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TD Wealth Perspectives Newsletter: Spring 2026
SECURITIES AND INVESTMENTS |
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|---|---|---|---|
NOT A DEPOSIT |
NOT FDIC INSURED |
NOT BANK GUARANTEED |
MAY LOSE VALUE |
SECURITIES AND INVESTMENTS |
|
|---|---|
NOT A DEPOSIT |
NOT FDIC INSURED |
NOT BANK GUARANTEED |
MAY LOSE VALUE |
Neal Brandon, CFA
Senior Investment Strategist, TD U.S. Wealth Chief Investment Office
The first quarter of 2026 saw a shift in market leadership alongside renewed geopolitical uncertainty. After a strong run late last year, financial markets paused as investors rotated away from technology-heavy areas toward a broader mix of sectors and asset classes.
U.S. equity performance was mixed for the quarter. The S&P 500 Index declined modestly as momentum faded in large technology stocks, with investors reassessing the costs and uncertainties surrounding artificial intelligence (AI) adoption. While short-term concerns weighed on valuations, we believe the long-term productivity potential of AI remains intact.
At the same time, other areas of the market proved more resilient. Certain segments, including value-oriented large-cap equities, and smaller cap companies posted gains despite elevated volatility. This rotation highlights a key market reality: leadership changes over time, reinforcing the importance of diversification.
Fixed income returns were largely flat for the quarter. Government bonds outperformed corporate and high yield issues, reflecting a preference for higher quality assets amid rising uncertainty. While overall returns were subdued, bonds continued to play an important stabilizing role within diversified portfolios.
Late in the quarter, escalating conflict in the Middle East pushed energy prices sharply higher. Disruptions to key supply routes revived inflation concerns and reduced expectations for near-term interest rate cuts, contributing to increased market volatility.
In this edition of Perspectives, the TD Wealth Asset Allocation Committee provides insight into recent market developments, highlighting areas of both caution and opportunity as investors head into the second quarter of 2026. In addition, TD Wealth’s Head of Financial Planning and Retirement, Mark Hasenauer, examines key considerations when developing a financial plan for individuals with special needs.
Looking ahead, markets may remain uneven. Maintaining discipline, diversification, and a long-term perspective remains essential – while markets may be quick to react, investors don’t need to be.
TD Wealth Asset Allocation Committee
Key Insights:
- Markets pulled back over the first quarter. Volatility rose, driven by slower growth, near‑term inflation pressures, and geopolitical tensions, but declines were relatively contained
- Inflation pressures appear temporary, largely linked to energy supply disruptions rather than weakening demand, with broader impacts dependent on how long elevated prices persist
- Fundamentals remain supportive, with resilient earnings expectations, improved valuations, and opportunities emerging across equities, fixed income, and alternatives
Global equity markets pulled back over the first quarter of 2026 as volatility increased, marking a shift from the strong, above‑trend gains seen in prior periods. This decline reflects a combination of moderating economic growth, renewed near‑term inflation concerns, and heightened geopolitical risks. While market conditions have become more unsettled, the equity selloff to date has been relatively modest by historical standards, especially given the scale of geopolitical uncertainty. Importantly, from the TD Wealth Asset Allocation Committee’s (the WAAC) perspective, the broader economic backdrop remains constructive, and the weakness appears more consistent with a period of consolidation than a disorderly repricing, as markets give back a portion of earlier gains.
Exhibit 1: Global Market Returns (USD)
|
3 mths |
1 yr |
3 yrs |
5 yrs |
10 yrs |
|
|---|---|---|---|---|---|
|
Bloomberg U.S. Aggregate Bond Index |
-0.05% |
4.35% |
3.63% |
0.31% |
1.70% |
|
S&P 500 TR Index |
-4.33% |
17.80% |
18.32% |
12.06% |
14.16% |
|
MSCI EAFE Index (Europe, Australasia, Far East) |
-1.24% |
21.27% |
13.62% |
7.91% |
8.38% |
|
MSCI Emerging Markets Index (Emerging Markets) |
-0.17% |
29.55% |
14.84% |
3.69% |
7.80% |
Source: Morningstar Direct. As at March 31, 2026.
In our view, this year's inflation concerns are best characterized as a near-term shock rather than a lasting structural shift. Renewed price pressures are largely tied to energy related supply disruptions, including higher oil and natural gas prices, with spillover effects into commodities such as fertilizers and metals. These pressures are not the result of overheating demand, but rather temporary supply constraints. That said, if elevated energy prices were to persist for an extended period, particularly beyond six to twelve months, the risk of broader economic impacts would rise, including pressure on corporate earnings, consumer purchasing power, and global growth expectations.
