaller Fed balance sheet, now over $6.6 trillion, and his emphasis on fiscal discipline could complicate the Treasury’s efforts to refinance government debt at lower rates. This dynamic will be important to watch, as the U.S. government’s fiscal trajectory remains challenging over the long term.

Despite the first quarter’s disruptions, the U.S. economy marches forward. Corporate profits are strong, and the consumer, though strained, remains resilient.

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