Q1 2026: PFM Quarterly Commentary
Paul Samuelson, one of the most influential economists of the modern era and a Nobel laureate who taught for decades at MIT, played a pivotal role in transforming economics into a rigorous, analytical discipline.
We invoke Samuelson here not to revisit his groundbreaking work in the field of economics, but to highlight a quote long attributed to him that offers timely insight into market behavior during much of the first quarter of 2026. Samuelson famously observed: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”
For the first two months of the year, the S&P 500 appeared to take Samuelson’s advice quite literally. The index experienced its narrowest trading range on record. Over the first 41 trading days, the difference between the highest and lowest closing prices was just 2.7%.[i] It was the investment equivalent of watching paint dry.
To the casual observer, such serene markets can feel like reassuring confirmation that the world is fundamentally sound. And to a point, that intuition is not entirely wrong. However, what many fail to appreciate is that prolonged periods of unusually low volatility are often more concerning than sudden bouts of turbulence, as they frequently serve as a harbinger of future outsized movements.
Volatility, after all, is the premium investors receive for bearing risk. Lower-risk assets deliver more modest returns, while higher-risk assets offer the potential for greater rewards precisely because they carry greater uncertainty. So, what does it mean when even historically volatile, high-risk assets suddenly go almost completely quiet?
There is an old investing adage that captures this dynamic perfectly: “From contraction comes expansion.” This unremarkable observation conveys a timeless truth. When markets become excessively calm and volatility contracts, pressure builds like a coiled spring. Eventually, that tension is released in the form of a pronounced increase (expansion) in volatility.
In this instance, a prolonged period of compressed market volatility gave way to a sharp volatility expansion in early March, triggered by the onset of U.S. military operations in Iran. Predictably, after years of subdued price action, oil prices surged dramatically, rising 83% in just two weeks.[ii]
Energy costs represent a major input in inflation calculations and a significant household expense, prompting widespread concerns about a potential resurgence of inflation and a slowdown in consumer spending. Most notably, the episode sparked a steep increase in interest rates, which move inversely to bond prices. In an inflationary environment, existing traditional fixed-rate bonds become less appealing, as investors anticipate the issuance of new bonds offering higher yields. When markets opened the Monday following the onset of the incursion, the 10-year Treasury yield stood at 3.93% and was trending lower. Less than a month later, it had climbed to 4.48%.[iii]
The broader negative effects of sharply rising interest rates are often underestimated. They increase the cost of credit for durable goods such as homes, cars, and appliances, while simultaneously putting downward pressure on the valuations of financial assets, including equities. Additionally, the combination of higher interest rates and elevated geopolitical risk strengthened the U.S. dollar, making American exports more expensive abroad and reducing the value of foreign assets for U.S. investors.
Given the deeply interconnected nature of financial markets, a sudden spike in oil prices and interest rates can trigger numerous cascading effects across asset classes—from higher input costs and tighter financial conditions to shifts in currency values and investor risk sentiment. Understanding these dynamic interactions is essential for effectively navigating today’s markets. The market’s near-term direction will hinge largely on the duration of the Iran conflict, the trajectory of energy prices, the resulting impact on inflation, the future path of interest rates, and whether the U.S. and broader world consumers endure any lasting damage. The longer the conflict persists, the greater the uncertainty injected into the global economy and the more sustained the pressure on asset prices is likely to become.
Other consequences of the Iran conflict have been less visible, unfolding beneath the surface of the major indexes. In particular, the conflict has accelerated a long-running rotation out of technology stocks —especially the “Elite 8”—and into other areas of the market. While the first quarter of 2026 thrust this shift into the mainstream spotlight, we’ve documented the signs that have been building for nearly two years, with the transition emerging gradually from modest beginnings.
It is tempting to look at the S&P 500’s 4.4% decline for the quarter and assume that most sectors and stocks fell in tandem. However, that would be a mistake. For some time, we have cautioned readers that the S&P 500 no longer serves as an accurate reflection of the broad U.S. investable market. Due to its market-capitalization weighting methodology, the index’s direction and performance are now overwhelmingly determined by a small number of ultra-large technology companies. As a result, the hundreds of other constituents and entire sectors exert almost no influence on the index’s movements. This structure worked effectively while those dominant technology names were advancing, as weakness elsewhere could be easily masked by their outsized gains.
This dynamic has now reversed. While the “Elite 8” technology stocks—Nvidia, Apple, Alphabet, Microsoft, Amazon, Broadcom, Tesla, and Meta Platforms—continue to exhibit outsized weakness, this is obscuring meaningful strength across many other sectors and individual stocks.
