Energy is the big story so far in 2026. First was the military incursion to snatch and extract Venezuelan President Maduro on 3 January and subsequent plans to control and redirect the flow of Venezuelan crude from China to U.S. refineries.
On 28 February the U.S. and Israel attacked Iran. The Strait of Hormuz was closed two days later. That changed everything. Not surprisingly that has rattled financial markets in a manner rarely seen. Shutting off 20% of the world’s oil, gas, LNG and fertilizer dislocates critical supply chains across the globe.
The longer it lasts the worse shortages will get. U.S. consumers are upset about big spikes in the price of gasoline but that is a minor irritation compared to the energy and food shocks now on the way to other parts of the world. Squint through the fog of war and it appears that the global energy map is being reconfigured right before your eyes.
Market returns for the first quarter of 2026: S&P 500 (-4.37%), Dow Jones 30 (-5.07%), NASDAQ (-5.6%), Bonds (-.4%) and Gold (+8%). Action inside the S&P 500 offers some valuable insight. After turbocharging index returns for the past three years the Mag 7 stocks have struggled in 2026. For the quarter they were all down from -6.2% for Apple to -21.5% for Microsoft. The big winner was the Energy Sector +38%. Old economy names like Dow +73%, Walmart +10.4%, Johnson & Johnson +18% and Newmont Mining +7% faired pretty well. It is just one quarter but the potential for change in market leadership is noteworthy.
Artificial Intelligence (AI) is still a huge theme in the economy and the market. The $650 billion boom in cap-ex spending – the biggest in 25 years - is almost all AI driven. Record spending on data centers and related power plants is really evident in the twelve-month stock winners.
Of the top 10 performing stocks in the S&P 500 as of March 31st, eight are key suppliers of components to the AI supply chains: SanDisk +1,234%, Western Digital +571%, Ciena +542%, Seagate +367%, Comfort Systems +329%, Micron +289%, Teradyne +260%, Corning +201%, Lam Research +196%, GE Vernova +186%. Such eye-popping 12 month returns show the magnitude of the cap-ex boom that the Mag 7 and its tech titans have unleashed in pursuit of AI. AI is the most energy intensive form of compute ever invented and America’s grid is now struggling to meet AI’s voracious appetite for electricity.
There is also a dark AI cloud hanging over the financial markets – what and who will AI disrupt? Some are pointing to the software industry and particularly the ‘software as a service’ (SAAS) business model. It turns out the latest AI agents like ChatGPT, Claude or Gemini have become very proficient at coding when properly prompted. Numerous highly regarded software stocks have suffered their own bear markets in recent months because of this perceived AI threat.
The software disruption threat has also spread to the financial sector and particularly private equity and private credit funds that have significant concentration in software companies acquired years ago. SAAS had been a favorite of private equity because of its asset light business models and recurring revenues. The fear of SAAS disruption has manifested as record redemption requests this year from private credit funds.
The 1st quarter of 2026 was eventful. Seven days into the 2nd quarter the fog of war is still very thick.
Ashby Foote III is President of Vector Money Management and serves on the Jackson City Council, Ward 1. He is on the board of Bigger Pie.
