Investment Outlook: Spring 2026

By Argent Wealth Management, LLC on April 2, 2026

First Quarter Review, Second Quarter Outlook

Energy Overpowers Rest of Market

The conflict in Iran solidified what was already a strong period of performance for energy stocks. The consistent demand for oil and production discipline on the part of drillers has supported strong buybacks and dividends, so these stocks were already on their way up before the conflict, as investors flocked to safe bets. Now, the rally has only extended further, finishing at 37% for the quarter. The Materials sector has joined in, gaining 10.25% so far this year. Many key commodities are transported through the Strait of Hormuz, thus increasing the pricing power for the companies that supply those products and can sell from their current inventories.

Energy and Materials led the way in Q1 2026. While the S&P 500 has fallen 4.6% so far this year, the majority of sectors were actually in the black during Q1, since the smaller sectors were the best performers.

Opportunity Emerges After Software Sell-Off

Technology was one of the worst-performing sectors in the market during the first quarter. It fell 7.7%, surpassed only by Consumer Discretionary & Financials, two other portions of the market that are highly sensitive to economic growth. A big reason for that decline was concerns among the investment community that demand for many software companies would diminish due to the advent of new AI tools that can automate many routine business functions, such as Claude Cowork, a new AI agent released by Anthropic. Stocks in this group sold off aggressively, but it is unlikely that enterprises will transition away from these incumbent software firms too quickly, and it is possible that the existing firms will adopt the latest advances in artificial intelligence in order to make their products more viable. On the other hand, additional AI breakthroughs mean more semiconductors will be needed to power the data centers that are the backbone of this tech revolution. Semiconductor equities, as measured by the SOXX ETF, responded with a 9.1% gain in the first quarter.

Software stocks, as represented by the IGV ETF, suffered a punishing 24.3% decline in the first quarter, dragging down the technology sector as a whole.

Fed Caught in “Sticky” Situation; Next Move Uncertain

As 2026 began, most market observers expected the Fed to lower rates by 50-75 basis points. This belief was underpinned by the knowledge that President Trump would be selecting a new FOMC chairman; he eventually named former Fed governor Kevin Warsh to the role. While Warsh was a little bit more of an inflation hawk than the other options at Trump’s disposal, he was still expected to slash rates at a couple meetings this year. Now he must deal with the prospect of inflation sticking around, due in no small part to the war-driven surge in commodity prices. While some aspects of inflation have eased apartment rents and eggs, for instance, other categories like auto insurance have remained stubbornly high. Tariffs in the range of ~15% on most imports have done little to help, although the future of the Trump Administration’s tariff policies is in jeopardy after an adverse Supreme Court ruling. At the time of writing, there is a 97%1 chance of a Federal Reserve pause at the next meeting, and a 69%2 chance that rates are unchanged by year’s end (although there is only a 2% chance of a hike).

Even as inflation fears have mounted, odds of an outright recession remain low, according to Ned Davis Research, who tracks a variety of leading economic indicators to create this barometer.

Emerging Markets Do Their Job to Diversify Portfolios

EMXC (Emerging Markets Ex-China) outperformed the more standard EEM ETF in the quarter, mostly owing to poor performance in Chinese technology stocks. EMXC rose 8.3%, while EEM gained 3.8%. Emerging Markets as a whole performed better than U.S. stocks during Q1, underscoring their importance as a portfolio diversifier. Several important emerging economies have performed well due to increased trade with China and higher commodity prices, and some have also benefitted from technological developments, such as the increased demand for semiconductors, which has helped South Korean equities to rally.

Also of note in the quarter, Small and Mid-Cap stocks outperformed large-caps. Both smaller asset classes finished the quarter in positive territory, with the S&P Mid-Cap 400 up 2.2% and the Russell 2000 Small Cap index rising 0.6%.

Emerging Markets, excluding China, were the best way to diversify your stock portfolio away from large-cap domestic stocks during Q1.

Commodities, Bitcoin Chart their Own Course

Bitcoin has largely lost its appeal as a ‘safe haven’ asset, if it ever truly had it to begin with, and now behaves more like a high-flying technology stock. The iShares Bitcoin Trust ETF fell 22.6% in the first quarter. Gold began the year on a high note, due to stocking by global central banks and easing Treasury yields. However, as interest rates crept back up and attention turned to the implications of the war, investors dumped gold and opted for materials in shorter supply. SPDR’s Gold Shares fund still registered an 8.6% gain this quarter. Silver, often ignored, received outsized attention this year for increased volatility. After peaking in late February, the iShares Silver Trust wound up just 6% for the quarter. It is still up 120% over the past 12 months.

Gold briefly reached “Excessive Optimism” levels earlier this year, but plummeted after the conflict in Iran commenced.

Sources:

Fig. 1: Factset, Argent Wealth Management, LLC © 2026 on 3/30/2026
Fig. 2: Factset, Argent Wealth Management, LLC © 2026 on 3/30/2026
Fig. 3: Ned Davis Research, Inc. on 3/30/2026
Fig. 4: Factset, Argent Wealth Management, LLC © 2026 on 3/30/2026
Fig. 5: Ned Davis Research, Inc. on 3/30/2026