Markets stall, but there's strength in strategy 

What you need to know

• The S&P 500 had stalled this year through February as tech tumbled, then rising geopolitical tensions added a layer of uncertainty.
• Outside of U.S. tech, a broad set of global stocks produced solid gains, and bonds were higher too, before markets weakened into March as investors weighed potential impacts of the conflict in the Middle East.
• The potential for market volatility can feel stressful, but there's strength in a proactive, well-diversified, goal-focused investment strategy built to help you navigate uncertainty according to your risk and return objectives.
• Pause to remember why you're investing since your financial goals—not headlines—should guide your strategy, then review your portfolio for alignment with an opportunistic mindset.
• We believe the global outlook remains constructive over the next one to three years, and we favor a mix of quality and cyclical stocks across regions to help manage risk and capture broad opportunities.

Portfolio tip

Plan proactively by having a goal-focused portfolio strategy in place that accounts for periodic market declines, helping you remove emotions when times feel uncertain.

Where have we been?

The S&P 500 had stalled through February, then rising geopolitical tensions added a layer of uncertainty. Following a multi-year period of above-average returns exceeding 18% annually, it was no surprise to see the S&P 500 taking a pause in the first two months of the year—markets don't always move in a straight path higher.

A wave of headlines and uncertainty related to global relations, trade and tariff policy, central bank developments, and the potential growth of or disruption from artificial intelligence had caused some of the market's angst. Though, 2026 began with a solid backdrop—strong corporate earnings, steady economic growth, and lower interest rates—that helped offset some of these concerns. Through the last trading day in February, the index was essentially flat year-to-date.

However, rising geopolitical tensions added a layer of uncertainty heading into March. Markets weakened as investors weighed potential impacts of the conflict in the Middle East, such as the potential for rising energy prices and affordability concerns, with the situation remaining fluid.

Beneath the surface of the S&P, a meaningful market rotation was taking place. Tech-heavy sectors—information technology, consumer discretionary, and communication services—have powered market gains in recent years, fueled by strong profits and growth optimism surrounding artificial intelligence (AI). But over the first two months of 2026, these sectors fell amid growing concerns around elevated valuations, the potential pay off from large capital spending, and business disruptions. That shift weighed on the tech-heavy S&P 500.

In contrast, a strong fundamental backdrop and a market rotation toward more value-oriented stocks propelled cyclical and defensive sectors higher. Consumer staples, industrials, materials, utilities, and energy all climbed more than 10% before the geopolitical uncertainty trimmed some of the gains.

Market strength outside the S&P 500 provided a tailwind for well-diversified portfolios heading into the early-March weakness. While the S&P stalled, U.S. small- and mid-cap stocks—generally more economically sensitive and value-tilted than U.S. large caps—continued to trend higher amid the economy's position of strength.

International markets were also taking the lead. While the U.S. dollar has stabilized after a decline that boosted international returns in 2025, expansionary fiscal policies and looser monetary policies abroad contributed to their leadership through February. Emerging-market stocks, whose large tech sector continued to deliver gains, were up over 15%. Developed-market international stocks aren't far behind, posting around 10% gains prior to weakening amid the rising tensions in the Middle East.

Interest rates were drifting lower, driving the total return from bonds higher for bondholders. The 10-year yield slipped below 4% in February, before rising in early March. Shorter-term rates also trended lower, with an additional Federal Reserve rate cut or two still possible later this year. Therefore, bondholders benefited on two fronts: ongoing interest income and rising bond prices as interest rates declined. Together, these forces helped lift total returns in bond markets, before weakening into March.

What do we recommend going forward?

Strengthen your strategy by proactively establishing your game plan for market volatility. Headlines and the potential for market volatility can cause stress when it comes to investing. But having a strategy in place that accounts for market declines can help you stay proactive and remove emotion when times feel uncertain. We suggest these steps:

1. Revisit your goals. Pause for a moment to remember why you're investing in the first place. Your financial goals—not headlines or geopolitics—should guide your strategy, giving purpose to your investments.
    
2. Define your strategy. Balance risk and reward by selecting the stock-bond mix that aligns with your goals and investment objectives, which will help you navigate the market fluctuations that will occur on your journey. And diversify. Why? Because market leaders rotate, as this year has shown. Set strategic target allocations across our recommended asset classes to spread risk and create a solid foundation for your portfolio.
    