Global growth is slowing, but it is doing so from a position of relative resilience. Labor markets, especially in the U.S., remain firm, corporate balance sheets are generally healthy, and economic activity has yet to show broad signs of strain. Taken together, these metrics support the view that we are seeing a moderation from earlier momentum rather than the onset of a broad based downturn. However, a more protracted geopolitical conflict could test market resilience by tightening financial conditions, increasing uncertainty around supply chains, and weighing on confidence—particularly in regions more exposed to energy imports.
Overall, financial markets are adjusting to this environment. Bond markets have repriced as expectations for interest rate cuts have been pushed further out, resulting in higher yields and a more challenging backdrop for fixed income. Meanwhile, the pullback in equities over the quarter has helped improve valuations for the S&P 500 Index, enhancing the risk reward trade-off for investors. Encouragingly, the fundamental growth outlook for stocks remains supportive, with earnings expectations for 2026 holding up well, and consensus still pointing to strong corporate earnings growth for U.S. equities, represented by the S&P 500 Index (Exhibit 2).
Exhibit 2: Actual and Expected Earnings Growth
Source: Source: TD Asset Management, FactSet, as at March 25, 2026
This resilience reflects continued strength in corporate profitability, stable revenue growth, and the fact that current inflation pressures have yet to meaningfully disrupt demand. Leadership within the S&P 500 Index has also begun to broaden in 2026, with a rotation away from a narrow group of dominant names toward a wider range of sectors and industries. This is an important signal as markets adapt to an evolving environment (Exhibit 3).
Exhibit 3: S&P 500 Index Sector Weights and YTD Relative Returns
Source: Bloomberg Financial L.P. As of March 31, 2026
The Federal Reserve and other global central banks remain cautious, balancing near-term inflation risks against signs of moderating growth and, for investors, this backdrop underscores the importance of discipline and diversification. As markets recalibrate and leadership expands, our current market phase appears less like a turning point and more like a transition toward a more balanced investment landscape.
Opportunities are emerging across asset classes, spanning equities, fixed income, and alternatives, as relative valuations adjust and return prospects evolve. This broad opportunity set is explored further in the sections that follow, where we outline our outlook across the major asset classes. In summary, while downside risks have increased, should the conflict in the Middle East become more prolonged or broaden regionally, the current base case continues to assume a manageable macroeconomic impact, with longer term inflation expectations remaining relatively well anchored.
Q2 Asset Class Commentary and Outlook
The following section provides a more detailed review of the WAAC’s current positioning and outlook across the primary asset classes, along with key considerations for the next 12–18 months. As of the end of the first quarter of 2026, overall positioning reflected a modest overweight to Equities and a modest underweight to Fixed Income. Below, we outline the rationale behind this positioning and share our outlook for each asset class over this period.
Equites – Modest Overweight Overall
After a strong 2025, global equity markets have experienced increased volatility during the first quarter of 2026 (Q1 2026) amid geopolitical developments and shifting interest rate expectations. Despite this more challenging backdrop, earnings fundamentals have generally remained resilient, which is an important driver of equity market returns over time.
U.S. equities experienced some pressure over Q1 2026, which has led to a more defensive market tilt. Concerns around Artificial Intelligence (AI) disintermediation, the pace of interest rate cuts being pushed out, and uncertainty related to the escalating geopolitical environment have weighed on sentiment. That said, S&P 500 Index earnings expectations have held up well, with continued AI growth and some broadening across other sectors and by market capitalization (i.e. small caps performing better). Valuations have moderated as risks have been priced in.
International developed markets present a more mixed picture. Europe has shown signs of cyclical softening, particularly in manufacturing and industrial activity, while Japan has benefited from improving corporate governance and currency dynamics. Overall, valuations in international markets remain less demanding than in the U.S., though regional economic momentum continues to diverge.
Emerging markets had been showing improving fundamentals earlier in the year, with broadening growth and better market breadth. More recently, geopolitical tensions and U.S. dollar strength have introduced volatility. However, select emerging markets—particularly in Asia—continue to benefit from structural growth drivers in AI and more attractive valuations.
Overall, while near term uncertainty has increased, global equities continue to be supported by resilient earnings, more balanced valuations, and selective opportunities across regions. Active positioning and regional diversification remain key as markets adjust to evolving macro and geopolitical conditions.
