Q1 2026 Market Recap: What Actually Happened

In this episode, Tim breaks down what actually happened across global markets, why investor sentiment has shifted, and how similar this year looks to past market cycles. More importantly, he explains why short-term volatility might not mean what you think it does for your long-term plan. 

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The information shared on The Dollars & Sense Podcast is general in nature and does not consider your individual circumstances. Dollars & Sense exists purely for educational purposes and should not be relied upon to make an investment or financial decision. Tim Ellis (FSP778196) and Brodie Haggerty (FSP778174) are both Financial Advisers providing advice on behalf of FoxPlan Ltd. FoxPlan Ltd (FSP39630) is a licensed Financial Advice Provider. Important information can be found at www.foxplan.nz/disclosure 

Transcript

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First quarter of 2026 is done and dusted. What's the damage? What's really happened? What effect has it actually had? Welcome back to another episode of the Dollars and Cents Podcast. As per usual, you're listening to myself, which is Tim Alice, a qualified financial advisor working with a firm in Wellington called Foxplan. Now, the purpose of this podcast is to increase the financial literacy of our listeners. Just before I get underway with this week's episode, I want to be very clear once again, everything we're going to talk through today is educational in nature. It is not designed to be specific financial advice. We highly recommend you seek the relevant professional before making any major financial decisions. With that out of the way, uh, as mentioned in the intro, the first quarter of 2026 is done and dusted. Before getting into the nitty-gritty of what's actually happened, what's occurred, and what the damage is, uh I I wanted to start this episode by perhaps explaining that throughout this whole year, as I've sat down with clients and uh and held annual reviews, I quite often ask, uh, near the start of the meeting, I ask clients to describe how do you feel about your current cash flow, your cash management, your income and expenditure. More often than not, no matter what the case is, the responses are usually negative in nature or negative in origin. Maybe it's a the Kiwi way of talking and communicating, the old, uh, you know, how long is this going to be? Well, not long, instead of saying short. Yeah. How are you? Not bad instead of saying I'm good. Um I guess what I'm getting at is the responses that I'm getting to those questions again, they're more often negative in nature. They'll sound along the lines of, we used to be doing better. Um, or we could be doing better. You know, we've we've gone adrift a wee bit. Uh, we feel a wee bit exposed to uh risk at the moment. When I ask them how they feel about their current net worth position and their their debt position, again the responses are more often they're not negative by nature or or negative in origin. They're they they sound like uh, you know, we think we're tracking okay, but we could be doing better. Or, you know, we should be doing but better than we really are. Or um we probably need to be doing something a bit different if we want to be in a better position. It it seems to me that human nature is drawn to focus on what could be better, or or looking at things from negative side far more often than the positive side. And more often than not, the time period or the that they're that they're reflecting on to deduce their answer is it's most often a rather short time period. What I'm getting at there is if they just had a large expense or you know, finally achieved one of their goals, went on a large holiday, and depleted the whole holiday fund, or uh if they took on new debt by uh investing in an additional property, they would quite often focus on that to frame how they're feeling right now, which was something in quite a short time period. And if you look over the whole financial planning journey, uh just a minor blip on the map. However, that's where they're drawing their current feelings from. For clients that have just had a large expense or or taken on new debts, I I can be almost certain their response to those questions will be negative in nature. You know, these questions are always asked prior to actually reviewing uh an updated net worth sheet or their current budget and their income and expenditure or any kind of real data for that matter. The questions are designed to help me understand how they're currently feeling rather than how they actually are progressing. You know, their long-running spreadsheets and and and the data that's been collected over a decade will tell me exactly how they're tracking. I want to know how they're feeling. If I ask similar questions regarding financial markets that actually affect their investments, their responses seem to come from the same mindset. Despite however they've performed, despite how much they've grown over how long time period, when asked, they will focus to a shorter time period and almost certainly be negative of uh in nature. They'll often sound like, you know, they were going really well, but uh, we're starting to see some potential trouble ahead. Or, you know, I've stopped looking because I just know that what's going on lately is is probably affecting them quite negatively. Now, to to address these concerns, I I found that what first must be done is actually an examination of facts. Now, I I know, I know that responding to an emotional response with a logical response is it's no way to resolve the any emotional feeling. And I I'll get to