Introduction
The first quarter began much like the past several years—markets steadily moved higher, volatility remained subdued, and leadership broadened beyond the “Mag 7” into a wider set of asset classes. That constructive backdrop carried equities to a new all-time high in late January before a sharp shift in the narrative took hold.
Geopolitical tensions escalated rapidly with the onset of conflict between the U.S. and Iran, turning global attention to the Middle East throughout March. The closure of the Strait of Hormuz, coupled with damage to key energy infrastructure across the region, drove crude oil prices above $100 per barrel for the first time since 2022 and introduced a new layer of uncertainty into the global outlook.
While equity markets initially showed resilience, signs of strain emerged as the month progressed, with investors increasingly focused on the potential for prolonged energy disruption. Bond markets reacted more decisively, repricing inflation expectations and recalibrating the likely path of Federal Reserve policy. By quarter-end, major U.S. indices had pulled back, marking their first meaningful decline of the year.
Looking ahead, markets are likely to remain sensitive to geopolitical developments, with volatility elevated until there is greater clarity around the trajectory of the conflict. That said, diversified portfolios—particularly those with exposure to fixed income and alternatives—have generally held up better than headlines might suggest, providing meaningful stability even as equity markets experience swings. While the near-term outlook is uncertain, it is important to remember that periods of geopolitical stress have historically had a limited impact on long-term market trends. Maintaining a disciplined, long-term perspective remains critical as events continue to unfold.
Aurdan News
At Aurdan, we are pleased to share some exciting internal news as we welcome our newest team member, Zach Phipps, CFA. Zach has more than 16 years of experience in the wealth management industry, along with a thoughtful, client-centric approach to investing. His background spans portfolio construction, asset allocation, and investment strategy, with a focus on helping clients navigate evolving market conditions while staying aligned with their long-term goals.
We are thrilled to have Zach join the team and are confident he will be a valuable resource for our clients. We look forward to introducing Zach to everyone!
Iran War & Recent Market Volatility
News surrounding the war with Iran has dominated headlines over the past month, sparking a bout of volatility and modest decline in equity prices. The current environment reminds us of where we were this time last year with the fallout from President Trump’s April 2025 tariff announcement. Stock prices declined nearly 20% over the span of just six weeks as market commentators predicted broken supply chains, surging inflation, and a potential economic recession. Despite the volatility and uncertainty, the S&P 500 Index ultimately returned 18% in 2025, surging 39% from the April 2025 lows.
The lesson from the tariff turmoil, and dozens of other geopolitical shocks over the years, is that they should not impact your strategic asset allocation. Market timing around these events is nearly impossible, and often, investors trying to time the market end up worse off than if they had just stayed fully invested.
Source: LPL Research, S&P Dow Jones Indices, BRIM
To help align your portfolio with your risk tolerance, time horizon, and liquidity needs, we set a strategic asset allocation. From there we make tactical shifts to potentially reduce risk and enhance return. However, every portfolio is reviewed and rebalanced to ensure investments never stray too far from the strategic allocation. If you have any questions or concerns regarding your allocation or the recent market volatility, please do not hesitate to reach out to an Aurdan Capital team member.
The Economy
The economy came into the year on solid footing with the unemployment rate at 4.4% and real GDP expanding 2.1% in 2025. Real GDP growth for Q1 2026 will likely come in around 2.0%. This would represent trend-level growth but mark a step down from the growth rates seen in 2024 and 2025. Like in 2025, consumer spending and business investment in artificial intelligence (AI) continued to be the dual engines of the economy in Q1.
Expectations pre-Iran War pointed to a slowing of economic growth back to a sustainable 2.0% in 2026. We have yet to see the impact of the conflict on economic data thus far. A prolonged war could see asset values fall coupled with an uptick in inflation. This would likely result in a slower and more fragile economic environment than anticipated just one month ago.
Inflation, as measured by Core PCE, remained around 3.0% in the first quarter. Price pressures were largely unchanged over the past 12 months with inflation still roughly 1% above the Fed’s long-term 2% target. Tariffs and now the conflict in the Middle East should continue to exhibit upward pressure on prices. This prompted the Fed to raise their year-end target for Core PCE from 2.5% to 2.7% and would mark the sixth year in a row of above-target inflation.
Source: U.S. Bureau of Labor Statistics
Moving to labor markets, the low hire-low fire environment that characterized 2025 carried over into 2026. Net job creation remained low in the first quarter, and the number of job openings continued its multi-year decline. Despite this, the unemployment rate was largely unchanged, ending the quarter at 4.3%. Jobless claims and layoff rates remained near cycle lows, indicating firms are holding onto their workers.
Wrapping it all up, the economic backdrop features pockets of strength and pockets of weakness. Consumers, especially those in the top half of households by wealth and income, continue to spend and the AI buildout should provide a sizable tailwind to economic growth. However, elevated inflation and negative sentiment due to the Iran war could act as a drag on growth moving forward. We continue to monitor the situation in the Middle East as well as incoming economic data to inform our decision making around investing and portfolio construction.
