Dear friends of Arcus Capital Partners,
Q1 2026 marked a sharp departure from the constructive tone that had defined much of the prior year. What began as a quarter rich in apparent tailwinds—expectations for multiple Fed rate cuts, ongoing asset purchases, stimulative fiscal policy, and robust earnings projections—gradually gave way to a market increasingly governed by short-term catalysts and policy signaling rather than improving fundamentals. U.S. equities moved effectively sideways for nearly five months before selling off into quarter-end on war-related weakness, with the S&P 500 finishing down 4.4% and the Nasdaq 100 down 5.9%, while small caps, equal-weighted indices, and international markets fared modestly better. Fixed income reflected the underlying tension: rate-cut expectations entered the year priced for three to four reductions, briefly flipped to pricing in hikes, and ultimately settled near no change—even as long-end yields tested levels apparently uncomfortable for policymakers. The dollar reversed an early-quarter slide to finish higher, helping tighten financial conditions, while commodities staged a decisive breakout led by an approximately 80% surge in crude oil following the closure of the Strait of Hormuz. Precious metals, despite a historic late-January silver crash and an uncharacteristic failure to behave as safe havens during the March escalation, still posted solid gains. Beneath the surface, inflation firmed, private credit showed early signs of stress, and the onset of the Iran war in March introduced a new—and far more consequential—driver of cross-asset behavior, leaving markets to defer rather than discount the economic impact of the shock by quarter-end.