1Q26 Market Review
In this post, John Chesbrough gives a review of recent performance in the investment markets. Note from John: Usually I pick a photo that matches the current season. This “cover photo” is from a bike trip I recently did outside of Moab, Utah. Wow, incredible county. I just love the desert.
There are three sections: What happened, what we expect going forward, and what we are doing as a result.
The markets are remarkable. Amidst so much turmoil and unrest, the system that allows us to own portions of companies (stock), or slices of debt (bonds) remains steady and robust. As I considered this thought, I grew curious about the meaning and context of the word “remarkable.” In particular, when I learned the denotation (literal meaning), I was interested by the difference from the connotation (more subjective associations) for the word.
Denotation: The root word “mark” means worthy of being noticed, while the prefix “re-” suggests repeatability and the suffix “-able” suggests the ability to be acted upon.
The connotation of the word meanwhile carries an implication of exceptionalism (vs. the ordinary or mundane).
For example, using the literal definition, we would say that the weather on any day is remarkable. However, the connotation of the word would imply that only a sunny day in January, or rain in July is remarkable. Somehow that difference rings true to me for how many people pay attention to the markets.
I find the movements of, around and within the market to be remarkable on any day. The markets provide a gauge, or a signpost, of investor expectations for the future – both in terms of optimistic growth, and in terms of worry about what could go wrong. That type of information is always relevant to how I think about investing in the markets. When there is market movement that is extraordinary, I also pay attention. Over short periods of time, I expect the extraordinary. Over long periods of time, I expect the ordinary. Both are remarkable.
What was remarkable during the quarter
- The US stock market declined modestly in the first quarter (down 4%)
- International markets also declined, but by much less (0 – 1%)
- Bonds held steady
The bond market performed remarkably as expected. Despite a tumultuous world, bonds were steady, providing stability and ballast to investment portfolios.
Meanwhile, stock markets declined, particularly the US market. Geopolitical events like the war in Iran were likely the catalyst. Almost certainly, oil prices played a central role. We live in a globally connected economy where global events impact the global economy, which impacts the US economy. When oil becomes less available (lower supplies), prices go up, and so the input costs for nearly every business and consumer go up. That leads to inflation, and potentially, worse economic results for the businesses who need oil or the products produced by oil.
However, a scratch at the surface of that simple narrative unearths some questions. In the last decade, the US has become “energy independent” where we produce more energy than we need. Shouldn’t that mean that the US would be less impacted by oil prices than international markets? Why would the US market decline in the most recent quarter while international markets were essentially flat? As a net producer of energy, wouldn’t higher oil prices bolster the US market?
This points to the fact that the market are highly complex, and oil prices are but one influencing factor. There are millions of inputs going into market prices every day, and so it is generally folly to pin one simple idea to why markets moved one way or another. That said, the markets are forward-looking, meaning that market prices are a signpost for investor expectations for future returns, both to the upside and down. Creating simple cause-and-effect narratives are challenging, and can lead to a false sense of confidence. So, while market movements are remarkable, simple explanations are not.
Detailed Market Performance – a watch
The following link is a less than 5-minute narrated video of market performance and other resources in this blog post. Some people prefer a guided tour over a read. But, the tour will be too fast to read!
Detailed Market Performance – a read
To view a detailed analysis of investment performance in the US and global stock and bond markets, click on the button below.
The investment market performance report is prepared by Dimensional Fund Advisors (DFA), one of our partners in investment management and client support. If you would like to find out more about DFA, you can visit their website directly at: https://www.dimensional.com/
When I look at the state of the US and international markets, it is clear that investors still have higher expectations for US out-performance as compared to ex-US investments. Why can I say this with near certainty? Valuation.
When expectations are high, investors tend to bid up the price of the investment. This increase in expectations leads to a more highly “valued” investment. Literally, a high valuation means that investors are expecting that the investment will deliver strong future results (usually profits or cash flows).
As an example, I will compare two companies that operate somewhat similar businesses but in different markets: Amazon (symbol AMZN) and Ali Baba (symbol BABA). Amazon is a US-based business while BABA is headquartered in China. While AMZN and BABA are not clones of each other, they have many similarities.
