“In the short run, the market is a voting machine, but in the long run it is a weighing machine.”
– Warren Buffett (adapted from Benjamin Graham)
From an investor’s perspective, March was a month to forget. All of the equity indexes we follow – both domestic and international – posted negative returns. International indexes were hit harder than US-based indexes. Strength in both commodities, up 20% for the month, and the US Dollar, can be directly associated with the military conflict with Iran. The Aggregate Bond Index fell almost 2% as interest rates turned higher for the month.
All data as of 04/01/2026, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
March was one of those months investors would prefer to file away and move on from. Returns were broadly negative, sentiment took a hit, and the headlines didn’t help. Periods of heightened military activity have a way of shaking markets, at least temporarily, and this episode was no exception. For many investors, the experience feels unsettling—sharp moves lower always do. But there is another way to interpret what’s happening beneath the surface. Today’s market isn’t just reacting to geopolitical noise; it’s also working through a set of underlying shifts that may ultimately prove constructive for long‑term investors.
Let’s start this analysis with a look at the overall stock market. Chart #1 is a weekly chart of the S&P 500 that starts at the beginning of 2023. The current “correction” is not insignificant at around 9% off the highs. As the chart shows, over these 3 years, this is the third significant correction. Just as important, the uptrend does not appear to us to have been broken.
Chart #1: www.stockcharts.com Data 01/02/2023 – 03/31/2026 as of 04/04/2026. An index is not managed and not available for direct investment. MA 13 = 13-week moving average MA 40= 40-week moving average
From a big picture perspective, the current drawdown is common. In 2025, for example, the S&P 500 had a 19% drawdown on the way to a return of 18% for the year. And as you can see in Chart #2, there are many years where a 10% or greater drawdown occurs.
Periods like March tend to expose something fundamental about investor behavior: markets may move on data, but people move on emotion. When headlines turn negative and portfolios pull back, the instinctive response for many is to retreat and wait for “clarity.” That impulse is completely human – but it’s also the reason so many investors miss the early stages of recoveries or leadership shifts. Recency bias plays a powerful role here. After years of mega‑cap dominance and relatively smooth market advances, any bout of volatility feels like a signal that something is breaking. The underlying fundamentals become irrelevant.
The challenge (and the opportunity) for investors is to recognize that discomfort is often a feature of healthy market transitions, not a warning sign. Leadership changes rarely feel good in real time because they require letting go of what worked yesterday and embracing what may work tomorrow. We preach about the need to have a disciplined, long‑term investment framework. In moments like these, the most valuable action is often staying committed to a strategy that’s built to weather uncertainty rather than reacting to it.
Chart #2: Wells Fargo Investment Institute Chart Pack April 2026
Market Leadership Rotation: What’s Driving the Rotation and Why Does it Matter
The current disruption in the stock market tied to the Middle East situation happens to coincide with a larger shift in the stock market. For more than a decade, the stock market has been dominated by the largest companies, particularly those in the technology space. Asset allocation¹ – spreading out your investable assets among different types of investments and investment classes – has underperformed the major stock market indexes. For many investors, investing became about owning an S&P 500 index fund. For the more aggressive, it could be an ETF invested in the NASDAQ 100. In narrow markets, it is easy to see how an investor could make such a decision.
In 2025, with follow-through so far in 2026, the top-heavy nature of the stock market appears to have shifted. Asset allocation has started to work well again. The rotations we have seen include:
- Small‑ and mid‑caps showing early signs of sustained leadership (see Chart #3)
- Value factors reasserting themselves after a long growth‑dominant cycle
- Sector breadth improving—why that historically supports healthier bull markets
- International markets in Europe and Japan are showing relative strength vs. the US
- Emerging Markets benefiting from a weaker dollar trend and improving valuations
Leadership rotations tend to be uncomfortable as they challenge the patterns investors have grown comfortable with. When a handful of familiar names stop leading, and previously overlooked areas begin to outperform, it can create the impression that something is “off” in the market. However, this discomfort is often a sign that the market is broadening out – spreading opportunities across more sectors, styles, and company sizes. Do not expect it to be smooth. It involves volatility, mixed signals, and moments where the old leaders falter before the new ones fully take hold. But historically, these transitions have laid the groundwork for healthier, more durable market cycles, not the end of them.
Chart #3: www.stockcharts.com Data 04/01/2025 – 03/31/2026 as of 04/04/2026. An index is not managed and not available for direct investment. MA 50 = 50-day moving average MA 200 = 200-day moving average
Final Thoughts: What should you be doing?
As the market works through this leadership rotation, we believe the most important thing investors can do is stay grounded in a thoughtful asset‑allocation framework. If your portfolio is already well‑diversified and aligned with your long‑term goals, ignoring short-term volatility and staying the course remains the most effective strategy. At the same time, this is also a good moment to take a fresh look at your allocation and ask whether it’s positioned for what appears to be the new reality – not the one that dominated the last decade. Markets evolve, and portfolios should evolve with them. Aiming to ensure that your investment mix reflects both your objectives and the current opportunity set is far more productive than reacting to short‑term volatility.
It’s equally important to confirm that your investment risk still matches your true risk tolerance. Periods of market discomfort have a way of revealing whether the risk you’re taking is the risk you’re actually comfortable with. For those nearing or already in retirement, this is a natural time to revisit income planning, withdrawal strategies, and the stability of your cash‑flow needs. The goal isn’t to overhaul your plan—it’s to make sure the plan still fits. A disciplined review, grounded in your long‑term objectives, helps ensure that your portfolio is prepared for the next phase of the market cycle while keeping your financial life on steady footing.
As always, we’re here to help you navigate the path ahead—whether it’s updating your plan, rebalancing your portfolio, or thinking through the next chapter of your financial journey. If you have questions or want to explore your options, don’t hesitate to reach out.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
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Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.All investing involves risks including the possible loss of principal invested. Past performance is not a guarantee of future results.
Index returns are not fund returns. An index is unmanaged and not available for investment.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted index of 30 “blue-chip” industrial U.S. stocks.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
S&P Midcap 400 Index: The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between the S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
S&P Small-Cap 600 Index: The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size, liquidity (bid-asked spread, ownership, share turnover and number of no trade days) and industry group representation. It is a market value-weighted index (stock price times the number of shares outstanding), with each stock’s weight in the index proportionate to its market value.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
MSCI World Index: The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.
MSCI EAFE® Index: The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The CRB (Commodity Research Bureau) Index measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodities trades.
Bloomberg Barclays U.S. Aggregate Bond Index: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
NASDAQ Composite Index: The NASDAQ Composite Index measures the market value of all domestic and foreign common stocks, representing a wide array of more than 5,000 companies, listed on the NASDAQ Stock Market.
Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents.
U.S. Dollar Index (USDX) measures the value of the U.S. dollar relative to majority of its most significant trading partners. The index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.
Technical analysis is only one form of analysis. Investors should also consider the merits of Fundamental and Quantitative analysis when making investment decision. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the bond’s price. Credit risk is the risk that the issuer will default on payments of interest and/or principal. The risk is heightened in lower rate bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Investing in commodities is not suitable for all investors. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors including changes in supply and demand relationships, weather and acts of nature, agricultural conditions, international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies which may expose investors to additional risks, including futures roll yield risk.
Robert I. Cahill, Partner Rob.Cahill@wfafinet.
Jonathan D. Soden, Managing Partner Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner Susan.Shupp@wfafinet.com