The broad U.S. equity index is closing out its worst quarter in four years, reflecting an investor retreat driven in large part by inflation fears, uncertainty over the Iran war and concerns about the economic impact of artificial intelligence.
The benchmark S&P 500 .SPX is on track to drop about 7% in the first quarter of 2026, its worst since 2022, when markets were rattled by the Russia-Ukraine conflict and the after-effects of the pandemic. Among the noteworthy developments this time round: the surge in oil prices and a sharp pullback in the megacap technology stocks that led the post-COVID bull market.
Adding to investor jitters, U.S. Treasury bond yields have risen in recent weeks following a placid spell earlier in the first quarter. Investors who entered the year focused on the prospect of interest-rate cuts are now on the fence about whether they may see a more hawkish stance from the Federal Reserve, thanks to higher energy prices.
The yield on the U.S. 10-year notes US10YT=RR fell 10.4 basis points to 4.336% on Monday after last week approaching 4.50% for the first time in 2026, and exchange-traded funds tracking long-term U.S. Treasury debt are down around 1% for the year.
“The setup this year has been one where there’ve been increasing questions around what the rate cycle could be,” said Matt Orton, chief market strategist at Raymond James. “Inflation has been a headwind, more so than it has been over the past few years, in terms of wondering what the read-through would be from increased energy prices both in the U.S. and the global economy.”
Investor nerves over potential AI-driven disruption of software firms and heavy spending on AI infrastructure have contributed to the significant pullback in leading technology companies so far this year.
All the so-called Magnificent Seven companies – Nvidia NVDA.O, Apple AAPL.O, Alphabet GOOGL.O, Meta META.O, Microsoft MSFT.O, Amazon AMZN.O and Tesla TSLA.O — are down for the quarter, with the declines in Microsoft and Tesla on track to exceed 20%.
“We had the AI-disruption narrative start and impact the Mag-7 stocks and have that spread to financial and cybersecurity stocks,” said Chris Galipeau, senior market strategist from the Franklin Templeton Institute. “Software stocks were the epicenter of that. It started the unwind in big tech, which is where the pressure point is.”
Private-credit market jitters have spilled into equities as well, with some major funds capping withdrawals that to some observers echoed ever so slightly the early days of the 2008 financial crisis.
“Prior to the war, the two issues in the market were really the AI disruption and private credit,” said James Ragan, co-chief investment officer and director of investment management research at D.A. Davidson. “Venture capital industries have the most exposure and banks have exposure we don’t understand yet. And the feeling is there’s going to be some losses in those credit markets.”
The tariff policies of U.S. President Donald Trump’s administration against major trading partners have been a major source of market volatility as well, said Bill Strazzullo, chief market strategist at Bell Curve Trading in Boston.
“We’re in the process of putting in a major top and in the early innings of this. You shouldn’t be thinking about where to buy. You should be playing defense to protect profits,” Strazzullo said.
(Inputs from Reuters)
Zubair Amin is a Senior Journalist at NewsX with over seven years of experience in reporting and editorial work. He has written for leading national and international publications, including Foreign Policy Magazine, Al Jazeera, The Economic Times, The Indian Express, The Wire, Article 14, Mongabay, News9, among others. His primary focus is on international affairs, with a strong interest in US politics and policy. He also writes on West Asia, Indian polity, and constitutional issues. Zubair tweets at zubaiyr.amin
