This image shows year-to-date 2026 returns as of 3/31/2026. U.S. large-cap stocks are down 4.33%. U.S. small cap stocks are up 0.89%. International developed stocks are down 1.12%. Emerging markets stocks are down 0.10%. U.S. short-term bonds are up 0.28%. U.S. aggregate bonds are down 0.05%. U.S. municipal bonds are down 0.18%. Global bonds are down 1.07%
There was enough baggage in the markets, economy and world tightly packed into the first quarter of 2026 to provide a list of talking points longer than recent airport TSA lines.1
Markets are down, but not as pronounced as the screaming headlines would convey. Domestic large cap stocks fared the worst (although they’ve dominated for nearly 15 years), while international stocks, small cap stocks and especially emerging market stocks outperformed. This rotation in market leadership just reinforces the need to be properly diversified. Should you be running toward these asset classes now? Absolutely not — just like you shouldn’t have been running from them for the past 15+ years.
Volatility like this is just the price of admission for portfolio growth over the longer term. As graphed, corrections like what we’re experiencing now happen often.2 The last bout of volatility started almost exactly one year ago. Markets dropped precipitously, down more than 21% in mid-April, only to climb more than 30% over the remainder of the year. It’s only those who ride the roller coaster down and jump off at the bottom who are punished. Stay the course. Never, ever jump.
This table shows S&P 500 corrections of greater than 5% since the March 2009 low and the supposed “reason” for those corrections (such as disease, interest rates, Fed tapering fears, inflation, etc.).
1. For the sake of a snappy intro, I actually fed a falsity as well. I’ve been on seven airplanes in the past 14 days through some of our country’s busiest airports. The TSA lines were actually smoother than usual (and I don’t even have TSA PreCheck, as I don’t travel very often). Remember, the media wants clicks and eyeballs. Showing the TSA lines that are operating smoothly fails their for-profit objectives. I fell for the noise every single time and got to the airport an additional two hours ahead of schedule, on average. That’s a collective waking day of my life wasted navigating charging outlets that won’t charge and paying for $11 waters. The point is that you shouldn’t blindly listen to those selling you narratives that are profitable for them.
2. It’s my job to think about these things, and I’d probably only be able to name half of these market corrections on a test. Maybe it’s the three kids I’ve had over that same stretch that’s made me forgetful, or more likely it’s our inherent nature to forget about the bad times. It’s called fading affect bias, and research by the American Psychological Association shows that more than 60% of unpleasant experiences are forgotten over time, while only 42% of pleasant memories fade. I can’t remember what drove oil price volatility in December 2014, but I can absolutely remember my oldest son’s first holiday season surrounded by four generations of love.
While shocking, what was on display during the first quarter of 2026 was nothing more than the two most basic elements of mankind, ever-present since the dawn of time: the desire to throw rocks at each other and the never-ending drive to improve, manifesting in the destruction with Iran and the creative destruction AI has brought to segments of the market.
The scope of the military conflict and potential paths forward are outside our scope and, really, anyone else’s.3 But we can analyze how markets have responded historically to military conflicts. As graphed, dating back to World War II, markets have typically been higher even just three months after conflicts began. And after three years, they’ve been positive 100% of the time. There’s an entire host of reasons that drove these market movements — far beyond the scope of conflict — but the cold hard truth is that markets find a way forward.
Source: Avantis
This table lists fifteen major military conflicts with the date each began, followed by how U.S. stocks were performing three months, one year and three years later. For every major conflict, the stock market was positive three years later. On average, stocks were up 6.38% three months later, up 15.86% one year later and up 14.12% three years later.
3. The first time my dad ever boarded an airplane was on his way to Vietnam in the mid-1960s. Everyone told him it would be over in six months. The conflict ended in 1973. I only learned this a few years ago, when we were on a plane together. Fortunately, he had to think for a minute before the answer came to him, so it clearly wasn’t still front of mind. Interestingly, I’d heard the positive story countless times that the first steps my dad saw my oldest brother ever take were when my brother ran to him as he got off the plane coming back from Vietnam. This is fading affect bias wonderfully on display.
Three years is far too short of an investment time horizon, but zooming out since 1941, the world has almost always been in a state of conflict, and markets have found a way higher. Now one may be thinking, “I don’t have 80 years to wait, as I’m retired, near retirement, etc.” Well, let’s then narrow it down to just the approximate past two decades. This is the amount of time the average near-retiree still has to live based on actuarial tables. The markets are more than 500% higher, although we experienced a 60% decline when the tech bubble burst,4 there was 9/11, we saw another 60% decline in 2008-09, and then there was COVID! Markets just find a way.
