Q2 Market Commentary: Volatility, War, and Valuation Discipline
14.04.26
The first quarter of the year served as a reminder that markets rarely move in straight lines and that uncertainty—while uncomfortable—often creates opportunity. What began with cautious optimism was quickly disrupted by escalating geopolitical tensions, led mostly by the outbreak of the war in Iran. In the background of the geopolitical flare-ups, further developments in the fast-moving field of artificial intelligence created additional volatility. While headlines fueled volatility across asset classes, markets once again demonstrated remarkable resilience. For investors who remained anchored to a long-term plan, the quarter proved that discipline continues to matter far more than prediction.
Economic data remained uneven, entering spring. Growth slowed modestly across developed markets, with consumer spending beginning to reflect the cumulative impact of restrictive monetary policy and elevated energy prices. Inflation, while easing from prior highs, remained sensitive to supply disruptions—particularly in energy markets. This will undoubtedly be a central story for 2026, as the impacts of elevated energy prices trickle through the economy. Central banks largely maintained a cautious stance, balancing the risk of slowing growth against the need to prevent a re-acceleration of inflation. Against this backdrop, equity markets experienced heightened volatility but avoided the systemic stress that often accompanies major geopolitical events.
The military conflict in Iran has reintroduced geopolitical risk as a dominant market narrative, particularly through its impact on global energy markets. History provides important context here. In prior Middle East conflicts—including the 1973 oil embargo, the Gulf War, and more recently, Russia’s invasion of Ukraine—markets initially reacted with sharp volatility, driven by uncertainty around energy supply and inflation. In most instances, however, equity markets stabilized once the scope of disruption became clearer and supply alternatives emerged.
The current conflict has followed a similar pattern. Oil prices surged as markets priced in the risk of supply disruptions through the Strait of Hormuz, a critical global energy corridor. Energy-importing regions felt the impact most acutely, while energy producers and exporters benefited from improved pricing and cash flow visibility. For our Canadian-based investors with energy exposure in their portfolios, the first quarter’s volatility was particularly muted. Importantly, while market volatility increased, history suggests that geopolitical shocks alone rarely derail long-term equity returns, unless they evolve into prolonged macroeconomic crises. Thus far, the global economy has demonstrated resilience, and corporate earnings—while pressured—have generally remained intact.
Equity performance during the quarter remained uneven. Markets continued to wrestle with elevated valuations in select growth segments, particularly where expectations remain stretched. The evolution of AI and the perception that it will negatively impact certain business sectors was a newish development. Software companies that were recently perceived to be beneficiaries of AI, traded lower as the narrative shifted to one of cannibalization. Many technology companies that have dominated the headlines in recent quarters have re-priced significantly. Smaller companies that typically exhibit more volatility when waters get choppy performed as expected. Fortunately, companies with durable business models and predictable cash flows began to attract investor attention. This is the area of the market our portfolios are most exposed to.
During the quarter, we took advantage of market volatility to initiate new positions in companies where we believe long-term fundamentals are not fully reflected in current valuations.
TFI International was added as a core industrial holding. As one of North America’s leading transportation and logistics companies, TFI benefits from a highly diversified operating model spanning less-than-truckload, truckload, and logistics services. While freight volumes softened amid slower economic growth, we believe the market has over-discounted near-term headwinds. TFI’s disciplined capital allocation, strong free cash flow generation, and history of value-accretive acquisitions position it well for margin recovery as freight markets normalize.
We also initiated a position in ConocoPhillips, reflecting our constructive view on high-quality energy producers. ConocoPhillips stands out for its low-cost asset base, strong balance sheet, and disciplined approach to shareholder returns. At conservative commodity price assumptions, the company generates substantial free cash flow, supporting dividends and share repurchases, while trading at a compelling valuation relative to its reserves and cash flow durability.
The balance of 2026 promises to be filled with anxiety-inducing headlines. Investors should expect higher levels of volatility and should be prepared for markets to react irrationally at times. We encourage investors to continue to view these potential dislocations as opportunities and not risks. Just as markets react negatively when headlines sour, they tend to react just as positively when issues are resolved. Remember, just like in 2020, as markets emerged from the COVID correction, by the time the coast is clear, the markets will have already long since recovered.
As always, our approach remains rooted in long-term discipline, valuation awareness, and diversification. By investing in high-quality businesses with durable cash flows and maintaining balance across asset classes, we aim to navigate uncertainty while positioning portfolios for sustainable long-term growth.
Plena Wealth Advisors
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