Over the first quarter of 2026, markets moved through periods of both optimism and concern. We saw days where headlines drove volatility and days where the focus returned to the underlying strength of the economy. From an economic standpoint, growth has remained resilient. We continue to see positive momentum in key areas like overall output and industrial production, and while there have been some pockets of softness, the broader picture still reflects an economy that is growing rather than contracting.
Inflation, while not as elevated as it was a few years ago, remains above the Federal Reserve’s long-term target. At the same time, the job market is strengthening with employment improving compared to 2025. Additionally, consumer spending, which accounts for roughly two-thirds of overall GDP, was up last 3.7% last year with, expectations for continued growth in 2026.
While some consumers may feel pressure from rising prices and borrowing costs others remain in a strong position and disproportionately contribute to economic growth. We also mentioned in our last quarterly update that we believed businesses would begin spending more this year. So far, we are seeing that play out. Business investment has been improving, which is important for productivity, innovation, and future growth. Taken together, continued consumer spending and improving business investment support our view that GDP and industrial production are likely to remain positive throughout the remainder of the year.
Not all the news has been positive. The tension in the Middle East has moved into a more active conflict, with implications for global markets and commodity prices. Roughly 20% of global oil is estimated to pass through the Strait of Hormuz, with more than 80% of that headed toward Asia. This allows the United States to be relatively insulated from actual oil shortages because of our own production and diversified supply sources. However, we are not insulated from global oil pricing, and we have seen oil prices—and related commodities and stocks—be quite volatile during this period. About a third of global fertilizer supply is also estimated to move through the Strait of Hormuz, which can have downstream effects on food prices over time.
While the price at the gas pump may not be pleasant, energy now represents a smaller portion of the average consumer’s budget than it did in prior decades, and this is one reason we do not expect higher energy prices alone to derail the broader economic engine. However, we are following the conflict closely as oil supply tightens and WTI crude prices, now above $110 per barrel, could present an issue for both Asia and Europe, as well as a general increase in inflation.
Turning to interest rates and the Federal Reserve, inflationary pressures persist, due to factors like wage growth, housing costs, and geopolitical events. The Fed may have difficulty cutting interest rates further this year which creates complexity in the bond markets. Even though short-term rates have moved modestly lower, intermediate-term rates have moved higher. For example, the 10-year U.S. Treasury yield started the year at around 4.16% and, as of this writing, is closer to 4.38%. This divergence between short-term and intermediate-term rates is one reason we remain uncertain about the path of future Fed rate cuts.
Looking across the different parts of the economy, most areas are in some stage of a growth phase. Housing and construction are notable outliers, under more pressure as higher borrowing costs and affordability challenges weigh on demand. Even with these pockets of weakness, we do not expect a recession over the next couple of years based on the data released this year. The combination of positive GDP, continued consumer spending, improving business investment, and a relatively healthy job market points to ongoing, if uneven, expansion rather than a broad-based contraction.
Against this backdrop, our portfolios continue to perform very well, and we are pleased with the level of risk protection they are providing. We know that headlines about conflict, inflation, and interest rates can be unsettling, and it is natural to feel anxious when you see markets react sharply to the news of the day. Over the long term, however, what has historically mattered most are the fundamentals and the discipline of sticking to a well-thought-out financial plan. That’s why we continue to emphasize our diversification strategy, thoughtful risk management, and avoiding emotional reactions to short-term market swings.
Our team is actively monitoring these developments—from the Middle East conflict and energy markets to inflation trends, interest rates, and sector-level shifts in the economy. When and if adjustments are needed in your portfolio, we will make them thoughtfully and with your long-term objectives in mind, not in response to momentary noise. Through all of this, our focus remains on your long-term financial goals. We’re watching events closely and will continue to make adjustments where appropriate. We truly appreciate our ongoing relationship and the confidence you place in us.
If you have any questions, please do not hesitate to contact our office, and as always, we thank you for your trust.
Marc Henn, CFP®, CEPA®
CEO & Founder
