Apr 09 • 4 min read
State of the Markets (Q1 2026)
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Q1 is in the books—so what really mattered? Between a war in the Middle East, spiking oil prices, and tariff uncertainty, 2026 has been anything but calm. But underneath the headlines, the signal is clear: Consumers are still standing, companies continue to deliver, and there are compelling reasons for long-term optimism. In today's email, I'm sharing updates on:
I'm also sharing two reasons for optimism. My goal is to cut through the noise and help you stay focused on the bigger, long-term picture as we head into Q2. *** Before we dive in, did you catch this week's podcast? 👇 Q1 Asset Class PerformanceHere are the 2026 market returns through the first quarter (ending 3/31/26): Stock Indexes:
Bond Indexes:
Notably, while the start of the year has been choppy, returns over the past 12 months remain strong. Context matters. 😊 The State of the Consumer1.) The Real Estate Market Is in a Standoff With mortgage rates still high—and moving higher again—the housing market appears stuck in a stalemate between buyers and sellers. Even though home values have climbed roughly 50% since 2020, sellers remain reluctant to cut prices, while buyers are just as hesitant to overpay. The result is the most lopsided market since at least 2013, with nearly 50% more sellers than buyers. For those able to pay cash, it’s a buyer’s market in just about every sense. 2.) Unemployment Is Rising—But Still Historically Low One of the dominant headlines in Q1 was that artificial intelligence is rapidly replacing workers. And while unemployment has ticked up slightly to 4.4%, it remains well below the average rate of the last 50+ years. Meanwhile, prime-age employment (ages 25–54) is higher today than at any point during the 2010s. In other words, the labor market may not be nearly as weak as the headlines suggest. The State of Companies1.) Earnings Are Still Strong While large cap U.S. stock prices have declined since the start of the year, corporate profit margins and earnings have held up remarkably well. According to FactSet, the estimated year-over-year earnings growth rate for the S&P 500 in Q1 2026 is 11.6%. If that estimate holds, it would mark the sixth consecutive quarter of double-digit earnings growth, an impressive stretch by any standard. 2.) Strong Earnings Growth Isn’t Limited to the U.S. It’s not just U.S. companies posting strong results. Both developed and emerging markets are on pace to deliver solid earnings growth in 2026. Notably, earnings growth in emerging markets is expected to be roughly double that of the U.S., reinforcing the case for diversification that I’ll touch on below. Of course, these are forecasts and the outlook could change, but the trend remains encouraging. The State of Investing1. Rate Cut Expectations Are Fading Heading into 2026, markets were expecting three additional Fed rate cuts. That expectation now appears to be fading fast. In fact, investors are now beginning to price in the possibility of a future rate hike, a scenario that would have seemed nearly unthinkable just a few months ago. Of course, no one knows exactly what comes next, so we’ll simply have to adjust our sails accordingly. 2. Volatility Is Opportunity While the broad U.S. stock market is down slightly on the year, returns over the past 12 months remain strong, up nearly 28%. It’s also worth remembering that this time last year, we were in the middle of the tariff tantrum, which offers a helpful reminder for investors today. Historically, periods of volatility have created opportunities to buy shares of great companies at temporarily discounted prices. Perhaps this is one of those moments. 3. Diversification Has Been Validated...Again During the U.S. tech boom that defined the post-GFC era, diversification was often pushed aside. But the last few years have served as a timely reminder of why it remains a foundational investing principle. Since 2020, we’ve seen the return of a global value premium, and more recently, international and emerging markets have comfortably outpaced the U.S. Prudence is diversification, and diversification is prudence, so we invest accordingly. Two Reasons for Optimism1. The World Is Safer Than It Feels If you watch the news, it’s easy to conclude the world is becoming more dangerous. But the data suggests otherwise: U.S. homicide rates have fallen to near 125-year lows, and many categories of crime continue to decline. The gap between perception and reality is a powerful reminder of how easily noise can distort our worldview. 2. Progress Is Happening Everywhere While headlines tend to focus on what’s broken, meaningful progress continues around the world:
These trends rarely make the front page, but they matter. Bottom LineThere will always be uncertainty and there will always be reasons to worry. But long-term investing isn't about predicting the next headline. It's about aligning your plan with the forces that have consistently driven progress over time: innovation, growth, and human ingenuity. Those forces are still intact. And while the short term may feel noisy, it’s the long-term signal that ultimately drives outcomes. That’s where we’ll continue to focus. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |