During the first quarter there were two themes that affected portfolios: First, there was a rotation from large-cap technology stocks to dividend-paying stocks. And, of course, there was the war.
In 2025 the “Mag Seven” led stocks higher while most others had modest gains at best. That changed at the start of 2026. Last year’s laggards became this year’s leaders. The weakness in technology stocks pushed the tech-heavy Nasdaq Composite into “correction territory.”
While the S&P 500 fell seven percent in the first quarter through Monday, mid-cap and small-cap indexes were about unchanged. The Schwab Dividend Equity ETF (SCHD) was unchanged in 2025 but jumped about 11 percent in the first quarter. As a shareholder, last year’s performance was frustrating but I knew the tech-only stock rally was unsustainable.
As for the war, I’m not a military expert and I have no faith in stock experts on financial shows talking about Iran and our military. I do know that since the war began the market’s moves have reflected changes on the price of oil. When oil is up, stocks are down and vice versa.
Rising oil prices explain the market’s first quarter losses. Higher oil and natural gas prices raise the costs of producing and distributing most products. Much of that cost will be passed on to consumers. Some economists are forecasting an inflation rate of four percent or more. That would be a problem for stocks and for a new Fed governor who said interest rates should be lower.
Over the years I have said that investors are not demanding an adequate risk premium that reflects the realities in the Mideast. Before the war, the energy sector only had a two percent weighting in the S&P 500. Now it’s a still low 3.5 percent. Institutional investors were underinvested in oil stocks and are panic-buying now. Is it too late to buy? It may be mid to late innings for the oil majors, but not too late for the best infrastructure plays. Those are Williams, Oneok, Enbridge, and Kinder Morgan.
The world has learned of the importance of energy to power the global economy. With the power-hungry data centers and now the war in the Mideast, much of the attention is on oil and natural gas. They are in high demand and a shortage can cripple an economy. But all sources of energy are needed. That includes nuclear and solar. Only politicians think it’s one or the other. Businesses are more pragmatic and know that power can come from all sources.
David Vomund is an Incline Village-based fee-only money manager. Information is found at www.VomundInvestments.com or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial advisor before purchasing any security.
