The first quarter of 2026 provided several geopolitical events that increased uncertainty and volatility around the economy and financial markets. The year began with modest economic growth, moderate yet sticky inflation readings, a softening labor market characterized by lack of new hirings, but also few layoffs, and market expectations for several interest rate cuts throughout the year.
In January the United States executed an operation to capture Venezuelan leader Nicolas Maduro and his wife, and with it exerted greater influence over the country’s sizeable oil and gas assets. After an initial slight blip, oil prices retreated, only to begin to inch up along with the US buildup of military assets in the Middle East. At the end of February, the U.S. along with Israel launched an attack on Iran to topple its regime. As part of its response Iran effectively shut down the vital shipping lanes of the Straits of Hormuz, through which roughly 20% of global oil consumption and global Liquified Natural Gas (LNG) trade transits.1 Not surprisingly, oil prices jumped, with the global benchmark Brent Crude increasing from approximately $70 per barrel prior to the attack, to as high as just under $120 per barrel by the end of the quarter.2 This was still below the $139 per barrel peak in 2022 at the onset of the Russian invasion of Ukraine.3 It is important to note that the prices for Brent Crude futures for the end of the year are about 20% lower, suggesting that the current market expectations are for oil prices to ease over time.4
At this point it is too early to determine the full economic impact of the events in the Middle East. In the wake of the jump in energy prices, current estimates for first quarter GDP growth are around 2%, suggesting continued, albeit more tepid growth.5 We have seen the national average price for regular gasoline jump by about $1 per gallon in the last month.6 This should act as a tax on consumer spending. It is currently estimated that approximately one-third of the annual anticipated tax benefits to the consumer contained in the One Big Beautiful Bill (OBBB) will be offset by these higher gasoline prices.7
Estimates for the year-over-year change in the Personal Consumption Expenditures (PCE) Index, the Federal Reserve’s preferred gauge of inflation, have increased by about 0.9% from February (2.7%) to April (3.6%), while the core PCE (excluding food and energy) is expected to only move up +0.2%, suggesting that energy prices are the primary driving factor.8
We are also seeing the expected impact of inflation on interest rates. The benchmark 10-year U.S. Treasury rate increased during the quarter from 4.16% to 4.34%.9 Mortgage rates have also gone up, with the national average 30-year fixed mortgage increasing from 6.10% to 6.38% during the quarter, providing some further headwinds to the housing market.10 Given the rise in inflation, forecasts for rate cuts from the Federal Reserve have dropped with current estimates suggesting at most one additional rate cut by year-end, compared to expectations of two to three cuts at the start of the year.11
Not surprisingly, the stock market saw an increase in volatility in wake of the turmoil in the Middle East, with the S&P 500 declining -4.4% for the quarter.12 Technology stocks, which have led the market in recent times on the back of excitement for artificial intelligence (AI) and its prospects, saw a pullback as the more technology-heavy NASDAQ declined -7.0%.13 Software stocks, despite reporting better than expected quarterly results, saw prices decline on growing concerns that innovations in AI may challenge their current business models. Consumer discretionary stocks also saw pullbacks driven by worries about rising energy prices and their impact on consumer spending. With the spike in oil prices, the energy sector was the strongest performer during the quarter, in particular oil & gas producers who benefit directly from higher prices. Utility stocks also performed well on the market’s flight to safety, and the continued strong demand for electricity, in part driven by the growth in data centers and their capacity to manage AI demand.
Interestingly, despite the softening in the broader economy and the decline in the stock market, the 2026 S&P 500 consensus earnings estimate actually increased during the quarter.14 The slowdown in the consumer and industrial sector was largely offset by the boon to energy stocks from higher oil prices, financial stocks, which should benefit from a steeper yield curve, and technology stocks from the continued build out of AI capabilities. Taken together (declining price and rising earnings estimates), the forward P/E multiple of the S&P 500 declined to just under 20x by quarter end, below its post-Covid Era average and closer to its longer-term range.15
In recent days there has been increased talk of a potential end to the hostilities in the Middle East. We continue to monitor developments and their impact on the economy and markets.
We appreciate your continued confidence in Dumont & Blake and are always available to discuss any questions or concerns that you may have.
Dumont & Blake Investment Advisors, LLC
March 31, 2026
1 International Energy Agency (IEA).
2,3,4Bloomberg.
5Federal Reserve Bank of Atlanta.
6American Automobile Association.
7Wolfe Research.
8Federal Reserve Bank of Cleveland.
9,12,13,15Bloomberg.
10Freddie Mac (Federal Home Loan Mortgage Corporation).
11Federal Reserve (Federal Open Market Committee (FOMC)).
14Factset.
This commentary is for informational and educational purposes only and includes general economic and market conditions. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Data and other market and economic information referenced is from sources believed to be reliable and opinions are subject to change. All investments involve risks, including the loss of principal.