We hope everyone is faring well amid the recent market volatility. We know these times can be unsettling, but periods of short-term turbulence — especially when tied to geopolitical events or policy announcements — are a normal part of market behavior.
Financial markets experienced a bumpy first quarter, as several headwinds combined to pressure most asset classes. Domestic large cap stocks led the way lower, finishing the quarter -4.3%, while domestic small cap stocks managed to eke out a modest gain of 0.9%. Developed international stocks were essentially flat at -1.1%, and the broad bond market was relatively unchanged for the quarter (0.0%). 1
The primary drivers of the quarter's volatility were threefold. First, concerns mounted around artificial intelligence, as questions arose about whether AI could disrupt traditional software business models, weighing heavily on large-cap technology names. Second, geopolitical risk stemming from the conflict in the Middle East elevated market volatility, particularly in the energy sector, where oil prices spiked meaningfully. Energy stocks were standout performers as a result, with several large integrated oil companies posting their strongest quarterly gains in decades — though their modest index weights limited the positive impact on the broader market. Third, uncertainty around Federal Reserve policy created a cautious backdrop for investors throughout the quarter.
On the economic front, the data has been mixed. Headline CPI rose 2.4% over the prior twelve months through February, with shelter and food costs being the primary contributors to the monthly increase. The unemployment rate edged down to 4.3% in March, with nonfarm payrolls adding 178,000 jobs — well above consensus expectations. While the headline figures were encouraging, the decline in unemployment was partly driven by workers leaving the labor force rather than finding jobs, suggesting the underlying picture of a softening labor market remains intact. ²
Turning to monetary policy, the Fed held the federal funds rate steady at its 3.50%–3.75% target range at both its January and March meetings, noting that economic activity continues to expand at a solid pace, though job gains have remained modest and inflation remains somewhat elevated. The Fed's updated economic projections call for core inflation of 2.7% in 2026, reflecting some passthrough from higher energy prices. Futures markets are no longer pricing in any rate cuts in 2026, reflecting growing concern that elevated inflation will keep the Fed on hold through year-end. ³
One important silver lining of the quarter was the performance divergence across asset classes, which illustrates the value of staying diversified. While domestic large caps fared the worst, small cap, international, and emerging market stocks all held up comparatively well — a meaningful rotation in market leadership that reinforces the importance of broad diversification. Our allocations across these segments helped cushion the quarter's results.
As we enter the second quarter, we remain cautiously optimistic. The key question will be whether the geopolitical tensions, the resulting energy shock, and the AI-related uncertainty prove temporary or more persistent — developments we will be monitoring carefully on your behalf. We continue to believe that a diversified, disciplined approach to investing is the right path through periods like this, and we remain committed to helping you navigate whatever the market brings.
As always, we are grateful for your trust and partnership. Should you have any questions or wish to schedule a portfolio review, please do not hesitate to reach out.
1Market segment (index representation) as follows: Domestic Large Company Stocks (S&P 500), Domestic Small Company Stocks (Russell 2000) International Stocks (MSCI EAFE) Domestic Bonds (Bloomberg Barclays US Aggregate Bond Index) Growth Stocks (Russell 1000 Growth) Value Stocks (Russell 1000 Value)
2https://www.cnbc.com/2026/04/03/jobs-report-march-2026-.html
3https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20260318.pdf
This content is intended to provide general information about MSA Financial. It is not intended to offer or deliver investment advice in any way. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
] The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
Past performance is no guarantee of future returns.
Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy will be profitable.
Additional Important Disclosures may be found in the MSA Financial Form ADV Part 2A. For a copy, please Click here. //static.fmgsuite.com/media/documents/8fb122e1-0602-4198-90cc-9afecb1edee8.pdf