Source: YCharts
This chart shows the growth of $1 in the S&P 500 from January 1941 through March 2026 (ending at $12,746). Throughout the years, major conflicts are labeled, such as the Vietnam War, the Iraq War and more, to illustrate the resiliency of the market over time.
4. What we haven’t seen in about a quarter century is a sustained downturn. From 2000 to 2002, markets saw essentially 1,000 days of sustained downturns. Market pain can endure for years on end. It just hasn’t manifested itself in a while. COVID, the 2008 financial crisis, the inflation spike of 2022 and every other downturn since has been sharp and severe yet short-lived. Think about it. If you closed your eyes on January 1, 2020, and didn’t open them until December 31, 2020, the markets would be up double digits, and you’d be wondering why everyone has so much toilet paper stored up.
Oil has spiked due to the conflict with Iran. While painful — especially at the gas pump for those with less disposable income — markets are actually slightly higher in years when oil prices are higher (+12%) compared to when oil prices are lower (still a healthy +9%). Interestingly, oil spiked 20% in two days recently, which has only happened five times previously; on average, markets have been a whopping 24% higher one year later.
Wars can move markets in the short run, as they’re doing today. But over the long run, stock returns are driven by economic growth and corporate earnings, and things still look positive. Amazingly, corporate earnings have been revised higher, by 3.6%, since the conflict with Iran commenced.
What likely has a longer-term impact is a different kind of destruction witnessed in early 2026: creative destruction.5 There were innovations within artificial intelligence (AI) that may allow businesses to become more productive while also reducing dependence on technology providers that charge for their services, such as software as a service (SaaS) firms. As graphed below, companies like Salesforce have seen their stock prices decline at a far greater rate than the overall market.
We’re not here to pick individual stock winners or losers but rather to remind the prudent investor that things are moving so quickly, and determining who the individual winners and losers will be is very difficult, so it’s not worth attempting. It’s more important than ever to diversify and focus on estate planning and tax optimization.6 Don’t try to find the needle in the haystack; just own the entire haystack. Let the inevitable winners and losers play out, and keep moving forward. It’s nothing beyond the creative destruction that’s been happening since the dawn of time (and will hopefully continue indefinitely).7
This image shows software stock-specific drawdowns from all-time highs as compared to the S&P 500’s 9% drawdown from its all-time high (values as of March 27, 2026). Featuring big names like Salesforce, Microsoft and Adobe, all eight software stocks shown are down between 31% and 66% from their all-time high.
5. Creative destruction is defined as the economic process where innovation (creation) disrupts and replaces established, obsolete technologies or business models (destruction), driving long-term economic growth. This cycle creates winners and losers, pushing outdated industries out of business to improve productivity. Creative Planning’s President and CEO, Peter Mallouk, has a podcast called Icons and Ideas, and on a recent episode he sat down with Robert Smith of Vista Group, who is arguably the most knowledgeable person associated with the current creative destruction. It’s worth a listen, and here’s the link. You may not know Robert Smith by his name, but you may remember him as the guy who was giving the commencement speech at his alma mater and announced he would pay off the student debt of everyone in the audience.
6. For investors with an individual stock, a mutual fund or any other position they know they should trim but don’t due to “letting the tax tail wag the dog,” there are solutions available to help. There are great solutions for those with perennial capital gains tax obligations as well. To learn more, see my recent article on enhanced direct indexing here. Taxes and estate planning are completely within your control, whereas wars and market trajectories aren’t.
7. Meet George Jetson! The Federal Aviation Administration approved eight pilot programs to allow companies to test electric vertical takeoff and landing (eVTOL) vehicles this summer. The three-year program, which will span 26 states, could pave the way for air taxis and add additional options for regional transportation and emergency medical response. I love how anyone under 40 has no idea what “Meet George Jetson” means, but anyone over 40 starts humming the theme song immediately.
Looking more broadly at the overall economy, the private sector still looks really strong (government balance sheets are a completely different story and a conversation for a later date). Household and corporate balance sheets continue to show that debt-to-earnings ratios (essentially how much one owes versus how much one earns) remain solid. This is significant, because if the military situation in Iran gets worse, households are better positioned to be able to absorb additional shocks, elevated gas prices and/or more sustained downturns.
According to Fidelity, there are now more 401(k) accounts worth $1 million or more than ever before — twice as many as there were three years ago. The recurring nature of 401(k) contributions, typically small amounts invested every two weeks automatically through payroll deductions, highlights the correct course every investor should take. Do the small things right over and over again. Stay invested, diversify, tax optimize and have your estate planning needs in order. Don’t let the seemingly constant hum of destruction, be it creative or not, destroy your plans.
As always, thank you for letting us be a small part of your financial life. May spring bloom beautifully for you and yours.
