Diversification Did Its Job
The quarter’s brighter spots came from outside the US. Developed international markets declined just 1.24% as measured by the MSCI EAFE Index, while emerging markets declined 0.17% as measured by the MSCI Emerging Markets Index. Global equity markets, despite the turbulence, remain resilient. It is a reminder that a globally diversified portfolio can provide meaningful protection when domestic equities are under pressure, and that geopolitical stress in one region does not always translate into losses everywhere.
A Notable Rotation
One of the more notable shifts of the quarter was the rotation away from large-cap growth stocks toward value-oriented and smaller-cap companies, a meaningful reversal of the trend that defined much of 2025. The Russell 1000 Growth Index fell 9.78%, while value and small-cap stocks fared considerably better through much of the quarter, with the S&P 400 Mid Cap rising 2.5% and the Russell 2000 Small Cap gaining 0.92%, though they too came under pressure as geopolitical tensions escalated in March. For clients with large exposure to concentrated positions, this kind of rotation can carry real planning implications, and it is worth a conversation if you have not revisited those positions recently.
The Economic Picture
The broader economic environment remained a study in competing signals. Inflation stayed modestly above the Federal Reserve’s long-run target, with core PCE inflation ending the quarter at 3.1%. At the same time, certain labor market indicators showed signs of softening, leaving Fed policymakers divided over which risk deserved more attention. The Fed held rates steady at both its January and March meetings, keeping the federal funds rate in the 3.5% to 3.75% range. The 10-year Treasury yield ended the period at 4.32%, and the broader bond market was practically flat, with the Bloomberg US Aggregate Bond Index down 0.05% through March 31. For clients in or approaching the distribution phase of their financial plan, the interest rate environment remains a meaningful input into how we think about portfolio positioning.
Risks Worth Naming
Oil prices spiked significantly following the Iran strike and hostilities in the Middle East continued through March. While historical data shows that global equity returns have not been reliably correlated with oil prices over time, energy costs are one of many factors investors consider when assessing market conditions.
The US stock market also remains historically concentrated, with the top ten companies accounting for more than 36% of the S&P 500. Emphasizing small and value stocks and taking a global approach are two ways to offset the outsized influence that a narrow group of large-cap names can have on overall returns. Thoughtful responses to this environment include reviewing your asset allocation and ensuring your portfolio reflects your actual risk tolerance rather than the one you had when markets were calm.
What This Means for Your Plan
The broader lesson of quarters like this one is familiar but worth repeating. Geopolitical shocks are disorienting, and the instinct to act is understandable. But markets are forward-looking, and prices adjust quickly to new information. A well-constructed plan, built around your goals, time horizon, and risk tolerance, is designed with this kind of disruption in mind. Our role is not to predict the next flashpoint but to ensure your portfolio remains positioned for the long term. If recent events have prompted questions about your allocation or time horizon, we invite you to reach out so we can review your plan together.
