Markets Exit Q1 on a High Note Amid War Jitters. What About Q2?S&P 500SP:SPXTradingViewS&P 500🔻4.6%, Nasdaq🔻7.1%, Dow Jones🔻3.6% It's January. Economic growth is accelerating, the Federal Reserve looks ready to cut rates further, the AI boom still has runway. The mood is genuinely good. Then, on February 28, the United States and Israel launched strikes on Iran, and the mood left the building. 📅 The Quarter That Wasn't Q1 2026 will not be remembered fondly in most portfolios. The S&P 500 SPX fell 4.6% for the quarter, the Nasdaq IXIC dropped 7.1%, and the Dow DJI slid 3.6%. All three posted their worst quarterly performance in nearly four years. The Nasdaq fell into correction territory on March 26, meaning it had dropped more than 10% from its recent peak, a threshold traders watch closely as a sign that selling has become more than just a bad week. The Dow joined it a day later. Since the conflict began, oil prices have surged 63%, bond yields have climbed sharply, and the S&P 500 has erased all gains accumulated over the previous seven months. Gold XAUUSD had an identity crisis of its own. It was, by most measures, an exhausting quarter to be invested in anything. 🕊️ Tuesday's Glimpse of an Off-Ramp. Glimpse. And then, on the very last trading day of March, markets got something they had been waiting weeks for: a hint that the war might end. President Trump told aides he is willing to conclude the conflict without the full reopening of the Strait of Hormuz, the narrow waterway that handled roughly a fifth of global energy flows before the conflict effectively closed it. Reports circulated through the session that Iran could be open to ending hostilities as well. Markets, starved of good news, responded immediately. The S&P 500 climbed 2.9%, the Nasdaq surged 3.8%, and the Dow advanced 2.5%, a gain of 1,125 points in a single session. It was the best day of the year for all three indexes. It also came on the last day of the quarter, which is the market's way of reminding you that timing is rarely clean. And then Wednesday was all right and then Trump decided to give a speech and crashed futures markets Thursday. 🏦 The Fed's Vanishing Act One of the quieter but more consequential shifts of the quarter happened in the interest rate market. Before the conflict broke out roughly a month ago, traders were pricing in nearly an 80% chance of two Fed rate cuts by year end. Rate cuts are life to stock investors because lower rates reduce the return available on safer assets like bonds, making stocks relatively more attractive, and they tend to reduce borrowing costs for companies, supporting earnings growth. Those odds have collapsed to less than 5%. With oil prices surging and energy costs feeding into inflation, the Federal Reserve finds itself in an uncomfortable position: a slowing stock market on the one side and a reigniting inflation risk on the other. 💰 What Q2 Is Watching The second-quarter earnings season opens with two main points of focus. The big banks on Wall Street report earnings next week, and their results will offer the first structured look at how corporate America navigated a quarter of geopolitical shock, rate uncertainty, and market volatility. After that comes the main event. The Magnificent Seven, the group of mega-cap technology companies including Apple AAPL, Microsoft MSFT, Nvidia NVDA, Alphabet GOOGL, Amazon AMZN, Meta META, and Tesla TSLA that dominated market returns for the past two years, will report in the weeks that follow. Their numbers will reveal how the AI infrastructure buildout is holding up under pressure, what’s next and current for spending, and whether the earnings growth that justified sky-high valuations is still intact. 🧭 The Setup Heading In Q2 begins with cautious optimism and a long list of unresolved questions. A ceasefire that holds would send energy prices lower, relieve inflation pressure, and potentially reopen the rate cut conversation. A ceasefire that collapses would do the opposite, quickly. The underlying economy, before the war, was in reasonable shape. That foundation has not disappeared. But markets spent Q1 learning that good fundamentals and bad geopolitics can occupy the same moment simultaneously, and that when they do, geopolitics tends to win the first few rounds. Off to you: Do you see Q2 as a good time for a turning point or the perfect place for another rollercoaster ride? Share your views in the comments!