The first quarter of 2026 marked a decisive shift in the global investment landscape, as markets transitioned away from the liquidity-fueled optimism that characterized much of 2025, and into a more fragile, macro-driven regime. Across nearly all major asset classes, including equities, fixed income, and cryptocurrencies, investors faced a combination of declining prices, rising volatility, and an unusual breakdown in traditional diversification benefits. In contrast, precious metals and certain commodity exposures, particularly energy, provided relative resilience, though not without significant volatility of their own. The quarter ultimately underscored the growing influence of geopolitical instability, inflation persistence, and interest rate uncertainty in shaping global capital markets.
Source: Factset
At the center of these developments was a rapidly evolving macroeconomic environment. Geopolitical tensions, particularly those emanating from renewed conflict in the Middle East, played a critical role in destabilizing markets. The resulting surge in oil prices, exceeding $100 per barrel, acted as both a direct inflationary shock and an indirect drag on global growth expectations. Higher energy costs filtered through supply chains and corporate cost structures, reviving concerns about stagflation, a scenario in which economic growth slows while inflation remains elevated. This backdrop complicated central bank policy expectations, as markets began the quarter anticipating rate cuts but gradually repriced toward a higher-for-longer interest rate environment. The chart below looks at the relative performance of various asset classes vs the price of Brent crude oil over the last 15 months.
No Place to Hide: During a Crisis – All Correlations go to One
Source: Factset
Global Equities
This shift in expectations had profound implications for global equities. U.S. markets, which had entered the year at elevated valuations following strong gains in 2025, experienced broad-based declines. The S&P 500 fell by roughly mid-single digits during the quarter, while the Dow Jones Industrial Average performed even more poorly. The weakness was particularly pronounced in growth-oriented sectors, especially technology, where lofty expectations tied to artificial intelligence and earnings expansion were increasingly scrutinized. As discount rates rose alongside bond yields, the present value of future earnings declined, exerting downward pressure on valuations. This dynamic led to a notable rotation within equity markets, as investors shifted capital away from high-multiple growth stocks and toward more defensive or cyclical areas such as energy and value-oriented sectors.
International equities followed a similarly uneven trajectory. Early in the quarter, there were signs of renewed investor interest in non-U.S. markets, particularly in emerging economies that had lagged during prior periods of dollar strength. However, this momentum proved short-lived. As global risk sentiment deteriorated and energy prices climbed, many international markets, especially those dependent on energy imports, faced increasing headwinds. European equities were pressured by both energy costs and sluggish growth, while Asian markets contended with trade disruptions and weakening external demand. The initial optimism surrounding global diversification gave way to a more synchronized downturn, reflecting the interconnected nature of modern financial markets.
Underlying these price movements were important shifts in market structure and investor behavior. Exchange-traded fund (ETF) flows remained strong during the early part of the quarter, suggesting that investors initially viewed market dips as buying opportunities. However, as volatility intensified in March, inflows slowed significantly, indicating growing caution. At the same time, there was a pronounced increase in allocations to actively managed ETFs, reflecting a desire for more flexible and tactical approaches in an uncertain environment. Retail and household exposure to equities remained historically high, amplifying market sensitivity to downside moves. This elevated positioning contributed to sharper corrections, as even modest changes in sentiment triggered disproportionate selling pressure.
Global Fixed Income
Fixed income markets, which traditionally serve as a stabilizing force in diversified portfolios, failed to provide their usual protection during the quarter. Instead, bonds experienced negative or muted returns as yields rose across the curve. This increase in yields was driven by a combination of persistent inflation concerns, stronger-than-expected economic data in certain regions, and the aforementioned energy shock. Duration-sensitive assets were particularly affected, as rising rates eroded the value of longer-dated cash flows. Although credit spreads remained relatively contained, reflecting still-solid corporate fundamentals, the overall performance of fixed income highlighted a key challenge for investors: the erosion of bonds’ role as a reliable hedge against equity market declines.
Within this broader fixed income landscape, private credit emerged as an area of both relative resilience and growing concern. On the surface, private credit continued to deliver stable income streams, supported by floating-rate structures that benefited from elevated base rates. This feature allowed many direct lending strategies to outperform traditional fixed-rate bonds on a mark-to-market basis, reinforcing investor perceptions of private credit as a defensive, income-oriented allocation. However, beneath this apparent stability, several structural risks became more pronounced during the quarter. The lagged nature of private credit valuations—often based on infrequent or model-driven pricing rather than continuous market trading—raised concerns that reported performance may not fully reflect underlying credit deterioration. As borrowing costs remained elevated, highly leveraged borrowers, particularly in middle-market segments, faced increasing pressure on interest coverage ratios, leading to a gradual rise in payment-in-kind (PIK) interest structures and covenant flexibility that could obscure early signs of stress.
Additionally, the rapid expansion of the private credit market over the past several years has led to heightened competition among lenders, compressing underwriting standards and increasing exposure to cyclical industries. In a macro environment characterized by slowing growth and persistent inflation, these vulnerabilities have become more salient. Investors also began to question liquidity assumptions, as private credit vehicles typically offer limited redemption flexibility, creating potential mismatches between asset liquidity and investor expectations. While defaults remained relatively contained during Q1, forward-looking indicators suggested that credit quality could deteriorate if economic conditions weaken further. As a result, private credit’s role within fixed income portfolios is increasingly viewed through a more nuanced lens: while it continues to offer attractive yield and diversification benefits, it also introduces opacity, illiquidity, and latent credit risk that may only become fully apparent in a more prolonged downturn. That being said, comparisons to the mortgage securities market prior to the Great Financial Crisis of 2007-2009 smack of fear mongering rather than reality.