The Federal Reserve
The Federal Reserve (Fed) left rates unchanged at their two meetings in January and March. Originally expecting two cuts this year, the market now sees no movement in the policy rate with oil prices back on the rise. The market sees an 80% chance that short-term rates remain at 3.6% by year-end with a small chance of one cut.
The Fed’s economic outlook was also little changed from last quarter. The committee anticipates 2.4% real GDP growth in 2026 coupled with a 4.4% unemployment rate. Inflation expectations were nudged higher, as mentioned earlier, with the core PCE forecast rising from 2.5% to 2.7%.
Given the uncertainty caused by the war in the Middle East, it would not be surprising to see the Fed pause for the next few meetings as updated economic data rolls in. A swift resolution to the war with Iran would likely put one or two cuts back on the table in the second half of 2026. A prolonged conflict could push core inflation higher, resulting in the Fed remaining on hold for the rest of the year.
Equities
U.S. stocks posted their first negative quarter in a year as the S&P 500 Index declined 4%. The index was essentially unchanged over the first two months of the year but fell sharply in March as the Iran war began. Value stocks, measured by the Russell 1000 Value Index, continued their outperformance streak, rising 2% over Q1. International companies also continued their run of positive returns as the MSCI ACWI ex USA Index also rose 2%. Growth stocks, measured by the Russell 1000 Growth Index, were not as fortunate, sinking 10% over the course of the quarter.
Energy names were a big contributor to value’s performance this past quarter as many oil and gas stocks surged 30-40%. On the other end of the spectrum, the Magnificent Seven, a cohort of mega cap technology and AI-focused names, struggled in the first quarter. Household names in this cohort like Microsoft, Meta, and Tesla declined 10-20% over the first three months of 2026.
While sharp declines can feel unsettling, history shows us that it is the price of admission when it comes to investing. The average intra-year decline of the S&P 500 is 14%. This rises to 16% in mid-term election years, which tend to be more volatile than non-election years. To help weather downturns in the market, we construct diversified portfolios that lessen volatility and buffer drawdowns. The chart below shows a globally diversified 60/40 portfolio was relatively insulated from the steep decline in highly valued US growth stocks over Q1. Rebalancing and systematically adding new capital to portfolios over time can also allow investors to take advantage of drawdowns in equity prices.
Source: Morningstar. Value – Russell 1000 Value Index. International – MSCI ACWI ex USA Index. Fixed Income – Bloomberg U.S. Aggregate Bond Index. Growth – Russell 1000 Growth Index. Mag 7 – Roundhill Magnificent Seven ETF.
Fixed Income & Alternatives
Investment-grade fixed income returns were muted in Q1 as the Bloomberg U.S. Aggregate Bond and Bloomberg Municipal Bond Indexes were both little changed. Rising interest rates resulted in declining bond prices, offsetting the coupon payments received over the quarter. Despite the limited performance, U.S. bonds held up better than U.S. equities, reinforcing their place within diversified portfolios.
The recent rise in rates results in an attractive setup for fixed income investors moving forward. Core taxable bond portfolios are now yielding close to 5.0%, a roughly 150 basis point premium compared to money markets. Fixed income investors are incentivized to step out further on the interest rate curve to capture this premium.
Alternative assets delivered solid results this past quarter, with most private market strategies generating low single-digit returns while largely avoiding the heightened volatility experienced in public equities. We continue to see value in maintaining a strategic allocation to alternatives, as private markets can help reduce overall portfolio volatility without necessarily compromising return potential. We remain focused on evaluating opportunities in this space and thoughtfully incorporating conservative allocations where appropriate.
As demonstrated in the first quarter, both fixed income and alternatives played an important role in dampening volatility and limiting drawdowns during periods of market and economic stress. Incorporating these asset classes can enhance portfolio resilience, improve risk-adjusted returns, and provide a more consistent investment experience over time.
Conclusion
We continue to monitor the economic conditions as well as the rapidly changing global landscape. While fundamentals will prevail in the long term, disruptions and shocks are creating volatility in the short term. The length and severity of the situation in Iran will impact oil prices for some time, with the potential for spillover into inflation and the economy.
Amid heightened volatility, discipline and diversification remain the cornerstone of sound investing. A prudent balance of both offensive and defensive positioning can help navigate uncertainties. While tempted by the urge to time larger portfolio moves in periods like these, market timing is notoriously difficult and tends to negatively impact returns. As events unfold, we will keep you apprised of the economic, market and geopolitical developments.
IMPORTANT DISCLOSURES
The views, opinions and content presented are for informational purposes only. The charts and/or graphs contained herein are for educational purposes only and should not be used to predict security prices or market levels. The information presented in this piece is the opinion of Aurdan Capital Management and does not reflect the view of any other person or entity. The information provided is believed to be from reliable sources, but we cannot guarantee the accuracy or completeness of the information, no liability is accepted for any inaccuracies, and no assurances can be made with respect to the results obtained for their use. The information contained herein may be subject to change at any time without notice. Past performance is not indicative of future results.