One way to compare these companies is to look at their revenues, and compare to the stock price. The simple math is called the “Price to Sales” ratio, where the stock price is divided by the sales the company generated.
- AMZN shares trade at around $250/share on top of revenues of around $67/share. The “Price-to-Sales” ratio is about 3.7 as of April 2026.
- BABA shares trade at around $143/share on top of revenues of around $63/share. The price-to-sales” ratio for BABA is around 2.25 as of April 2026.
This level of analysis is WAY too simple to make an investment action, but it serves my point. Investors have higher expectations for AMZN than they do for BABA.
We see this pattern persist across markets in the US vs. international markets. For example, if I compare two Vanguard funds, a US fund tracking the S&P 500 (symbol VOO) has a price-to-sales ratio of around 2.9. Meanwhile, a fund that tracks markets outside of the US (symbol VEU) trades for 1.6 times sales.
Why would investors have higher expectations for companies in the US? There are likely innumerable reasons, but some that make sense to me are:
- The US has a strong capital market, which makes accessing money and financing easier for a US-based company to grow
- The US dollar is the strongest currency in the world, so the financial footing is strong
- The US consumer is an incredible market to sell products and services to
- The US follows a predictable rule of law, which produces a playing field where success is more about what gets done vs. who is known
- The US has amazing educational institutions, producing a strong labor force
- The US has a culture of innovation and entrepreneurism that attracts the best and brightest from around the world
- The US tends to have lower regulation and red tape to getting things done
- The US has a system of checks and balances to tamp down the erosive forces or cronyism and corruption
My question about many of these bullet points is, are they getting stronger or weaker? In other words, is the US strengthening (or weakening) its:
- Rule of law to create a level playing field?
- Immigration Policy to attract the best and brightest?
- Our system of checks and balances to limit corruption and self-dealing?
- Currency strength as the most trusted and utilized global currency?
My response to that set of bullet points is, “Those factors are deteriorating.” And yet, even though my prognostication is that the US economic landscape is weakening, I know that anything I observe, know, or ,forecast is known to all investors. Thus, that information is already captured in market prices. Thus, when I see that US-based investments did not perform as well as international investments, I am not surprised. While I still cheer for my home country, and I want to win, it would be naive to ignore some worrying signs.
Even though we watch the markets, and regularly comment on them, we rarely take significant action. But, we do take fine-tuning action. For example, we regularly review and revise our global allocation targets to keep pace with the current state of the markets. Once our targets are reset, we review portfolios to ensure alignment. Regular re-balancing keeps our managed portfolios in line with the information that is contained within market prices.
As a result of the most recent quarterly movements, we lowered slightly our target for US stock market ownership, and raised the target for non-US markets. By slight, I mean less than 1%. These are fine-tuning changes, nothing drastic.
Our investment philosophy at Trail Financial Planning is to embrace the long-term trends, but keep an eye on streaks and the near-term. The way this plays out as we design and manage investment portfolios is through our three legged strategy of portfolio construction:
Risk Tolerance. What level of return and risk can you live with and sleep well at night?
Financial Planning. What amount of return and risk do you need to live your best life (this is called “financial planning.”)?
Time-Frame Analysis. We forecast out when you may need money, and bucket those needs into 3 time-frames: Short-, Intermediate-and Long-term. Any money that will be needed in the short term, should be invested conservatively, with preservation as an objective. Long-Term money is a good candidate to invest for growth, in stock-heavy strategies. Intermediate-term money, however, deserves a more nuanced approach, more influenced by current market conditions. In light of current market conditions and high valuations of US-based stocks in particular, we have extended our definition of “intermediate-term” money from the next five years to the next ten. For some of our clients, this is leading us to recommend lower risk portfolios.
Notice that this approach is not a simple “just hold on” strategy. Rather, it is a dynamic strategy driven by our financial planning and answer the question, “What do you really want out of this life you have been given?”
Portfolio construction and and maintenance is not rocket science. But, neither is it a bingo card. We believe that a good strategy helps guide the near-term to achieve the long-term. And the long-term results from investing in the markets are truly remarkable.
Disclosures and end notes
Information contained within is generalized information about investing and the investment markets. It should not be considered investment advice, personalized or otherwise. Past investment performance is not a guarantee of future investment performance. Investing in markets comes with an inherent risk of losing money.
