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The S&P 500 fell 5 percent in March, leading to a 4.3 percent decline for the first quarter. The more value-oriented Dow dropped just over 5.2 percent in March and 3.2 percent to start the year. Finally, the growth heavy Nasdaq lost 4.5 percent in March, culminating into a dreary 7% tumble for thefirst three months of 2026.

The two main themes that moved the markets were a shift in sentiment around artificial intelligence and the concern over the war in Iran,specifically the closure of the Strait of Hormuz.

Like last year and the one prior, AI was top of mind for investors, but instead of the AI boom helping drive the overall market on theback of mega-cap tech stocks, the focus shifted to what companies could be hurt by AI as these technologies lower barriers to entry and threaten to upend long-dominant business models. The first sector to be impacted was software at the end oflast year, but that broadened into a wider array of industries including financial services, commercial real estate, and logistics.

As we all know, on February 28, the US and Isreal launched attacks on Iran which continued throughout the next month with limited abatement. Since then, the world’s attention has been drawn to the Strait of Hormuz, though which 20% of the world’s oil is transported, along with critical shipments of liquefied natural gas. At the outset, the markets hoped the conflict would be brief, but this essential transit way remains closed as tensions and military activities continue to mount. During this time, oil prices have nearly doubled. There’s the direct impact of the prices consumers will pay at the pump, as well as indirect costs, such as higher shipping expenditures.

Putting this all together, we started the year with continued robust growth projections and the possibility of more Fed rate cuts. Both tailwinds for stocks. But that quickly turned with persistent inflation and concerns over increased prices across the board from gasoline to food, souring investor sentiment.

International Equities

As the planet’s largest oil producer, the US is somewhat more insulated than the rest of the world by the spike in energy prices. This was the driver of performance in the international equity markets. Global developed and emerging market indices down 10% and 13% respectively for March, with both mostly flat on the year. The swings in foreign equity markets were in the same direction as domestic, however were much more pronounced.

Fixed Income

The Bloomberg US Aggregate Bond index ended flat for the quarter after dipping almost 2% in March on the back of rising interest rates and inflation concerns. The 10-year Treasury yield rose from 4% at the end of February to 4.3% by the end of March. The previous market consensus of 2 rate cuts shifted to the possibility of a hike, although unlikely to happen.

The rising interest rate environment in March was primarily driven by the ongoing war in Iran and concerns about the impact of these hostilities on global trade and inflation. Higher energy prices in March could persist for the foreseeable future, which in turn could lead to further inflationary pressure. Short-term interest rates increased during the month as traders pared back expectations for interest rate cuts from the Fed.

What We’re Watching

March was a month of shifting risks for investors, increasing uncertainty and market volatility. While always a latent concern, geopolitical risks have undoubtedly risen, and along with them the possibility of knock-on effects as well, including increased and unrelenting inflation, the possibility of military escalation, and domestically, the forthcoming mid-term elections. All these factors contribute to heightened market concerns.

That said, fundamentals remain relatively solid for now. Companies have shown impressive resilience over the past few years, and continued earnings growth is expected throughout 2026. While headlines can impact markets in the short term, over the long run, fundamentals ultimately drive performance. As long as companies continue to grow, further market appreciationis the most likely path forward.

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Despite this quiet finish, the full-year picture was far more encouraging: all three major U.S. indices delivered double-digit returns,supported by resilient corporate earnings and easing financial conditions.

Equities

The S&P 500 gained 0.06 percent in December, 2.66 percent in the fourth quarter, and 17.88 percent for the year. The more value-oriented Dow was up 0.92 percent in December, 4.03 percent for the quarter, and 14.92 percent for the year. Finally, the growth heavy Nasdaq Composite lost 0.47 percent in December but gained 2.72 percent for the quarter and 21.14 percent for the year.

Some sector highlights throughout 2025 were communication services (think Meta, Alphabet, and Walt Disney) and information technology (Nvidia, Apple, Microsoft) up 33 percent and 24 percent respectively. Obviously, these are part of the whole AI trade that has been rolling onunabated.

But industrials and utilities had a standout year as well. And while it’s not as obvious as a semiconductor manufacturer, these too have benefited from spending in AI. It’s the companies that are building the datacenters, and the energy firms that are supplying the exceptional amount ofpower needed for coding and large language models.

It wasn’t just investor exuberance pushing prices higher. These strong returns were driven by healthy fundamentals. Earnings growth remained impressively resilient in 2025 and eclipsed the previous year by over 10 percent; a trend that is expected to continue into 2026.