3. Review your portfolio with an opportunistic mindset. Ensuring your portfolio allocations are aligned with your strategy helps keep you focused on your goals no matter the market narrative. What's more, downturns may provide opportunities to rebalance into quality investments at better prices, including in areas that have already appeared attractive.

We believe the global outlook remains constructive over the next one to three years, and we favor a mix of quality and cyclical stocks across regions to help manage risk and capture broad opportunities.

• Within the U.S., we prefer large- and mid-cap stocks. While geopolitical risks continue to evolve, we view a diversified set of U.S. stocks as a core equity holding over the long term, offering growth potential to help protect your spending power against inflation, and we believe solid fundamental growth drivers for U.S. stocks remain intact.
  
  Despite the potential for periodic market volatility, we expect lower interest rates, supportive tax policy, the AI-related infrastructure buildout, and steady labor markets and consumer spending to help U.S. stock momentum regain steam over the course of the year. Overweighting U.S. large- and mid-cap stocks can help uphold the quality of a portfolio while capturing the market leadership-broadening impacts of these growth drivers as they play out over 2026.
   
• Beyond the U.S., consider overweighting a mix of cyclical stocks globally. We believe international stocks are also a key equity holding over the long term, offering growth to protect spending power, higher income potential, and diversification benefits.
  
  International developed-market stocks provide exposure to the United Kingdom, the Eurozone, and Japan. We expect they'll benefit from increasingly supportive monetary and/or fiscal policies, as well as the potential for a flat-to-weaker U.S. dollar over time. In these markets, we favor small- and mid-cap stocks over large caps for their more cyclical nature and relative valuations.
  
  Emerging-market equity has led markets recently and continues to offer relatively attractive valuations. The asset class may benefit from fiscal support, its substantial technology exposure, and the potential for an additional Federal Reserve rate cut or two later this year.

For investors seeking income and stability, bonds still matter, despite our underweight view overall. While equities present compelling opportunities given our constructive outlook, maintaining appropriate bond allocations remains essential for generating income, managing volatility, and enhancing diversification. When managing your bond portfolio, consider:

• Balancing maturities. Longer-term bonds typically offer higher yields, but shorter-term bonds offer greater stability and less sensitivity to rising rates. A balanced mix of maturities may prove beneficial as interest rates fluctuate around shifting inflation, growth, and monetary policy expectations. Though, we continue to expect the 10-year yield to stay largely in the 4% - 4.5% range for most of 2026.
   
• International exposure. With interest rates diverging across regions, adding global bond allocations alongside U.S. bonds can help manage credit and interest rate risks, improving diversification. Therefore, while we expect U.S. and international investment-grade bonds to produce similar returns over the long term, we believe international allocations can help reduce overall portfolio volatility. We also view emerging-market debt as a diverse asset class offering enhanced long-term income potential when compared to that of investment-grade bonds.

We’re here for you

Staying disciplined, goal-focused, and diversified are key to creating a proactive game plan to navigate headlines and the potential for market volatility, but you don't have to build your strategy alone. Talk with your financial advisor about strengthening the foundation of your portfolio. Together, you can identify adjustments designed to help you stay on track even during what may feel like the most uncertain of times.

If you don’t have a financial advisor, we invite you to meet with an Edward Jones financial advisor to discuss what matters most to you, and the steps you can take to build a personalized portfolio based on your needs.

Strategic portfolio guidance

Defining your strategic investment allocations helps keep your portfolio aligned with your risk and return objectives, and we recommend taking a diversified approach. Our long-term strategic asset allocation guidance represents our view of balanced diversification for the fixed-income and equity portions of a well-diversified portfolio, based on our outlook for the economy and markets over the next 30 years. The exact weightings (neutral weights) to each asset class will depend on the broad allocation to equity and fixed-income investments that most closely aligns with your comfort with risk and financial goals.

Diversification does not ensure a profit or protect against loss in a declining market.

Opportunistic portfolio guidance

Our opportunistic portfolio guidance represents our timely investment advice based on current market conditions and a shorter-term outlook. We believe incorporating this guidance into a well-diversified portfolio may enhance your potential for greater returns without taking on unintentional risks, helping keep your portfolio aligned with your risk and return objectives. We recommend first considering our opportunistic asset allocation guidance to capture opportunities across asset classes. We then recommend considering opportunistic equity style, U.S. equity sector and U.S. investment-grade bond guidance for more supplemental portfolio positioning, if appropriate.