Q1 2026 MARKET COMMENTARY
The first quarter of 2026 ended on a rather negative note after starting the year largely positive through January and February. With midterm elections slated for November of this year, we would have expected President Trump to be focused on US domestic agenda – we could have not been more wrong. The President’s foray into Venezuela proved to be the warmup before setting off a war with the Republic of Iran. Geopolitical events typically disrupt markets over shorter periods of time before the information/dynamics are absorbed and we’re able to move past them (For example the Russian invasion of Ukraine). This particular event with Iran may have more disruption and create “More ripples in the pond”, which we will discuss later in this piece. While we do not generally look to make investment decisions based upon geopolitical events, we may have some new adjustments to our strategy as we move through 2026 as even with the cessation of fighting. We could see effects from the war that persist for many quarters to come that were not part of our original assessment when looking at areas to invest coming into this year. With a jobs market showing weakness through Q1 coupled with new inflationary pressures in food and energy due to the Iran conflict the Fed is currently in a bind and forced to sit on the sidelines.
Equity
We’ll lead off with Public Equities as it’s the most talked-about area of investing and relevant to just about every investor in our practice. For Q1, the S&P 500 got off to a difficult start -4.37%. The Nasdaq, with its tech champions, was down -5.93%, and the Russell 2000 which represents US small caps, was the relative winner finishing up +0.93%.[1]
Our philosophy around owning Public Equities has encompassed the following 1) Focus on owning high quality businesses – the strategy of indexing, where you effectively own all companies (Great, average & poor) has never made a lot of sense to us 2) Look to invest in businesses that exhibit pricing power due to limited competition 3) Look for businesses that are durable that can survive hard times – stock prices go up and down, but a durable business won’t go bankrupt and will increase in value over each economic cycle 4) Where we feel we have competency, own the individual companies, where we don’t, utilize a passive basket like a sector ETF or active management through a mutual fund. Also, as part of our investment philosophy we prefer to invest new capital into areas that are unloved or what I refer to as “Orphaned” and wait for the market to rotate capital into that area. With experience has come the understanding that while the broad indexes represent returns for a broad basket of stocks, under the surface there can be a lot of turbulence sector to sector and stock to stock. We want to position our clients where we believe the puck will be going and try to arrive there before the herd shows up and bids prices much higher. As I stated in our introduction, while we would normally not see geopolitical conflicts as a reason to adjust our investment thoughts and allocations, this outbreak in the Middle East is different. The damage already done to energy producing infrastructure in the Middle East will have lasting effects on energy prices/availability and other markets that rely on the distillate byproducts of refining. These areas of the market were not on our “Bingo Card” entering 2026. To start 2026, the world was largely well supplied with oil/natural gas, and we saw little need for prices to move much in the coming years. We felt there were better investment ideas especially in base and precious metals and we have positioned investments in gold and
uranium to reflect that opinion going back to 2024. However, with the current conflict we’ve seen world oil prices that have bolted from the mid/high 60s to roughly 100-110 a barrel as of this writing. Not only are prices higher, but due to the lack of transit of vessels out of the Strait of Hormuz, there are parts of the world notably in Asia that are having to move to rationing gasoline/diesel after only 5 weeks of conflict for fear they’ll run out of supplies altogether. The conflict has exposed the fragility of the world energy complex especially for Asia and to a lesser degree Europe as both rely heavily on oil, LNG and other distillates coming out of the Middle East.
Currently we are not chasing energy-related investments, the time to have owned them was before the conflict kicked off. In the current environment, speculators/momentum investors have piled in and what we know is as quickly as they can enter an area of the market, they can also quickly vacate. We have seen profit taking in energy names in recent trading sessions, which tells me investors are trying to book profits in the event we do reach a cessation of hostilities shortly as President Trump suggests. What we suspect is once the conflict ends, you’ll see a quick sell-off in energy related names and other parts of the market connected to energy that have run-up during the conflict – it’s at that time that an investor might want to consider accumulating names that could see elevated profits over the next 18-24 months. We believe President Trump is correct that prices will drop, but unfortunately, they will not go back to the pre-war range. We will see higher “Resting” prices on the back of this conflict until producers outside of the Middle East can ramp production up enough to fill the void left by Middle East production coming off-line.
Moving forward we believe countries will have to think long and hard about their energy and economic security – here are a few areas to watch for. 1) Oil Services Companies should be in a great position on the back of this conflict, not only will they need to help repair assets damaged in the Middle East but also to help producers outside of the Middle East conflict ramp up production to meet the global demand and fully capitalize on these higher prices 2) Independent Energy Producers – US companies are in a great position to capitalize on the export of LNG and crude oil 3) Infrastructure investments will be needed to repair what’s been damaged and also expand production elsewhere 4) Chemical Producers and Refiners, demand for these refined products will continue to demand high prices and profits for many quarters to come 5) Investment in Alternative Energy, whether it be Nuclear or Solar, Countries are being reminded on how dependent they still are on hydro-carbons to run their economies.
