The S&P 500 Index gained more than 10% in April, recovering its March decline and setting a new high. Nine of eleven sectors traded higher as stocks recovered from the March selloff, but eight sectors underperformed the index as mega-cap stocks represented a majority of the gains. Bonds traded lower in April as Treasury yields increased. However, corporate bonds outperformed Treasury bonds as credit spreads tightened.
Q1 2026 Market Commentary
The first quarter was eventful for markets. Stocks traded higher to start the year, with the S&P 500 posting modest gains in January. However, the markets traded lower in March due to escalating geopolitical tensions in the Middle East and the Strait of Hormuz closure, which led to a spike in oil prices. The S&P 500 ended the quarter down 4.3%, but despite the late-quarter volatility, there were bright spots. The average stock in the S&P 500 outperformed the index by nearly 5% as market leadership broadened, and manufacturing data showed signs of improvement.
In this commentary, we recap the key developments from the first quarter, discuss the impact of higher oil prices, highlight how diversification benefited investors, and look ahead to the second quarter.
The Middle East Conflict Led to Higher Oil Prices
Oil prices rose sharply in the first quarter as geopolitical tensions escalated over the course of the quarter. In January, crude oil gained nearly 13% due to supply concerns related to Venezuelan output and Middle East tensions. Oil rose another 4% in February as geopolitical tensions continued to build, followed by a sharp escalation in March. The U.S.-Iran conflict and the closure of the Strait of Hormuz, a chokepoint for roughly 20% of global oil flows, sent crude oil prices surging nearly 50% in a single month. The price of oil rose more than 70% in the first quarter, representing the highest levels since mid-2022.
This increase in oil prices is important as it relates to inflation and Federal Reserve policy. Higher energy costs can feed into the prices that consumers and businesses pay, and the average price of a gallon of gasoline has already risen nearly $1.00 since late February. Rising oil prices are particularly relevant right now because inflation was already firming before the conflict. The Federal Reserve’s preferred inflation measure, Core PCE, remains near 3%, and producer-level price inflation has been rising in recent months.
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Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index.
S&P 500 Index is a capitalization-weighted index calculated on a total return basis with dividends reinvested. The index includes 500 widely held U.S. market industrial, utility, transportation and financial companies.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request. PM-10082027-5366055
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The S&P 500 Index gained more than 10% in April, recovering its March decline and setting a new high. Nine of eleven sectors traded higher as stocks recovered from the March selloff, but eight sectors underperformed the index as mega-cap stocks represented a majority of the gains. Bonds traded lower in April as Treasury yields increased. However, corporate bonds outperformed Treasury bonds as credit spreads tightened.
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