For context, as of the start of the quarter, the three sectors (technology, communication services, and consumer discretionary) that contain these companies represented 55.3% of the S&P 500, with the Elite 8 alone accounting for a staggering 37.6% of the index.[iv] To put that into perspective, the combined stock value of eight companies was almost 40% of an index that consists of 500 companies. For years, these names largely dictated both the direction and performance of the world’s most widely followed benchmark.
Although signs of weakness first emerged in late 2025, the downturn accelerated dramatically in the first quarter. The Elite 8 posted declines ranging from -6.5% to -23.3%, while the three sectors housing them fell between -6.9% and -9.5%.[v]
In a striking reversal from recent years, weakness in the Elite 8 and technology-related sectors is now concealing underlying strength in the broader market. Six of the S&P 500’s eleven sectors are posting gains for the year, ranging from a robust +38.3% in Energy to a more modest +2.8% in Real Estate. Even more striking is that nearly 240 of the 500 companies in the S&P 500 have positive total returns year-to-date.[vi]
Not long ago, such a broad-based reversal would have seemed nearly impossible. Yet it serves as a timely reminder that headlines can be misleading and that no trend lasts forever. As we have observed time and again, markets are constantly evolving and relentlessly mean-reverting.
This theme of broadening strength is equally evident across the investment landscape. While media coverage remains fixated on the S&P 500’s quarterly decline, several diverse asset classes and market segments delivered notable gains.
Broad commodities, measured by the SummerHaven Dynamic Commodity Index, surged 23.2% in the first quarter, led primarily by strength in energy. Large-cap domestic value stocks, tracked by the S&P 500 Pure Value Total Return Index, rose 4.7%. Real estate, represented by the FTSE Nareit Equity REITs 40 Act Capped Total Return Index, advanced 4.4%. Meanwhile, domestic small- and mid-cap stocks posted solid results, with the S&P SmallCap 600 Total Return Index gaining 3.5% and the Dow Jones U.S. Mid Cap Total Return Index up 3.2%.[vii] These pockets of resilience highlight how selective weakness at the index level can mask opportunities elsewhere in the market.
One asset class deserves special mention: precious metals. After enjoying a strong bull market throughout much of the past year, the sector turned into a full-blown frenzy toward the end of 2025 and into early 2026. In just the first three weeks of January, gold surged 22.5%, silver skyrocketed 63.6%, platinum climbed 40.2%, and palladium rose 32.6% (based on closing prices of continuous futures contracts). As is often the case with parabolic moves, precipitous reversals followed. Since their January peaks to their March lows, gold declined 26.9%, silver 50.0%, platinum 41.6%, and palladium 40.9% before recovering into the end of the quarter.[viii]
The abrdn Physical Precious Metals Index, captured this volatility in dramatic fashion. At its late-January peak, it was up a remarkable 40.0% for the year, only to tumble 29.4% shortly thereafter. Despite the extraordinary swings, the year-to-date return now stands at 3.8%.[ix]
It is rare to see any asset deliver a 40% gain and a nearly 30% loss in the same quarter, only to finish slightly ahead. This episode is a vivid reminder that markets move on their own terms, often taking the most unpredictable and circuitous paths to their eventual destination. The future remains inherently unknowable, and the countless variables shaping market outcomes will never be tamed. In uncertain times, a deep knowledge of market history, a wide breadth of experience, and a steady hand are key to navigating any situation.
We don’t say it enough, but we truly appreciate the trust you place in us—it means a great deal. We look forward to what the year ahead holds and to continuing our partnership with you. In the meantime, if you have any questions, we’re at your service.
Regards,
Peak Financial Management
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Disclosures: This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
Indexes are unmanaged, statistical composites, and their returns do not reflect payment of fees an investor would pay to purchase the securities they represent. Such costs would lower performance. It is not possible to invest directly in an index. The indexes include a different number of securities and have different risk characteristics. Past performance of the indexes and benchmark is no indication of future returns.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.
[i] Bespoke Investment Group. “A Mag-7-Less Start to 2026 + Rest of World Outperforms.” Bespoke Investment Group Substack, 2026, https://bespokeinvest.substack.com/p/a-mag-7-less-start-to-2026-rest-of.
[ii] Bloomberg L.P. 2026
[iii] Bloomberg L.P. 2026
[iv] Bloomberg L.P. 2026
[v] Bloomberg L.P. 2026
[vi] Bloomberg L.P. 2026
[vii] Bloomberg L.P. 2026
[viii] Bloomberg L.P. 2026
[ix] Bloomberg L.P. 2026