Private Equity as usual, didn’t move a whole lot in the quarter. The IPO market was not very active, but it’s been confirmed that Space X is filing a confidential S-1 to potentially go public this summer. If in fact it does go public, it may be the highest value IPO we’ve ever seen. The financials are still currently not available to the public, but I am curious to see them once the calendar is announced for their road show. While we like Private Equity as a long-term strategy to round out a client’s equity portfolio, we are not currently excited about adding new capital to the space and are satisfied to retain current allocations and watch developments as we move forward. There are a lot of privately held tech/software companies, and we would like to see how the landscape continues to evolve in this coming age of AI.
Real Estate
Returns in Commercial Real Estate continued their positive momentum from the end of 2025 into the new year. We have consistently shared with clients that we were seeing a turn to the positive in this area of the market and have been encouraging new investment for clients that we felt are under-represented in this space. One item we need to continue to watch is the rise we’ve seen in interest rates. When the Iran conflict kicked off the 10 yr. US Treasury was around 4% but in recent weeks, we’ve seen that rate move higher into the mid 4.4% area. Our expectations coming into the year were that rates would either hold or move lower throughout 2026, not move higher. While it’s possible these rates may move lower once the Iran conflict concludes, there are no guarantees that they will do so if inflation expectations remain elevated. For now, we are hopeful that interest rates will only prove to be neutral for the Real Estate sector rather than a headwind in 2026.
Debt
Infrastructure was a new addition to client portfolios starting Q1 of 2026, largely funded by capital that we redeemed out of Private Credit. With the attacks currently happening on a variety of Infrastructure around the Middle East – we are reminded of a few facets 1) It’s essential/important 2) You want to make sure you own assets that are not in areas prone to conflict. We do not believe our clients have exposure to the infrastructure being damaged in the Middle East because they are largely state-owned assets, but we will be following up for confirmation.
Debt markets, normally the most boring part of a client’s portfolio, have received more intention than we would like to start the year. With interest rates moving up, bonds of every credit risk have been lower due to duration risk/interest rate sensitivity. We have opted to stay shorter term and invested in very high-quality debt with our public market exposure. This approach has proven to be the best strategy to pursue in the current environment. Credit exposures in High Yield, Bank Loans and Preferreds have been selling off aggressively in recent weeks, we do not own any of these areas and have felt the credit spreads have been too tight to warrant allocation. Where we have been willing to take our credit risk for clients since the summer of 2022 has been in Private Credit. The financial media has had a field day stoking all kinds of panic in the sector for the last number of months, which finally came to a head here in Q1 on the back of a number of factors. This sparked redemption requests in these credit funds to spike aggressively higher in Q1. We had been mentioning to clients since late Q3 that it was time to reduce exposure to this part of the market – not because we believe credit Armageddon is waiting for investors but rather simply that returns would be lower in this asset class moving forward. We felt more comfortable with pivoting capital to real estate, infrastructure, real estate debt or simply adding cash back into the portfolio for more optionality which has come in handy given current market fluctuations. While we do not have a crystal ball on what will happen to the global economy on the back of the Iran conflict or what will happen with AI and its disintermediation of software/tech companies – what we know is that when you select your credit managers, it’s essential that they have a great underwriting process, because whatever can go wrong at some point will.
Digital Assets
As the saying goes – “The beatings will continue until morale improves” and this has been an absolute fact for crypto from Q4 2025 through Q1 2026. For those that truly believe in the longevity of crypto, 2026 may prove to be a great buying opportunity, but if the losses continue it will be interesting to see if the Institutional Investors who started to embrace crypto in 2024/2025 decide to stick around. It was hypothesized that their involvement would start to remove volatility from the asset class – the last 6 months have not proven that.
The global economy is currently going through another “Stress Test”. I thought the tariffs of last April could be tipping point for the global economy to choke off growth and the disruption for capital markets proved to be short lived. Could we see the same kind of bounce back with the end of the Middle East conflict? We certainly could, but I think it comes down to duration. If it ends shortly and energy prices can come down to more reasonable levels and more importantly the shipment of goods through the Strait of Hormuz can return to normal levels, perhaps the disruption to growth will be more mild and we’ll bounce back in a quarter to two. However, if the conflict is still raging 6 months from now with even more energy and other important infrastructure damaged with sky-rocketed energy prices, I can’t see how we are not in a global recession. It’s currently so difficult for investors to know what to do – which is why, for now we aren’t doing much – selling or buying but instead tracking markets closely and continuing to formulate possible plans. Markets are starting to anticipate (We believe) an end to the conflict in the near future – for all of us, let’s hope this proves to be right.
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This material should not be considered a recommendation to buy or sell securities or a guarantee of future results. Koa Wealth Management, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. More information about Koa Wealth Management, LLC can be found in our Form ADV Part 2, which is available upon request or by visiting our website at www.koawealth.com/disclosure. Past performance is not a guarantee of future results. All investment strategies have the potential for profit or loss; changes in investment strategies, contributions, or withdrawals may materially alter the performance and results of a portfolio. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client’s investment portfolio.
