US Capital Market Newsletter – 1Q26

US markets in 1Q26 turned more defensive as a geopolitical shock and rising inflation pressures weighed on sentiment. Equity performance was increasingly selective, with Non-US markets continuing to outperform on stronger exposure to cyclicals and commodities, while US returns were held back by Mag 7 valuation compression and narrow sector leadership outside energy. Fixed income conditions stayed broadly stable, with yields in a modestly higher range and credit spreads widening only slightly. Growth slowed noticeably, as services PMI moved into contraction and the labour market softened despite steady decline in unemployment. Inflation picked up again on higher oil prices and stayed above the Fed's target, supporting expectations of a longer policy pause and raising concerns around a possible stagflation scenario.