Global Commodities & Cryptocurrency
In contrast to the struggles of equities and bonds, precious metals, most notably gold, emerged as one of the few bright spots in Q1 2026. Gold prices rose meaningfully during the quarter, building on an already strong performance in 2025. This rally was driven by a confluence of factors, including geopolitical uncertainty, sustained central bank demand, and concerns about the long-term trajectory of global debt levels. Gold’s appeal as a store of value and hedge against systemic risk was reinforced, even as it exhibited notable intra-quarter volatility. Sharp pullbacks during periods of temporary risk stabilization highlighted that, while gold can provide diversification benefits, it is not immune to broader market dynamics. Silver, meanwhile, displayed even greater volatility, reflecting its dual role as both a precious and industrial metal.
Commodities more broadly played a pivotal role in shaping the investment landscape, even though they are often considered a secondary asset class in traditional portfolios. The surge in oil prices not only supported energy equities but also contributed to the broader inflationary environment that weighed on other asset classes. This divergence between commodity-linked assets and financial assets underscored the importance of real assets in periods of macroeconomic stress. Investors with exposure to energy and related sectors were better positioned to navigate the quarter’s turbulence, while those heavily concentrated in financial assets faced greater challenges.
Cryptocurrencies, which have increasingly been viewed as an alternative asset class, experienced a period of stagnation during Q1 2026. After significant gains in prior periods, Bitcoin and other major digital assets traded down, with talks of a renewed “Crypto Winter”. This lack of momentum was notable given the continued progress in institutional adoption and infrastructure development within the crypto ecosystem. Initiatives such as crypto-backed financial products and expanded regulatory clarity suggested improving fundamentals, yet these developments failed to translate into price appreciation. One contributing factor may have been the broader risk-off environment, which reduced investor appetite for speculative assets. Additionally, ongoing debates about valuation frameworks and emerging technological risks, including those associated with quantum computing, introduced new layers of uncertainty.
Global Asset Allocation
Perhaps the most significant takeaway from the quarter was the breakdown in traditional asset class correlations. Historically, equities and bonds have tended to exhibit negative correlation during periods of market stress, allowing balanced portfolios to mitigate losses. However, in Q1 2026, both asset classes declined simultaneously, driven by the common influence of rising yields and inflation expectations. Cryptocurrencies, which some proponents have argued could serve as a diversifier, also failed to provide meaningful protection. This convergence of negative returns across multiple asset classes posed a substantial challenge for portfolio construction and risk management.
In this context, the role of alternative assets and tactical allocation strategies became increasingly important. Gold and commodities stood out as effective diversifiers, while cash regained relevance as a source of stability and optionality. The experience of the quarter highlighted the limitations of static allocation models and underscored the need for dynamic, forward-looking approaches that can adapt to changing macro conditions. Risk parity strategies, which rely on stable correlations between asset classes, were particularly strained, prompting a reevaluation of their underlying assumptions.
Summary & Outlook
Looking ahead, the implications of Q1 2026 are likely to persist throughout the remainder of the year. Markets appear to be firmly in a macro-driven regime, where factors such as inflation, central bank policy, and geopolitical developments play a dominant role in determining asset prices. While this environment presents risks, it also creates opportunities for investors who can navigate its complexities. Sectors tied to real assets, such as energy and commodities, may continue to benefit from structural supply constraints and geopolitical dynamics. At the same time, elevated yields in fixed income markets could eventually provide attractive entry points for income-oriented investors, particularly if inflation stabilizes.
Equities, meanwhile, face a more nuanced outlook. Valuation compression may continue in certain segments, particularly in high-growth sectors, but this could also create opportunities for selective investment. Companies with strong balance sheets, pricing power, and exposure to favorable structural trends may be better positioned to withstand macro headwinds. The rotation toward value and cyclical sectors observed during the quarter may persist, depending on the trajectory of economic growth and inflation. Either way, it is important to remember that while US stocks have “averaged” a 10% return over the last 100 years, the yearly returns show meaningful amounts of volatility.
In conclusion, the first quarter of 2026 represented a critical inflection point for global financial markets. The convergence of geopolitical shocks, inflationary pressures, and shifting monetary policy expectations created a challenging environment for investors and exposed the limitations of traditional diversification strategies. While precious metals and commodities provided some relief, the overall performance of major asset classes underscored the need for a more adaptive and resilient approach to portfolio management. As the year progresses, the lessons of Q1 are likely to remain highly relevant, shaping both investor behavior and market dynamics in an increasingly complex and interconnected world.
We at Twelve Points Wealth hope you and your families are well. Please call or email if you have any questions.
Steve Bruno, CFA
Chief Investment Officer
April 10, 2026
PS: As we finish editing this letter, we await the outcome of truce talks in the US-Iran conflict that begin this upcoming weekend which has sparked a relief rally among all asset classes during the first trading week of April.
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