I hope you are well and enjoying the first tastes of spring. The daffodils and redbuds are blooming here in Asheville, but the financial markets are certainly putting a damper on things. Let me take a few minutes to share my thoughts on what’s happening, why, and how I’m thinking about it.

The S&P 500 closed yesterday at 6,506 — roughly 7% below its all-time high of just over 7,000, set on January 28th. The tech-heavy Nasdaq is down more, falling close to correction territory (defined as a 10% decline from recent highs), and the small-cap Russell 2000 index officially crossed that threshold on Friday.

Clearly, the primary driver of recent market stress is the U.S.-Israeli military conflict with Iran, which began on February 28th. Oil prices, which were near $70 a barrel before the conflict, spiked as high as $120 in the first week and have been hovering around $100–$110 since. U.S. gasoline prices have surged roughly 75 cents per gallon in just three weeks.

No one likes a downward-trending market. But here’s an important perspective: if someone had told me a month ago that we’d see a shooting war in the Persian Gulf, the Strait of Hormuz effectively closed, oil prices up 50–60%, and attacks on energy infrastructure across the Middle East, I would have predicted a much steeper decline in equities than what we’ve experienced. A 7% pullback in the S&P 500 under these circumstances is an indicator of the underlying strength of the U.S. economy and corporate America.

The headline indexes are masking a tremendous amount of rotation happening underneath the surface. The mega-cap technology stocks that have led the market higher for the past few years — particularly software names and semiconductor/AI-related companies like NVIDIA, Micron, and Qualcomm — are bearing the brunt of the selling. On Friday alone, NVIDIA fell 3%, and several chip stocks declined 5–8%.

Meanwhile, other parts of the market are performing quite well. Energy stocks are benefiting from higher oil prices. Utilities had their best month in years (February), rising 10%. Industrials and materials stocks have been strong, with both sectors posting gains of 20%+ over the past three months. Healthcare and consumer staples — classic defensive sectors — have also held up well.

One data point that captures this rotation nicely: the S&P 500 Equal Weight Index (which gives every stock in the index the same weighting, regardless of size) has been significantly outperforming the traditional market-cap-weighted S&P 500 for most of this year. That tells me the average stock is doing much better than the headline index suggests. The weakness is concentrated in the mega-cap tech names that carry outsized weight in the index.

Further, the just-completed Q4 2025 earnings season was very solid. According to FactSet, the S&P 500 reported year-over-year earnings growth of approximately 13.2%, marking the fifth consecutive quarter of double-digit growth. Revenue grew about 9% — the strongest rate since mid-2022. Profit margins hit a record 13.2%. These are not the numbers of an economy in trouble.

Looking ahead, Q1 2026 earnings reports begin next month. Analysts are currently projecting earnings growth of roughly 12.5% for the first quarter, and full-year 2026 growth of about 16%. There has been some modest trimming of near-term estimates — the first downward revisions in over a year — but the magnitude is well within normal historical ranges and not yet cause for alarm.

As I’ve said many times before: watch corporate earnings, because as earnings go, so goes the market. Right now, the earnings picture remains healthy. The upcoming earnings season will be critically important because it will be the first to reflect the impact of the Iran conflict, higher energy costs, and any changes in corporate or consumer behavior that may result.

While I am feeling positive about where we are to date, there are clearly risks ahead:

  • How long does the war last? The conflict is now in its fourth week with no clear resolution in sight. The White House has indicated it could continue for several more weeks. The longer it persists, the more damage it does to energy markets, supply chains, and global confidence.
  • How long do energy prices stay elevated? Even if the war ends tomorrow, oil prices won’t normalize overnight. Damaged infrastructure needs repair, shipping lanes need to be cleared, and tanker companies and their insurers need to regain confidence in the safety of the Strait of Hormuz. This process could take weeks or months.
  • At what point do higher energy prices begin to change consumer and corporate behavior? The University of Michigan Consumer Sentiment Index just fell to 55.5 — its lowest reading of the year and is close to its all-time low. Consumers are already feeling the pinch at the gas pump. If this persists, it will eventually flow through to reduced spending on other goods and services, which in turn could slow economic growth and corporate earnings.
  • The Federal Reserve is in a difficult position. Inflation concerns from higher energy prices make it unlikely the Fed will cut interest rates anytime soon, removing one potential source of market support. The fed funds rate remains at 3.50–3.75%, and markets have largely given up on rate cuts in the first half of 2026.

Times like these are precisely why we invest the way we do. Portfolios are built around high-quality, dividend-paying companies that also buy back their own shares — things that companies do that reward shareholders. These are businesses with strong balance sheets, durable competitive advantages, and the ability to navigate difficult environments. Historically, these types of stocks hold up better during periods of uncertainty and market stress, and the data this year supports that pattern. The broad market’s resilience outside of mega-cap tech is encouraging, and the fundamental earnings backdrop remains solid.

I am watching the situation closely and will be in touch if something changes. The upcoming earnings season will provide crucial information, and I will be paying very close attention to what management teams are saying about the impact of higher energy costs on their businesses and outlooks.

If you have questions or would like to chat, please get in touch.