Q1 2026 Investment Commentary
Q1 2026 Market Commentary
The first quarter of 2026 started off strong with solid gains in many parts of the portfolio prior to the start of the Iran war.
| Asset Class | Return |
|---|---|
| Commodities | 24.4% |
| Small Cap Value Stocks | 5.0% |
| REITs | 3.8% |
| Cash | 0.9% |
| Diversified Portfolio | 0.2% |
| Corporate Bonds | 0.0% |
| Emerging Market Stocks | -0.1% |
| Municipal Bonds | -0.2% |
| International Developed Stocks | -1.1% |
| International Bonds | -1.7% |
| Large US Stocks (S&P 500) | -4.3% |
Overview
The first quarter of 2026 started on a promising note. Through late February, the S&P 500 had climbed nearly 1%, Small-Cap Value Stocks were up 9%, Developed International stocks like Europe, South Korea, and Japan had topped 10% gains, and Emerging Markets across China, India, and parts of South and Central America were up nearly 15%. Both Corporate and Municipal Bonds had gained roughly 2%, and Gold had quietly climbed 20% after a solid 2025.
Then things changed on the last day of February.
The escalating conflict between the U.S., Israel, and Iran sparked a sharp sell-off throughout March. By quarter end, the S&P 500 had dropped nearly 5%, Small Cap Value stocks gave back much of their early gains to finish up around 5%, and International Developed markets slipped into negative territory. Emerging Markets held close to break-even, while most corporate and muni bonds surrendered their year-to-date gains. The standout performer, for the wrong reasons, was oil, which has spiked nearly 65% year-to-date.
That said, we did close the quarter on a brighter note. In the final days of March, markets clawed back some of those losses as sentiment began to shift toward the possibility of a resolution.
Oil, Conflict, and What It Means for Portfolios
Once again, we find ourselves at the start of the year navigating a geopolitical shock and interpreting its implications for portfolios over the longer term.
Last year, after the sweeping tariff announcements in early April, markets sold off sharply only to stabilize once a pause and trade negotiations took hold, setting up a strong rally for the rest of the year. This situation feels different in one important way: it's not entirely up to the United States to resolve it. There are more actors involved, and more potential outcomes on the table.
Iran continues to flex its influence over the Strait of Hormuz, which carries nearly a quarter of the world's oil exports. While the United States has made meaningful strides toward energy independence, many of our key trading partners have not. For example, in the Philippines, gas prices have roughly doubled since the conflict began, and up to 98% of their fuel supply passes through the Strait. The longer this piece of the conflict drags on, the more potent its ripple effects on the global economy.
That said, history has shown that staying the course and remaining invested through times of conflict has typically proven to be a wise move.
Here at home, gas prices have also spiked, reigniting fears of an inflation resurgence. And even if the conflict were to end tomorrow, the pure supply chain logistics and oil storage constraints could cause these elevated prices to linger beyond any ceasefire.
| Regular | Mid-Grade | Premium | Diesel | E85 | |
|---|---|---|---|---|---|
| Current | $4.064 | $4.578 | $4.943 | $5.490 | $3.208 |
| Yesterday | $4.018 | $4.541 | $4.904 | $5.454 | $3.149 |
| Week Ago | $3.983 | $4.498 | $4.864 | $5.366 | $3.160 |
| Month Ago | $2.984 | $3.482 | $3.851 | $3.761 | $2.319 |
| Year Ago | $3.201 | $3.672 | $4.029 | $3.613 | $2.674 |
The Case for Staying Diversified
Despite all of this, the typical diversified portfolio close to flat on the year. That's not a bad place to be, all things considered.
This is exactly what diversification is designed to do. The steepest losses this quarter were concentrated in large U.S. equities, the very part of the market that led the way for years. The best gains were in commodities and real assets like real estate, which have held up well. Bonds have taken a temporary hit as inflation expectations and rate cut assumptions for 2026 were repriced in response to the conflict, but they remain an important stabilizer in the portfolio.
