Q1 2026 PSN Top Guns – Value Stocks Triumph During a Challenging First Quarter
The first quarter of 2026 proved to be a challenging period for investors, as markets grappled with multiple headwinds that fundamentally shifted the investment landscape. The quarter was dominated by three major themes: the Iran conflict and its impact on energy markets, concerns about AI disruption in the technology sector, and evolving Federal Reserve policy expectations.
U.S. equity markets experienced significant volatility during Q1 2026, with the S&P 500 index declining a -4.33% for the quarter. The technology-heavy Nasdaq 100 index fared worse, falling a -5.82% as investors reassessed the sustainability of AI-driven valuations. The Federal Reserve left interest rates unchanged during their March meeting as the Bloomberg U.S. Aggregate index fell a -0.05%.
The quarter witnessed a notable market rotation away from mega-cap technology stocks toward value-oriented investments. Value stocks outperformed growth stocks significantly, with large cap value (Russell 1000 Value index) gaining +2.10% while large cap growth (Russell 1000 Growth index) declined a -9.78%. Furthermore, value stocks experienced their largest 3-month period of outperformance compared to growth stocks since the dot-com bubble.
Software stocks bore the brunt of the selloff, with major names like Salesforce, Microsoft, and Adobe experiencing steep drawdowns from their recent highs. Investors scrutinized software companies’ ability to deliver returns against ever-increasing AI-related capital expenditures.
Additionally, investors were rewarded for investing in small caps as small cap value stocks (Russell 2000 Value index, +4.96%) were the top performing U.S. equity style. Below are some of the strategies that make up the PSN Top Guns Small Cap Value Universe:
The conflict in the Middle East also pressured international markets, however, foreign equities demonstrated relative strength compared to their U.S. counterparts. Energy stocks were the top performing sector due to the increase in oil prices. The MSCI EAFE index declined by -1.12%, while emerging market equities (MSCI Emerging Markets index) slightly outperformed with a modest -0.10% decline, despite facing challenges from Middle East developments. Technology based regions of Korea and Taiwan were the primary drivers of the emerging market outperformance.
Japan emerged as a standout performer, with the MSCI Japan index gaining 1.51% for the quarter. This performance was supported by yen weakness and the ruling Liberal Democratic Party's victory in February's snap election, which raised expectations for additional growth-boosting stimulus. The following strategies made the PSN Top Guns list for the Japan Universe:
The bond market experienced significant turbulence throughout Q1 2026, with government bonds selling off as higher energy prices fueled inflation concerns. The 10-year Treasury yield remained elevated above 4%, reflecting persistent inflationary pressures and uncertainty about Federal Reserve policy. The Federal Reserve maintained its target rate between 3.5% and 3.75% at its March meeting, marking the second consecutive pause. However, policymakers still signaled one potential rate reduction in 2026 and another in 2027, though timing remains uncertain given evolving economic conditions.
Short-dated bonds (Bloomberg U.S. Treasury: 1 – 3 Year index, +0.27%) outperformed long-dated bonds (Bloomberg U.S. Treasury: 7 – 10 Year index, -0.29%) as markets shifted expectations from anticipated rate cuts to potential rate hikes. The yield curve steepened to approximately 72 basis points between 2-year and 10-year Treasuries in early February before flatting at quarter end. Meanwhile, U.S. bonds (Bloomberg U.S. Aggregate index, -0.05%) outperformed foreign bonds (Bloomberg Global Aggregate index, -1.07%). Below are some of the strategies that make up the PSN Top Guns Core Plus Universe:
HomehomeOur Clientsexpand_moreWealth Managers Financial Advisors Asset Managers Trust Professionals RIAs Veterans
Inside Zephyrexpand_moreAsset Allocation Performance Portfolio Proposal Manager Screening Custom Reports Portfolio Analytics Risk Management Zephyr x Taylor & Francis Book Club Zephyr Training
PSN SMA Dataexpand_morePSN Overview PSN Top Guns PSN SMA Insights PSN Research Contribute to PSN Distribute PSN PSN eBooks PSN 2026 Poll
Zephyr Insightsexpand_moreAsset and Wealth Management Trends News and Insights
Podcastsexpand_moreA to Zephyr Podcast Zephyr's Adjusted for Risk
In the News Zephyr Newsletter About Us Contact Us
Q1 2026 PSN Top Guns – Value Stocks Triumph During a Challenging First Quarter
The first quarter of 2026 proved to be a challenging period for investors, as markets grappled with multiple headwinds that fundamentally shifted the investment landscape. The quarter was dominated by three major themes: the Iran conflict and its impact on energy markets, concerns about AI disruption in the technology sector, and evolving Federal Reserve policy expectations.
