What Happened in Q1 2026

After three consecutive years of strong gains, global equity markets entered 2026 with momentum, the S&P 500 reached a record high near 7,000 on January 9. That optimism proved fragile. A convergence of geopolitical escalation, new tariff regimes, and a structural repricing of technology stocks produced a volatile quarter, with the S&P500 finishing Q1 down approximately 4.3% from its January peak.

United States

Tariffs, Tech Repricing & Relief Rally

The U.S. Supreme Court struck down the broad IEEPA tariffs from 2025, but the administration responded with a flat 10–15% global tariff, rattling consumer and auto sectors. Simultaneously, software stocks experienced a structural de-rating as agentic AI disrupted per-seat licensing models. A late-March diplomatic ceasefire signal in the Middle East sparked a sharp 6% relief rally, but the durability of that bounce remains in question at time of writing.

Canada

Navigating Trade Uncertainty & Supply Shocks

The Bank of Canada held its policy rate at 2.25% at both its January and March meetings, caught between softening growth, GDP contracted 0.6% in Q4 2025, and rising energy-driven inflation risk. Most Canadian exports remain duty-free under CUSMA exemptions, and elevated oil prices are providing a meaningful tailwind for Alberta and Saskatchewan. A partial trade truce with China on canola and seafood offered additional relief to Western producers.

Client Experience

Q1 returns across six pools ranged from slightly negative to nearly 6%, with diversification providing downside resilience amid geopolitical and tariff-driven volatility. Strategic Growth led, up 5.8% in Q1 and 16.3% over the year. Real Asset and Strategic Income posted positive returns, Fixed Income was flat, and Canadian and Global Equity pools delivered modest Q1 gains alongside strong trailing performance.

Strategy Spotlight

DigitalBridge AI Infrastructure

An investment in four large AI-focused data centers , Vantage North America (hyperscale, US/Canada), Vantage EMEA (hyperscale, Europe), Switch (private cloud, US), and DataBank (cloud edge, US), each targeting ~25% of the portfolio at Value-add returns.

The Central Question

Shock or Regime Change

The central question for 2026 is whether Q1’s supply shock marks a temporary disruption or a durable regime shift. The Fed is weighing tariff-driven inflation against a softening labour market, with one to two rate cuts priced in but highly data-dependent.

History shows that geopolitical corrections are often short-lived if underlying corporate fundamentals remain sound, and right now, nine of eleven S&P 500 sectors are expected to report positive earnings growth for Q1. Canada’s outlook is bifurcated. Energy-producing provinces, particularly Alberta and Saskatchewan, are benefiting from high oil prices and excess pipeline capacity, while Ontario and Quebec face softer growth amid U.S. trade headwinds. The BoC remains on hold, with its next move hinging on whether energy-driven inflation broadens or stays contained.

AI Earnings Must Deliver

The market’s patience for AI capex without clear returns is fading. Q1 earnings will be the first real test: revenue conversion will matter more than spend. As the AI value chain widens, adopters are expected to outperform hyperscalers.

Broadening Beyond Mega-Cap

The equal-weighted S&P 500 hit all-time highs entering March, signaling a broadening rally. A cyclical rotation into financials, industrials, and materials is underway, supported by resilient consumers and improving small-business sentiment. Capital is also flowing into developed international markets, especially Europe and Japan.

Geopolitical Risk Premium

Middle East tensions and ceasefire durability will drive near-term oil volatility. Energy infrastructure, traditional and renewable, is being revalued as a strategic asset, strengthening the case for infrastructure as a core private-market allocation.

Private Credit: Still the Foundation

While public fixed income sold off in Q1, private credit remained resilient. First-lien yields of 8–8.5% still offer an attractive premium over liquid credit. European mid-market lending, Kinsted’s focus, provides wider spreads and historically lower default rates than comparable U.S. strategies.

The Opportunities

Infrastructure

Digital needs, energy transition, and aging physical systems are converging simultaneously. Digital infrastructure, data centers, fiber, semiconductors, and cell towers, has become as essential as traditional networks. Power grids face unprecedented strain as electricity demand accelerates. Valuations remain below historical peaks, making entry points attractive relative to public equities.

Real Estate

Commercial real estate has turned the corner. After hitting bottom in Q3 2024, the sector posted consecutive quarters of positive returns. The U.S. needs an estimated 4 million additional homes by 2029. With homeownership costs running nearly twice those of rental costs, demand flows into multifamily, student housing, senior living, and build-to-rent communities, structural drivers, not cyclical ones.

Private Equity

Private equity enters 2026 with strong momentum. Improving exit markets and substantial dry powder are creating attractive opportunities to invest in companies of the future. Growth equity and late-stage strategies targeting AI, space, and frontier technologies are expected to deliver compelling upside, with access to transformative names such as SpaceX, Anthropic, and similar innovators before they reach public markets.

International Equities

In contrast to the narrow, expensive U.S. equity market, international developed and emerging markets trade at significantly more reasonable valuations with less concentration risk. This spread in valuation and geographic diversification represents a meaningful opportunity for long-term investors willing to look beyond the seven mega-cap technology names that have dominated recent performance.
The landscape favors selectivity over breadth, quality over momentum, and patience over market timing. Thoughtful allocation, careful manager selection, and discipline remain the foundation of Kinsted’s long-term investing philosophy.

Regards,

Kinsted Wealth

1 Investing.com. Where Will the S&P 500 Be in 2026? December 2025.

2 Yahoo Finance. Wall Street’s 2026 Forecasts — Some See S&P 500 Hitting 8,000. December 1, 2025.

3 CNN Business. What to Expect from Stocks in 2026. January 1, 2026.

4 TheStreet. Wall Street Analysts Share S&P 500 Outlook for 2026. December 2025.

5 Hamilton Lane Data via Cobalt. Private equity distribution data. October 2025.

Regards,
Kinsted Wealth