addressing that uh in in time, don't worry. But prior to addressing that, I think a very useful exercise is can be to actually just take a look. You know, it can be useful to examine the reality of things before ever considering so what should we do about that? With that being said, uh, let's look at the first quarter of 2026. It's now done, dusted, it's it's part of history. Um, the media has told us what it's looked like, and allow me to add to that. Um, then I'm gonna share some stats to put this all into perspective. And with any luck, I might just be able to change how some of my listeners might be feeling about 2026 so far. So there's an absolute plethora of data I could have used to look at to sum up in a very short podcast episode, what's happened in the first quarter of 2026. What I've decided to use is three indices. The SP 500, the Nasdaq, and the MSCI World Index. So if we uh take a look at how those three indices have performed over the first quarter of 2026, the SP 500 was down 5% in the first quarter, NASDAQ down 9%, the MSCI World Index down 5%. If we get away from just looking at performance and returns and actually take a look at forward price to earning ratios, which have been uh r very high compared to the past, after the first quarter, the SP 500 uh price to earning ratio is down 10%, the NASDAQ down 9%, and the MECI World Index down 8%. Now that might sound a bit doom and gloomy, but what was really interesting to me and what paints a very different picture is when we actually start to examine the earnings of all three of those indices over the quarter, the earnings have not changed very much at all. In fact, in in some cases, they've actually grown over that quarter. If we look at the dividends paid within all three indices, again, almost no change, between 0 to 2% change over the quarter. Obviously the dividend yield has increased, but that's purely by the price of the companies going down. If dividends are gonna stay the same, but the price of shares goes down, then obviously the yield goes up only by nature. Negative returns over any time period, be it one day, one month, or one quarter, they're always unsettling. However, these movements that I've just explained are definitely not uncommon. They happen very often. And in fact, I actually went back and looked at um the exact data of the first quarter 10 years ago, which would have been 2016. What was really interesting is when I compared the first quarter results of 2016 to the first quarter results of 2026, they were almost identical. In fact, I'll give you the numbers. The SP 500 was down 5%, NASDAQ was down 9%, exactly the same. Uh and the MECI World Index was down 6%, 1% different from the numbers I just gave you before. Again, looking at the forward price to earnings, SP 500 was down 6%. It's only 1% different to this year. The Nasdaq was down 10%, again, 1% different. MSCI World Index down 6%. So almost identical. And again, what was almost identical is uh that the the dividends paid and the earnings of those indices were almost completely unchanged. However, the joy of looking at 2016 is we have a whole year of data there. So even though it had an identical start to what we've just seen, how did that year end up? Well, the SP 500 over the whole year ended up having a 9.5% positive return. The NASDAQ had a 7.5% positive return for the year, and the MSCI World Index had an 8% positive return over the year 2016. So that first quarter, it wasn't a fundamentals problem, it was a sentiment problem. If earnings haven't changed, dividends haven't changed, fundamentals of valuing a company has not changed, why have prices dropped? To answer that, I think if you asked a thousand different financial advisors to answer that question, you would likely get a thousand slightly different answers. You'd get a few crazy responses as well, I have no doubt. But let's look at a few facts, indisputable facts, about what's actually happened in 2026 that could have uh affected investor incentive. Obviously, there's the big one, there's the Iran war. What was breaking out in the Middle East and the conflict involving Iran and the Strait of Hamas uh disrupted, oil surging to above$100 per barrel. Uh, there's US dollars, of course. You know, it's one of the largest oil supply shocks in in history. Why has that changed sentiment? Uh markets shifted from, you know, inflation is coming down was the market sentiment towards the end of 2025. Now that's turned into inflation might be coming back. Central banks have expected to keep rates higher for m longer. There's a bit of a pattern uh that that could be observed here. Uh before 2026, rate cuts were coming, was the sentiment. Inflation is falling. Growth was optimistic. Uh, people were willing to pay much higher multiples for shares. Uh, price to earning ratios were very high after the first quarter. That's all shifted to rates might be higher for longer. Inflation is uncertain once again. Growth of these uh big tech companies is now questionable. Uh instead of being comfortable paying higher multiples, we we might be more cautious. Alongside the Iran conflict, investors were, you know, also dealing with uh uh unresolved war in Ukraine, uh, ongoing concerns around China's growth, um, shifting central bank signals and political uncertainty in the US. None of these alone broke the market, but together they have changed how confident investors felt about the future. But is this time different? To answer that question, I want to use a chart that I found. It was a mind-boggling chart. I'll I'll make a link to it in the show notes. What this chart uh is showing is between 1950 and the year 2025, so 75 years of data, the SP 500 has experienced an annual drawdown of nearly 14%. I I'll repeat that. Between 1950 and 2025, the SP 500 has had a drawdown, meaning prices have fallen on average by 14% sometime throughout the year. The most notable one was 2009. So the global financial crisis was in fact. And within the year 2009, the SP 500 had a drawdown of negative 27%. Yet at the end of 2009, when the year was all said and done, the SP had managed to uh finish the year on a positive return of 26.5%. 