As we approach the end of the first quarter, the S&P 500 has followed an eerily similar path to start 2026 compared to the start of 2025. It was coming off a strong year and started the new year with continued momentum in January and February. Just as we were becoming complacent again, geopolitical tensions brought market volatility back to life. Last year, it was tariffs. This year, it is the war with Iran. However, the same underlying theme is the cause for concern. Inflation.

Just like last year, any headline indicating a potential change in the trajectory could reverse the direction of the market in minutes. Right around this time last year, we wrote an article about the market volatility. You can find that article here and we really could have recycled that article if we wanted to even though it is almost a year old. One main theme from that article that is worth repeating is that the average drawdown in any given year from peak to trough is 14%. Last year, the market was down 20% peak to trough and the year ended with double digit returns.

Unfortunately, volatility is normal. Sometimes, understanding the cause helps. Inflation is a major issue. While the country can’t seem to agree on anything, there is one thing that we can all agree on. Things cost significantly more today than they did 3-5 years ago. The Fed has been trying to fight inflation since 2022. It has at least been tamed, but not to the level that anyone would like it to be. The conflict with Iran could potentially derail the progress just like tariffs were feared to disrupt it last year.

Iran is holding roughly a quarter of the world’s oil supply hostage by blocking the Strait of Hormuz. This negative impact on the supply is causing a major spike in oil prices. That sends shockwaves through the system. Higher oil prices lead to higher gas prices, which leads to higher transportation costs. The higher transportation costs impact the price of goods that we consume on a daily basis. Prices are already high. This additional increase can cause some households to crack and lead to a recession. This fear is creating market volatility.

It’s easy to say to stay the course and everything will be fine. While that advice has a very strong track record, it is still difficult to live in the moment. There is an old saying, “the days are long, but the years are short” and it is very applicable to investing. Time flies, but a lot happens in a day, a week, or a month. The money you invest in stocks should have a time horizon of years. In most cases, decades. While the bad days can be tough to live through, having your money allocated to the appropriate buckets and following a diversified investment strategy should pay off over the decades.

It is important to remember that investments in securities involve risk, including the potential loss of principal invested. Past performance is no guarantee of future results. Diversification does not guarantee a profit or protect against loss in a declining financial market. Alliance also does not make any representations as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party mentioned in this communication and takes no responsibility. This is not intended to be individual tax or legal advice. Please consult your tax or legal professional. Additional disclosures can be found by visiting alliancewealthadvisors.com/legal-disclosures.

Artwork by Behavior Gap