International stocks outperformed their domestic counterparts for the month and year. Developed and emerging markets both rallied in December, capping off a strong year for international investors. The MSCI EAFE Index gained 3.00 percent for the month, 4.86 percent for the quarter, and an impressive 31.22 percent for the year. The MSCI Emerging Markets Index did even better, up 3.02 percent for the month, 4.78 percent forthe quarter, and 34.36 percent for the year. Foreign stocks were supported by aweaker dollar and renewed investor appetite for international companies throughout the year.

Fixed Income

Bonds had a strong year as well as falling rates boosted bond prices. The Bloomberg U.S. Aggregate Bond index dipped 15 basis points in December but gained 1.1% in the fourth quarter and 7.3% on the year. The10-year treasury yield dropped from 4.57% at the start of last January to 4.17%at the start of this one, with short-term rates moving in concert. Three Federal Reserve rate cuts at the end of the year were the main catalyst, as the central bank shifted focus toward supporting employment amid signs of the labor market cooling.

What to Watch Out For

Overall, the economy and markets showed signs of continued resilience throughout the last 12 months. While hiring slowed notably in thesecond half of the year, the Fed’s pivot to cutting helped ease some of the burden. And the consumer remains strong, as GDP growth came in at 4.3% for thethird quarter, which was well above expectations.  

So overall, the market had a good year in 2025 and is set upto have another strong year in 2026. But there remain some risks. Domestically, political uncertainty remains the most pressing risk. As we saw during the recent government shutdown, policy decisions from Washington have the potential to impact markets and the economy in uncertain ways. While still a long wayout, the midterm elections in November are expected to serve as a potential source for further political uncertainty throughout the year.

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There are international risks as well, including the ongoing conflicts in Ukraine and the Middle East and a new tariff impasse with Europe. But with every risk comes opportunity, and we look forward to another solid year in the markets in 2026.

As always, the Longtide team is here for you. If you have any questions, please feel free to reach out to any of us. Best wishes for a healthy and prosperous year.

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Market Performance

September was a good month for investors, continuing the upward trajectory from the previous quarter. All three major U.S. stock indices — the S&P 500, Dow Jones Industrial Average, and Nasdaq—finished the month and the quarter with gains. The S&P 500 gained 3.7% during the month and 8.1% for the quarter. The Dow Jones Industrial Average was up 2.0% in June and 5.7% in the second quarter. The Nasdaq led the way with a 5.7% rise for the month capping off an 11.4% rise in the third quarter. On the year, the indices were up 15%, 9% and 20% through the first nine months of the year.

The S&P 500, Dow, and Nasdaq all set record highs during the month, which was especially impressive given that September has historically been the worst month for investors. This now marks five straight months with positive returns for U.S. stocks, highlighting the strength of the current rally.

Fundamental factors were supportive of markets during the month. Second-quarter earnings season wrapped in September, and results came in better than expected. On average, companies in the S&P 500 saw earnings grow by 10.8 percent in the quarter, which was well above analysts’ estimates of 2.8 percent. Over the long run, fundamentals drive market performance, so this was an encouraging result for investors.

International equities continued their outstanding year as well. With a continuing weaker dollar and concerns about tariffs abating, the global foreign equity index was up 1.9% in September and 4.8% for the quarter. On the year, non-US equities are up over 25%.

As interest rates continued to fall, the quarter was a solid one for bonds. The index was up 1% for September and 2% for the quarter. Overall, the index is up over 6.5% for the year. A key driver of this was the Federal Reserve resumed cutting rates at its mid-September meeting. This25-basis-point rate cut was widely anticipated by investors and economists and signaled a new phase in the Fed’s attempts to normalize monetary policy

Overall, it was a very good quarter for all asset classes.

Risks Remain, Even in a Strong Market

Despite all the good news, there are still risks that could affect markets. While geo-political tensions have started to cool off, the resilience of any peace treaty remains to be seen. There’s also a lot of uncertainty coming from Washington, DC, as political gridlock has shut down the government. On the data front, we’ve seen a weakening job market and concerns around inflation.

On the whole, we remain in a pretty good place heading into the fourth quarter. Market fundamentals and performance have remained healthy throughout the year despite high levels of uncertainty and shifting risks. While there are some areas to monitor, the economic backdrop largely remains supportive, and the most likely path forward is for continued economic growth and market appreciation.

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