U.S. equity markets experienced significant volatility during Q1 2026, with the S&P 500 index declining a -4.33% for the quarter. The technology-heavy Nasdaq 100 index fared worse, falling a -5.82% as investors reassessed the sustainability of AI-driven valuations. The Federal Reserve left interest rates unchanged during their March meeting as the Bloomberg U.S. Aggregate index fell a -0.05%.
The quarter witnessed a notable market rotation away from mega-cap technology stocks toward value-oriented investments. Value stocks outperformed growth stocks significantly, with large cap value (Russell 1000 Value index) gaining +2.10% while large cap growth (Russell 1000 Growth index) declined a -9.78%. Furthermore, value stocks experienced their largest 3-month period of outperformance compared to growth stocks since the dot-com bubble.
Software stocks bore the brunt of the selloff, with major names like Salesforce, Microsoft, and Adobe experiencing steep drawdowns from their recent highs. Investors scrutinized software companies’ ability to deliver returns against ever-increasing AI-related capital expenditures.
Additionally, investors were rewarded for investing in small caps as small cap value stocks (Russell 2000 Value index, +4.96%) were the top performing U.S. equity style. Below are some of the strategies that make up the PSN Top Guns Small Cap Value Universe:
The conflict in the Middle East also pressured international markets, however, foreign equities demonstrated relative strength compared to their U.S. counterparts. Energy stocks were the top performing sector due to the increase in oil prices. The MSCI EAFE index declined by -1.12%, while emerging market equities (MSCI Emerging Markets index) slightly outperformed with a modest -0.10% decline, despite facing challenges from Middle East developments. Technology based regions of Korea and Taiwan were the primary drivers of the emerging market outperformance.
Japan emerged as a standout performer, with the MSCI Japan index gaining 1.51% for the quarter. This performance was supported by yen weakness and the ruling Liberal Democratic Party's victory in February's snap election, which raised expectations for additional growth-boosting stimulus. The following strategies made the PSN Top Guns list for the Japan Universe:
The bond market experienced significant turbulence throughout Q1 2026, with government bonds selling off as higher energy prices fueled inflation concerns. The 10-year Treasury yield remained elevated above 4%, reflecting persistent inflationary pressures and uncertainty about Federal Reserve policy. The Federal Reserve maintained its target rate between 3.5% and 3.75% at its March meeting, marking the second consecutive pause. However, policymakers still signaled one potential rate reduction in 2026 and another in 2027, though timing remains uncertain given evolving economic conditions.
Short-dated bonds (Bloomberg U.S. Treasury: 1 – 3 Year index, +0.27%) outperformed long-dated bonds (Bloomberg U.S. Treasury: 7 – 10 Year index, -0.29%) as markets shifted expectations from anticipated rate cuts to potential rate hikes. The yield curve steepened to approximately 72 basis points between 2-year and 10-year Treasuries in early February before flatting at quarter end. Meanwhile, U.S. bonds (Bloomberg U.S. Aggregate index, -0.05%) outperformed foreign bonds (Bloomberg Global Aggregate index, -1.07%). Below are some of the strategies that make up the PSN Top Guns Core Plus Universe: