Strip away the headlines, and Q1 2026 comes down to one economic fact: oil — the economy's most essential input — went from $67 a barrel to nearly $100 in under thirty days. Everything else in this review flows from that single price movement.

The proximate cause was Operation Epic Fury, the joint U.S.-Israeli military campaign launched February 28 against Iran's military and nuclear infrastructure. We acknowledge first and foremost that this is a human conflict with consequences that extend well beyond capital markets, and we address the investment implications with that gravity in mind.

The economic mechanism, however, is straightforward: the campaign effectively closed the Strait of Hormuz — the 21-mile-wide chokepoint through which roughly one-fifth of the world's daily oil supply transits. What followed was not primarily a geopolitical story. It was an energy shock. Energy prices move through the economy like a tax: higher transportation costs, rising input prices across manufacturing and food supply chains, deteriorating consumer sentiment, surging inflation expectations, and a Federal Reserve suddenly unable to do the one thing markets had been counting on. The S&P 500 fell 4.3% for the quarter; the real driver was the repricing of everything that depends on cheap energy.

The losses, notably, were not evenly distributed. Large-cap growth and technology stocks bore the brunt of a valuation reset that was already overdue. Value strategies, smaller-cap equities, international markets, and gold all held up considerably better. The performance table below tells that story more precisely than any summary paragraph can.

The table above covers a lot of ground. A few things are worth calling out specifically.

The Federal Reserve's posture entering Q2 is best described as watchful paralysis. The March FOMC meeting produced a nearly unanimous decision to hold the federal funds rate unchanged at 3.50%–3.75%. It was the second consecutive hold following three successive 25-basis-point cuts to end 2025. The updated Summary of Economic Projections (SEP) told an important story: the median dot plot now projects only one additional 25-basis-point cut for the remainder of 2026. That is significantly more conservative than what markets were pricing just a month earlier.

The inflation picture heading into the March decision was, in one word, mixed. February CPI came in at 2.4% year-over-year — unchanged from January and in line with expectations. Core CPI held at 2.5%. These readings look orderly on the surface. The complication lies beneath: the Fed's preferred measure — core PCE — stood at 3.06% as of January 2026, running meaningfully above the headline CPI and well above the 2.0% target.

More importantly, the February CPI data was collected before the oil shock fully arrived. Gas prices have risen roughly $1.00 per gallon since the conflict began on February 28, and oil traded as high as $119 intraday. The March and April CPI and PCE data — due April 10 and April 30 respectively — will be the first readings that fully capture energy price passthrough. If oil prices average near $100 for the balance of the year, credible estimates project headline CPI reaching 3.5% by year-end.

That environment leaves the Fed in a genuine bind. An oil-price shock is a supply-side inflation event — not the demand-side overheating that rate hikes are designed to cool. Hiking rates to combat energy inflation would slow an already-decelerating economy without addressing the root cause. But cutting rates while core PCE runs above 3% and energy prices are surging would risk unanchoring inflation expectations for a second consecutive cycle. The result: likely inaction and carefully worded ambiguity — until the geopolitical picture gives the Fed an off-ramp.

Per CME FedWatch, the market has dramatically repriced rate-cut expectations over the past month. Following the March FOMC decision, the probability of rates remaining unchanged through the June meeting surged to 89.2% — up from 37.8% just a month prior. More notably, the probability of a rate hike by June has risen to 3.8% from zero. That number remains a minority view, but the direction of movement — from zero to nonzero — is the part worth watching. The futures market now places the first likely cut in September 2026 at best, with a 51.3% probability of rates remaining unchanged through year-end.

Q4 2025 GDP came in at 1.4% annualized — a meaningful miss against the 3.0% consensus — setting a softer foundation entering 2026. The Atlanta Fed's GDPNow model opened Q1 2026 with a reading of 3.1% as of February 20, suggesting the economy was on track to reaccelerate. Then February 28 arrived.

As of April 1, the GDPNow estimate for Q1 2026 stands at 1.9% annualized — down 1.2 percentage points from the model's opening reading. The final revision was driven by weakening personal consumption (the PCE nowcast fell from 1.9% to 1.5%) and a sharp deceleration in private fixed investment. The Blue Chip professional forecaster consensus is in the same neighborhood.

The BEA advance estimate for Q1 2026 GDP will be released on approximately April 30, 2026 — the same day as the March PCE inflation data. That pairing makes April 30 the single most information-dense day on the Q2 calendar: we will simultaneously learn whether the economy held at roughly 2%, and whether inflation accelerated in March as expected following the oil shock. In short, April 30 is the day the market will decide whether this quarter's deceleration is transitory or the beginning of something harder.

The trailing-twelve-month and full-year 2025 columns in the table above provide context for this quarter. We will let those numbers speak for themselves — editorializing about returns that are in the past does no one any favors. The relevant question for investors is not how we got here. It is what comes next, and whether the portfolio you have is built for the decade ahead.

What history can offer is a useful reality check on how markets have behaved following major geopolitical events. The table below, sourced from YCharts historical index data, shows S&P 500 price returns following five significant conflict start dates. The pattern is instructive: short-term market reactions vary widely, but one-year outcomes have ultimately reflected economic fundamentals far more than the military situation that triggered the initial selloff.

Vistamark's investment leadership has been developing and publishing formal 10-year capital market assumption frameworks since 2003 — well before such exercises became standard practice across the investment management industry. Over more than two decades, we have consistently refined our methodology: layering in regression-based approaches for fixed income anchored to current yields-to-worst, Black-Litterman frameworks for global equity, and increasingly rigorous treatment of private markets, illiquidity premiums, and manager selection alpha. Our 2026–2035 CMAs represent the accumulated product of that process. They are not static models — they are living frameworks, updated annually to reflect changing market conditions.

Which brings us to the most useful question Q1 2026 raises for long-term investors: how do the key inputs look today, on March 31, 2026, compared to our November 30, 2025 base date? The formal CMA update is likely to come with our next annual cycle, but we can already see where the assumptions are likely to shift — and in which direction.

Equity Valuations: Improved

The S&P 500's trailing P/E stood at 25.47x on November 30, 2025 — in the 95.7th percentile of historical observations since 1957. The Q1 drawdown has compressed that figure meaningfully; the trailing P/E is now estimated in the 21–23x range, and the forward P/E has come down closer to 19x. Our U.S. large-cap equity return forecast is directly tied to this input through our regression model. Applying the same methodology to an updated P/E in this range, the P/E-implied 10-year return improves by approximately 50–100 basis points relative to the November base case — moving the large-cap equity forecast directionally higher from the 5.39% published estimate. Valuation compression is uncomfortable while it happens. It is also how long-term expected returns rebuild.

Bond Yields: Also Improved

The 10-year Treasury yield has risen from 4.02% at our base date to 4.44% as of March 31. Our US Aggregate bond forecast is anchored to the current yield-to-worst of the Bloomberg US Aggregate, which moves closely in tandem with Treasury yields. The practical implication: forward fixed income return expectations have improved modestly since November. Investors entering the bond market today are locking in higher starting yields than those embedded in our November base case. That is directionally good for the fixed income forecast on an updated basis.

Inflation: The Offset

The 10-year breakeven inflation rate has risen from 2.23% at our base date to 2.31% as of March 31 — and the energy shock may push it higher in the weeks ahead. A 2.23% inflation assumption that was reasonable in November is now modestly at risk of being understated. If the breakeven settles sustainably above 2.5%, we would revise the inflation assumption upward in our next annual cycle. That revision would partially offset the improved equity and bond return forecasts on a real return basis — shrinking the real yield advantage in fixed income and reducing the inflation-adjusted equity return outlook.

The Net Picture

The three dynamics — better equity valuations, higher bond yields, and modestly higher inflation expectations — work partially against each other. On balance, the directional shift from the November base date to March 31 is slightly favorable for expected nominal returns on a diversified portfolio, and roughly neutral on a real return basis. The larger structural conclusions of our 2026–2035 CMAs — the return premium available in private markets, the advantage of non-U.S. equity over U.S. large cap, and the meaningfully improved outlook for fixed income relative to the zero-rate era — remain intact.

Q2 opens with one dominant variable: whether and when the Strait of Hormuz reopens to normal commercial traffic. Everything else — oil prices, inflation, Fed policy, equity valuations — flows from the answer to that question.