100% of the years on record here, you know, 1950 to 2025, had a drawdown throughout the year. Not once in any calendar year has the market ever only gone up. In other words, all of the positive return years in the last 75, there's been a drawdown at some point of the year. So far in 2026, we've seen a drawdown of about 7%, which is only half the average observed in every other year of those 75 years on record. 17 out of those 75 years ended with a negative return. That means under 23% of those 75 years ended negatively. And obviously that means 77% of those years ended in a positive return, despite having drawdowns twice as large as the drawdown we've noticed in the first quarter of 2026. Having heard that, and uh hopefully if you have a chance to see the chart, you could make the argument that the the logical side of how you should or could feel might be answered. But as mentioned earlier, it does not answer the more um emotional side of why do people feel the way they do. Besides the time-specific answers to that question, there there are, of course, situational considerations. Um, you know, that'll be specific to each person's situation. Uh what I'm getting at there is people that are nearing retirement, they might just start feeling differently uh towards investments and and their financial arrangements because they have a retirement looming and that's now prominent in their mind and in and shifting the way that they're thinking about things. They could be uh recent investors or people that have very recently heavily increased the number of assets they have invested, either from the sale of a property or sale of business or perhaps an inheritance received, those investors now all of a sudden feel like they have more on the line and therefore the the shocks of the market volatility are more impactful. But that's based on their current situation or a newly found situation that they are finding themselves in. There are investors that may have uh ignored advice of being diversified and might be overly concentrated in particular assets and and therefore likely do have a reason to be concerned. But aside from situational reasons for the overwhelmingly negative attitude towards the first quarter of 2026 that I've observed, my hypothesis on the contributing factors to why people might be feeling more negative now than before, it's based on the common response I get when I'm actually asking my clients, why are you why are you feeling nervous or more apprehensive than normal about your investment? Almost every time I've asked that this year, the answer has been along the lines of geopolitical tensions, oil prices, um, President Trump. President Trump is mentioned in my office more than our own Prime Minister, or or any other Prime Minister for that matter. The fact of the matter is the world has has never seen a US president as active on social media before, as outlandish with words chosen. Um a market that actually reacts so sharply based off 250 characters used on social media. It's completely unprecedented. It's it's unseen before to this degree, and it's more in your face than ever before. As we're more and more people adopt social media and the the more often it's referenced uh in our news, in the newspaper, it's becoming more prominent in our face. The impact has hit oil prices uh more or less directly. It's hitting us at the pump. And that means if every single time you go to put fuel in your car or drive past and observe the new prices uh outside the petrol station, you're being reminded right there and then from a real number, a real figure that actually hits your bank account of what's actually happening in the world right now as this episode is being recorded. It's in your face. You are hearing about it all the time. To share a crazy stat that I actually saw on social media myself, uh, get your head around this one. The the post depicted a uh a headline in a New Zealand newspaper that said the price of 91 fuel has surged to$2.14 a liter, as the price of oil has surged to$140 US dollars per barrel. Right now, the price of oil per barrel is hovering around$100 US and we would be uh jumping with joy if we saw$2 uh uh for a liter of petrol at the pump at the moment. Look, if there's anything I want listeners to take away from this week's episode, uh for listeners that are currently accumulating, which um, you know, I'm I'm getting at people that are regularly contributing to a well-diversified, low-cost investment fund, uh rejoice in market volatility. So far this year, you've been buying the same great companies that you were buying last year, but at a 5% discount. Don't be afraid if you get to keep buying at an even larger discount. For those that are relying on their investments now to fund their lifestyle, so long as you had a robust plan, a financial plan that accounted for market volatility, providing your goals have not changed, the current events do not suggest your plan needs to or should change either. This time is no different. I hope that's proved as a useful reflection on the first quarter. Uh, I look forward to doing uh a reflection on the end of the second quarter. Who knows what that might sound like. As for this week, that's usually