Market downturns, oil and valuations are key themes in the first quarter
Redacción Mapfre
Quarter Letter by Boyar Asset Management
The first quarter of 2026 served as a reminder of a fundamental market truth: equity markets rarely move higher in a straight line. Against a backdrop of elevated valuations, weakening consumer confidence, and a sudden deterioration in the geopolitical environment, the market correction experienced during the period should not have come as a surprise.
Most major U.S. equity indices declined over the quarter. The S&P 500 fell by 4.6%, breaking a three-quarter winning streak and marking only its third negative quarter since 2022. The Dow Jones Industrial Average declined 3.6%, while the Nasdaq dropped 7.1%, its steepest quarterly fall since the first quarter of 2025. By contrast, the Russell 2000 index of smaller-cap companies was a relative bright spot, posting a modest gain of 0.6%.
Other asset classes experienced pronounced moves as well. Gold rose 7.4% during the quarter, although it remains well below its late-January peak. Bitcoin futures fell 22%, marking their second consecutive quarterly decline. Energy prices, however, dominated headlines: West Texas Intermediate crude surged 77% and Brent crude rose 95%, underscoring the impact of geopolitical disruption on global energy markets.
Signs of broadening market leadership
Beneath the surface of headline indices, the quarter revealed potentially meaningful shifts in market dynamics. Large-cap stocks, particularly those that have dominated performance in recent years, struggled, while smaller companies held up comparatively better. The equal-weighted S&P 500 outperformed its capitalization-weighted counterpart, historically a signal that market leadership may be broadening.
Although small-cap stocks continue to lag large caps significantly over longer time horizons, their relative outperformance over the past year suggests that extreme market concentration may be starting to ease. History shows that such transitions can occur swiftly, and periods of prolonged dominance by a narrow group of companies often give way to broader participation. While history does not have to repeat itself, investors should remember that markets rarely function the same way indefinitely.
Reassessing the AI investment narrative
Artificial intelligence was one of the defining themes of the quarter, though sentiment around it became notably more nuanced. Investors increasingly questioned whether the massive capital expenditures being directed toward AI infrastructure would ultimately generate adequate shareholder returns. Microsoft illustrated this tension well. On the one hand, advances in AI threaten to erode the value of traditional software products; on the other, Microsoft is committing extraordinary sums to build the infrastructure required for the next phase of technological growth.
These concerns weighed heavily on share prices. Microsoft fell 23.5% during the quarter — its steepest decline since the financial crisis — while the broader software sector experienced even larger losses. Investors began to consider whether AI could represent not only an opportunity for software companies, but also a competitive threat to their core businesses.
Not every selloff creates value
Despite the sharp correction, the firm reiterates that a stock’s decline does not automatically render it attractive. Even high-quality businesses can suffer permanent setbacks if their economics or competitive positions deteriorate. The key distinction for investors lies in identifying whether market dislocations are temporary or whether they reflect lasting impairment.
In periods of rapid selloffs, investors are often tempted to buy indiscriminately where the importance of disciplined fundamental analysis, especially when structural change may be altering industry dynamics, makes a significant impact.
Growing attention on private credit
Market stress was not limited to public equities. Concerns also emerged in private credit — a fast-growing segment where non-bank lenders provide financing outside the traditional banking system. Several high-profile borrower bankruptcies resulted in losses for certain private credit funds, raising broader questions about credit quality and underwriting standards. The technology and software selloff amplified these concerns, as investors became more aware of the sector concentration within some private credit portfolios. Redemption requests followed, prompting some funds to impose withdrawal limits.
While such measures are designed to prevent forced asset sales, they also contributed to heightened investor anxiety. The firm expects additional problems to surface in private credit but believes the current environment differs meaningfully from the subprime mortgage crisis of 2008. Asset quality, leverage levels, and systemic interconnectedness all appear materially different. Nevertheless, this remains an area warranting close observation.
Geopolitics, oil, and market volatility
The most dramatic development of the quarter was the outbreak of military conflict between the United States, Israel, and Iran. The immediate economic impact was felt most acutely in energy markets, after Iran sought to disrupt traffic through the Strait of Hormuz — a critical artery for global oil supply.
Energy stocks emerged as the strongest-performing sector, while technology, financials, and consumer discretionary stocks underperformed. Although a ceasefire was later announced and markets rebounded, the situation remains fragile. History suggests that wars alone rarely cause prolonged bear markets; sustained downturns typically stem from deeper economic or financial imbalances. As such, we caution against overinterpreting short-term market reactions to geopolitical events.
Valuation and the risk of a “quality” premium
Beyond short-term volatility, valuation remains the central issue for long-term investors. The recent pullback in some of the market’s most admired companies has reinforced a recurring lesson: a great company does not always make for a great investment if purchased at too high a price. Historical episodes such as the “Nifty Fifty” of the 1970s and the late-1990s market bubble demonstrate how excessive enthusiasm for perceived quality can result in years of disappointing returns, even when underlying businesses remain strong.
Today, several highly regarded companies trade at valuations that leave little margin for error. This does not imply they are poor businesses, but rather that future returns may be constrained.
Looking beyond crowded trades
Periods of intense focus on perceived safety often create neglect elsewhere in the market. Some of the most compelling long-term opportunities can be found outside the most crowded segments, where expectations are lower and valuations more reasonable.
Examples cited include Madison Square Garden Sports, whose ownership of premier sports franchises may be undervalued by public markets, and Uber, where near-term cash generation and strategic positioning may be overshadowed by longer-term concerns about autonomous vehicles
Discipline in Uncertain Times
The quarter underscores the importance of patience and discipline during periods of heightened uncertainty. Headlines were dramatic, market crosscurrents were real, and the urge to react was understandable. Nevertheless, the firm reiterates its long-held approach: maintaining a long-term perspective, focusing on valuation, and remaining indifferent to short-term noise.
Environments such as the current one often provide fertile ground for disciplined investors willing to look beyond prevailing consensus. While risks remain, so do opportunities for those prepared to stay the course.
