Q1 2026 Market Outlook

MARKET OUTLOOK

The first few months of 2026 have been bumpy for global markets, driven by a complicated mix of global tensions and economic news. Adding to this are concerns about the disruptive, and in some cases existential impact of artificial intelligence on certain business models. Specifically, the introduction of new AI driven tools has led to a material decline in the stocks of many established software companies.

Fundamental questions remain over which companies will stand to benefit from AI, which may be displaced, and whether the returns on investment justify the scale of infrastructure investment. More broadly, what does this transformation mean for jobs, communities, the environment, and society overall?

The transition will take time to play out. We are likely to see some volatility in the market along the way, but also some compelling investment opportunities will arise. There is already sufficient evidence to conclude that AI will help with and sometimes replace many personal and professional tasks, but we believe the degree of change will be gradual and more measured than some fear.

As the quarter progressed, geopolitical tensions emerged as another source of uncertainty. The military attack on Iran by the U.S. and Israel extended beyond the administration’s initial expectations, contributing to regional oil supply disruptions and a sharp surge in oil prices, climbing above $100 per barrel. The Persian Gulf is responsible for 20% of global oil shipments, increasing the risk of global economic strain as higher oil prices lead to rising inflation and dampening demand. This further complicates the decisions of central banks that have been grappling with inflation, while trying to maintain economies which are largely still humming.

Launching a strike on Iran was a terrible strategic choice which has caused death and destruction and is risking trapping us in a war with further catastrophic consequences. At the same time, global corporate earnings for the fourth quarter of 2025 extended their streak of strong performance, underscoring the persistent divergence between Wall Street and Main Street.

Earnings have been supported by substantial investment in artificial intelligence, as well as a resilient U.S. economy which continues to benefit from a healthy labor market and relatively contained inflation. However, elevated prices are placing increasing strains on lower-income households. Despite solid earnings, the combination of elevated market valuations and the economic and geopolitical factors noted above contributed to a slight decline in market returns during the quarter.

In this environment, our investment focus remains on diversification across regions and economic sectors, quality business models that can endure systemic shocks, and the disciplined pursuit of our clients’ long-term financial objectives.

Impact Update

Our Q1 2026 Impact Update covers a quarter defined by regulatory rollback and active ownership. We examine the SEC's quiet dismantling of corporate disclosure requirements, our ongoing shareholder engagements with Home Depot and Microsoft on data privacy and human rights, and three investor sign-on letters touching gender equity, platform worker rights, and due process. As regulatory oversight recedes, our job — asking hard questions and staying in the room — becomes more important, not less. To read more, see www.zevin.com/news-views/q1-2026-impact-update

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