Q1 2026 market commentary: cartoon bond under an umbrella stays dry while a worried stock chart gets rained on

A volatile start to the year

A lot has happened in our Q1 2026 market commentary: heightened geopolitical risk, and the stock and bond market volatility that came with it. The S&P 500 set a new all-time high early in the quarter, then gave it back to finish Q1 down roughly 4%. Escalating Middle East tensions and a jump in oil prices did much of the damage.

Beneath the headline, though, the picture was more mixed. The equal-weighted S&P 500 actually posted a small gain of about 0.7% for the quarter, because a handful of the largest companies did most of the dragging. That’s a reminder of how concentrated the index has become, and why we don’t treat the S&P 500 as a stand-in for a diversified portfolio.

Q1 2026 market commentary: cartoon bar chart showing the S&P 500 down 4.3% and the equal-weight S&P 500 up 0.7%

Why we're cautious on stocks

For most of our clients, we have been targeting reasonable returns without undue risk since a few months before the last presidential election. We believe the risks for stocks lean to the downside. Valuations are high by historical standards, and geopolitical, war and inflation risks are adding volatility.

Equities also look expensive relative to bonds. The earnings yield of the S&P 500 (the inverse of its P/E ratio) is below the yield on a 10-year U.S. Treasury note, a condition not seen since the early 2000s. Put simply, a dollar invested in the S&P 500 today buys less in current corporate profits than a dollar lent to the U.S. government for ten years earns in interest, and the stock investment comes with far more volatility.

That doesn’t mean stocks must fall, because continued earnings growth can close the gap over time. But it does mean today’s prices leave little margin for error if growth disappoints or the geopolitical picture worsens.

Cartoon seesaw with a cheerful bond on the heavy side and a worried stock chart on the light side

Where we see value: short-term bonds

We are not fond of owning 10-year Treasuries because of their interest-rate and inflation risks. But we love short-term bonds, where we are finding yields of 5% to 8% or higher, while keeping risk in check. Short maturities also mean our money comes back relatively quickly, giving us the flexibility to redeploy it if better opportunities appear.

Patient, not permanently bearish

We don’t think this is a good time to take an aggressive posture. But if stocks go through a downturn that brings valuations down, we would likely increase equity exposure for clients where that is suitable. Our posture is about price: we want to own more stocks when they are cheaper and expected future returns are better, and short-term bonds let us collect solid income while we wait.

As always, if your goals or circumstances have changed, please reach out so we can make sure your portfolio still fits.

Read our follow-up: Mid-Year 2026 Market Outlook

Three-step cartoon game plan: collect income, wait for better prices, buy stocks on sale

Disclosures

The opinions expressed are those of Eagle Financial Management Services as of 4/1/26 and are subject to change. Forecasts are not guarantees, and actual results may differ materially. This material is for informational purposes only and is not a recommendation to buy or sell any security, including any cryptocurrency. Indexes are unmanaged and cannot be invested in directly. Past performance is no guarantee of future results. Bonds are subject to interest-rate, credit and inflation risk. Investment advice is offered through Wealthcare Advisory Partners, LLC, an SEC-registered investment adviser. Eagle Financial Management Services is a Wealthcare Company.