First-Quarter 2026 Review
Global stock markets have been ugly since the start of the war in Iran. One of the major reasons for the market downturn in the first quarter is what we call a “growth scare.” Essentially, the market is concerned that elevated oil prices will filter through to the broader economy and trigger an economic downturn or recession. Higher gas prices may force consumers to make spending cuts elsewhere. Higher energy costs can also hurt the profitability of publicly traded companies. The market’s reaction to war and higher oil prices is entirely rational.
This is a good time to remember the last geopolitically motivated market downturn, which happened just one year ago. The tariff meltdown of March-April 2025 ended abruptly, and markets rebounded in a matter of weeks. This war could also come to a quick resolution, even if we don’t know how and when, and markets could quickly recover.
This leaves investors in a tough position. We don’t love the economic implications of higher oil prices, but we also don’t want to sell stocks if they might quickly revert higher.
What did we do in portfolios during the first quarter of 2026? In January, we added US value stocks and energy stocks to model portfolios after the large run-up in tech stocks over the last few years. In February, we made minor adjustments to our international value equity exposure. As of our March meeting, we made no additional changes to our model portfolios. But we are looking at opportunities to take advantage of the current market dislocation.
Toward the end of the quarter, we rebalanced most tax-deferred accounts to their target allocations. We sold positions that have performed best, such as energy stocks, and bought those that showed relative underperformance.
We are looking to harvest sizable tax losses in taxable accounts. This should help reduce capital gains in 2026 (especially since we realized some gains early in the year).
For those of you doing Roth conversions, we may look to use the downturn as a good time to initiate those conversions.
We will wait and observe how the war and oil prices resolve in the coming weeks and beyond, until a more confident market direction emerges. In the meantime, we are making proactive portfolio moves that can help with tax planning and risk management.
A painful reset
Physical pain is the body’s way of telling you something. When you touch a hot pan, the pain tells your hand to immediately pull away. It’s not enjoyable, but it is necessary and helpful—maybe even healthy.
During the first quarter of 2026, investors felt some pain. The US stock market had its biggest calendar quarter decline in four years. Tech stocks declined even more. And the downturn seemed to accelerate with the uncertainty of war in the closing weeks of the quarter. Corrections of this magnitude are not uncommon, but that doesn’t make them easy.
Like physical pain, however, there is something healthy about this pain. The market has reset expectations to a more reasonable level.
Major components of the S&P 500 Index have declined significantly. Microsoft, Nvidia, Facebook, Google, Amazon, and Apple are all about one-third below their recent all-time highs. These stocks suddenly offer valuations that are more closely aligned with the broader market, and some of them are even priced at a discount relative to the broader market. These companies continue to generate historically impressive revenue, profit margins, and growth.
Amid the last several weeks of the market downturn, there was little in the way of new data from most publicly traded companies. There were no new earnings reports or updated forecasts from these major companies. They remain fundamentally strong and are now trading at more reasonable prices. We view this as healthy, if painful.
Tableaux updates
Tableaux achieved another milestone in the first quarter of 2026, reaching $250 million in assets under management. As always, we want to thank you for enabling our growth.
We’ve also been actively exploring new software solutions for our clients. We’ve recently adopted a new tool to look at optimizing Roth conversions in early retirement.
It’s no secret that AI is knocking at the door as well. In the coming months, we may request that our calls and meetings be recorded. We’re in the process of implementing new tools that will allow us to focus on conversations with our clients instead of furiously jotting down notes during meetings. We hope these kinds of tools will make us more efficient and deliver a deeper level of service. We welcome your feedback.
Tableaux April Market Picture
Finally, we invite you and your friends to join us for our next quarterly Tableaux Market Picture webinar on Friday, April 10th at 4:00PM ET. We will be holding this webinar virtually as usual but we also invite those of you near our Great Barrington office to attend in person (please RSVP to Shelley, as there is limited seating). All online registrants will receive a link to a recorded version of the webinar after the event. We hope to see you there.
