By AKEMI KONDO DALVI, CPA/PFS, CFP
We’ve already closed the books on the first quarter of 2026, and it feels like so much has happened in a short period of time. The U.S.-Iran War began on Feb. 28. Since then, the stock market has been volatile, creating losses in March that roughly wiped out the gains of January and February. Still, most asset classes managed to close Q1 relatively flat.
The Wilshire 5000 Total Market Index, which is the broadest measure of U.S. stocks, lost 4.03% in the first quarter of the year. The S&P 500 Index, which tracks the performance of 500 leading U.S. publicly traded companies and covers approximately 80% of total market capitalization, lost 4.6% in Q1, due to a March decline of 5.1%.
The Russell 2000 Small-Cap Index had a slight gain of 0.9%, after sustaining a 5.0% loss in March. The tech-heavy Nasdaq Index lost 7.1% in the first quarter, as rising geopolitical conflict pushed traders to shift investments from technology to defense in search of stability, and taking advantage of the heavy government defense spending.
While international markets often serve as an inversely correlated asset class to our domestic market, in the current global conflict, foreign markets took a similar hit. The MSCI EAFE Index (Europe, Australasia, and the Far East) of companies in developed foreign economies took a beating in March, losing 10.7%. However, they managed to close the first quarter with a loss of just 1.9% in U.S. dollars. The EAFE EM index, or Emerging Markets Index, lost 13.3% in March, closing the quarter down 0.5% in dollars.
The U.S. REIT Index, which tracks real estate securities, lost 6.5% in March, but closed the first quarter with a gain of 3.8%. The commodities market, which consists of energy (oil, gas), metals (gold, silver), and agriculture products (wheat, corn), typically offers a hedge against inflation and low correlation to stocks and bonds. Due to the supply constraints on oil, as well as our inflationary environment, the S&P GSCI Index exploded with a 35.9% gain in the first quarter. Even removing energy-related returns, the index was still up 6.8% for Q1. Finally, the S&P 500 Utilities Index was up 7.5% in the same quarter.
The bond market was also flat, and while the yield curve was inverted from July 2022 until roughly late 2024, it has mostly normalized as of mid-2026. Currently, three-month Treasuries are yielding 3.68% and five-year Treasuries are yielding 3.95%. One-year government bonds are paying 3.65%, and 10-year government bonds are paying 4.32%. Five-year municipal bonds are yielding 2.59% and 30-year Muni’s are yielding 4.50%.
Undoubtedly, our recent market volatility is driven by the U.S.-Iran War. Each time negotiations are announced, the market rebounds with hopes of closure. However, upon further developments of uncertainty, particularly pertaining to oil supplies, the market retreats.
Inflation is likely the next most important indicator of where our market will go this year. In February, the inflation rate was steady at 2.4% compared to the same period last year, but the full effects of the war had not been integrated into the market yet. In March, inflation rose to 3.3%, integrating the sharp increase in energy costs. Notably, gasoline prices rose 18.9% compared to the same time last year. Luckily the cost of groceries appears to be stable, currently. However, persistent future inflation could be the next bump in the road.
Ending the war in Iran would provide relief to the stock market and inflation, but we will have to wait and see how negotiations continue to develop. At the start of the year, economists predicted the U.S. market to grow by 2.1% in 2026, but that is hard to rely on at this point with so many variables at play. While day traders buy and sell hourly to try to make a profit on panicked selling in the market, a logical long-term investment strategy that employs diversification may prove to ride out volatility and uncertainty again.
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The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.