As long-term investors, we're going to face geopolitical and economic shocks throughout our investing lifetimes. This is another one. Each one tests our resolve. And staying invested through these moments, rather than reacting to them, is typically what leads to the least regret in the long run.
We remain committed to keeping your portfolio on target: monitoring overall risk in line with your plan, optimizing for tax outcomes as opportunities arise, and making sure your investments reflect the goals you've shared with us.
Private Credit: Stealing the Q1 Headlines
Before the conflict took center stage, one of the bigger stories in the markets was growing scrutiny of the private credit space. Default rates have risen, and several private credit investment funds have tightened redemption terms or restricted investor withdrawals - not necessarily something to inspire confidence.
Private credit has boomed in the years following the Global Financial Crisis as an alternative financing source for companies paying high yields to investors. But these investments have historically lived inside endowments and insurance company portfolios, with long time horizons and very different liquidity needs than individuals.
In recent years, they've increasingly made their way into retail investor hands, the mismatch between investor expectations and the actual liquidity profile of these funds has become more apparent, particularly now, as some of the underlying loans are beginning to show stress.
We've intentionally kept our portfolios away from the private credit space. If something is offering 10–12% interest, there's typically a reason why and it's not generosity. Companies like Blue Owl, a major player in the private credit space, have seen their stock drop roughly 40% year-to-date, which speaks to the broader concerns the market has raised about the sector.
Valuations: A Silver Lining
One genuine bright spot from the recent selloff is that equity valuations in the U.S. have improved. The S&P 500 is still relatively expensive on a historical basis, but the valuation gap between the top 10 companies in the index and the rest of the market has narrowed meaningfully. That's a healthier setup than where we started the year and the gap we had seen in Mag-7 stocks vs. the broader market. Earnings continued to grow in Q4 2025.
Looking Ahead: The IPO Market
The March selloff has spooked or delayed some IPO plans, but a meaningful pipeline of major companies is still eyeing a liquidity event in the months ahead. If market conditions stabilize, the IPO window could reopen in a meaningful way.
Our team is ready to help you, your colleagues, and your friends navigate these moments when they come.
| Company | Description | Sales ($mm) | Val. ($mm) |
|---|---|---|---|
| SpaceX* | Rockets & satellite internet | $15,500 | $1,250,000 |
| OpenAI Group | AI models & ChatGPT | $25,000 | $730,000 |
| Anthropic | Foundational LLM / Claude | $19,000 | $380,000 |
| Databricks | Enterprise AI/SaaS analytics | $5,160 | $134,000 |
| Cerebras Systems* | AI chips & supercomputers | $206 | $23,000 |
| DayOne Data Centers* | Global data center operator | — | $20,000 |
| Inspire Brands | Arby's, BWW, Dunkin' | $32,600 | $20,000 |
| Proofpoint | Threat detection software | $2,000 | $20,000 |
| Quantinuum* | Quantum computer developer | — | $17,500 |
| Zelis Healthcare* | Health insurer platform | — | $17,000 |
| Discord* | Gaming voice/social network | $550 | $15,000 |
| Innio Group* | Natural gas engines | $2,500 | $15,000 |
| Copeland* | HVAC & thermostats | $4,700 | $14,000 |
| Ensemble Health* | Healthcare revenue cycle | — | $13,000 |
| Holtec International* | Nuclear plant equipment | $500 | $10,000 |
| Relativity* | AI platform for legal teams | — | $4,000 |
| Fervo Energy* | Geothermal energy projects | — | $3,000 |
| Strava* | Fitness tracking app | $500 | $2,200 |
| Abra Group* | Avianca & Gol airlines | $7,056 | — |
As always, if you have questions about your portfolio, performance, or anything we've covered here, please don't hesitate to reach out to your BKFi planner.
Disclosures:
All investments involve risk, including the loss of principal.
This document contains forward-looking statements, predictions and forecasts ("forward-looking statements") concerning our beliefs and opinions in respect of the future. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements.