Sullivan Wealth Management Group – Q1 2026 Investment Letter

The first quarter of 2026 produced one of the most volatile and narrative-driven market environments in recent years. Global equities, fixed income, commodities, and currencies all felt the impact of resurgent geopolitical risk, lingering inflation concerns, and structural shifts in sector leadership. As a result, markets navigated sharply divergent forces — from risk-on rallies to risk-off shocks.

Escalating conflict in the Middle East — particularly involving Iran — dominated risk sentiment through most of the quarter. Supply disruptions around vital energy infrastructure and the Strait of Hormuz triggered recurrent volatility, pushing crude oil prices sharply higher and complicating inflation expectations and central bank policy outlooks. Investors responded with heightened risk aversion at times, seeking safe havens such as the U.S. dollar and quality fixed income, while at other junctures rotating back into risk assets on ceasefire optimism.

Persistent inflation concerns, exacerbated by energy price shocks, countered earlier market expectations for monetary easing. Major central banks, including the Federal Reserve and the European Central Bank, signaled that rate cuts might be delayed or moderated, keeping sovereign yields elevated and weighing on both equities and bonds during periods of tightening expectations.

Despite episodic stress, underlying global economic fundamentals — such as corporate earnings momentum and resilient consumer demand in select regions — provided intermittent support to risk assets. Divergence between macro data and geopolitical risk kept markets range-bound and reactive to news flows.

Global equities faced pressure over the quarter, with major indices producing modestly negative total returns. Rotational dynamics emerged as leadership shifted away from traditional growth and large-cap technology stocks toward value, cyclicals, and smaller caps. Defensive and commodity-linked sectors outperformed as investors recalibrated risk.

In fixed income (bond) markets, sovereign bond yields climbed over the quarter, particularly at the long end of the curve, as markets priced in both higher inflation persistence and delayed policy easing. Corporate spreads widened modestly amid issuance and risk repricing.

The U.S. dollar regained strength as geopolitical safe-haven flows strengthened, offsetting earlier weakness. Other currencies showed mixed performance based on country-specific economic and policy developments.

Crude oil prices saw significant gains during the quarter as supply disruptions and strategic bottlenecks around global export routes tightened markets. Energy prices quickly became a key driver of both inflation expectations and broader commodity price dynamics.

As we enter the second quarter of 2026, the market environment is expected to remain complex and information driven. Key themes for the coming quarter include:

• Resolution or escalation of geopolitical tensions and their impact on energy markets;
• U.S. inflation data and central bank communications shaping yield curves;
• Corporate earnings trends as a stabilizer for risk assets; and
• Selective opportunities in sectors benefiting from structural shifts (e.g., AI, industrial, energy transition)

We maintain a disciplined focus on long-term fundamentals, diversified risk management, and opportunistic positioning across regions and sectors.

If you wish to discuss any aspect of your quarterly report, please do not hesitate to contact Dan or myself.

Best Regards,

Paul Sullivan