Key Opportunities:
- Earnings expectations have remained resilient, despite macroeconomic and geopolitical uncertainty
- Rising dispersion across regions and sectors is creating opportunities for selective equity positioning
- Recent volatility has moderated valuations, improving risk reward profiles for disciplined investors
Fixed Income – Modest Underweight Overall
Fixed income markets have faced renewed volatility as interest rate expectations shifted and geopolitical risks intensified. While bonds have not provided the same level of diversification seen in prior risk-off periods, recent repricing has begun to improve income opportunities across several segments of the market.
Treasury securities have come under pressure as expectations for near-term rate cuts have been pushed out. Yield curves have flattened, and real yields remain positive, reflecting markets that are still cautious about inflation risks. Importantly, longer term inflation expectations have remained relatively anchored, suggesting that markets view recent price pressures as more temporary or supply driven. As yields have moved higher, Treasuries are becoming more attractive from an income and valuation perspective, particularly for investors able to extend duration selectively.
In investment grade corporate bonds, spreads have seen some widening. This revaluation has been driven by increased issuance, uncertainty around private credit markets, and tightening financial conditions. While near-term price volatility has increased, credit fundamentals remain relatively sound, and higher all-in yields are attracting income-oriented investors. Selectivity remains key, with opportunities emerging in higher quality issuers where balance sheets and cash flows are resilient while valuation cheapened.
High yield bonds have also seen spread widening given heightened scrutiny around private credit and leveraged structures have contributed to a more cautious tone. While defaults remain contained, investors are increasingly focused on credit quality and liquidity.
Overall, the recent adjustment across fixed income markets has improved prospective returns. As yields reset higher and inflation risk gradually priced in, bonds are regaining their role as a source of income and portfolio stability, with active management essential to navigate evolving risks and opportunities.
Key Opportunities:
- Selective opportunities are emerging in credit markets where recent spread widening reflects technical pressures rather than deteriorating fundamentals
- Longer term inflation expectations remain anchored, supporting fixed income positioning even as near-term inflation risks rise from energy supply disruptions
Sub-Asset Classes
Commodities have strengthened amid supply disruptions, particularly in energy, natural gas, and select industrial inputs. Recent gains appear driven more by curtailed supply than excess demand, reinforcing commodities’ role as a portfolio diversifier during periods of geopolitical stress.
Based on long‑term valuation metrics, the U.S. dollar appears overvalued. Recent U.S. policy has increased uncertainty around trade and fiscal deficits, enhancing the appeal of other developed‑market currencies as diversification tools. Near‑term USD weakness, however, may be limited as ongoing trade negotiations, and renewed safe‑haven demand tied to Middle East tensions and supply‑chain disruptions could remain supportive.
Overall, alternative and sub asset classes remain well positioned to complement traditional portfolios, offering diversification, income, and resilience in an evolving market environment.
Mark Hasenauer
Head of Financial Planning and Retirement
According to the United States Census Bureau, estimates indicate over 44 million individuals (over 13% of the U.S. population) have a disability.
This article will touch on some of the considerations that exist when putting a plan in place for an individual with special needs.
Cash Flow Considerations
A good place to start is the cash flow considerations necessary for the long-term success of a plan. The fundamental elements of a cash flow plan are identifying: (i) anticipated living and medical expenses; (ii) what income sources are in place and whether additional assets are required to supplement the income sources; and (iii) how long will the assets last given the likely costs and expenses. This will allow you to begin planning now to make sure the required assets are available both today and in the future.
Next you may want to consider scenarios to stress test your plan. What if the costs of care were to increase? What if something were to happen to the primary caretaker or a source of financial support provided by a family member ceased? This might occur when a parent or other financial sponsor becomes disabled, loses capacity with age, or passes away. An individual may also lose access to government funding or programs. How does this change the probability of success for the cash flow plan? What contingencies can be put in place to make sure the plan still works?
The plan is a living document and should be revisited periodically, not only to make sure that it remains relevant under existing circumstances, but also as a tool to help make decisions when substantive changes are being considered regarding investment strategy and spending goals.
Asset Protection Considerations
Another important consideration is to not disqualify the individual for public benefits that are essential for the continued success of their plan. Understanding the rules of qualifying for public benefits in the state where the individual resides is an important part of the planning process.
Transferring assets without restriction to the individual may have a substantial impact on their ability to receive essential public benefits. These benefits often come from Medicaid and Supplemental Security Income (SSI). Depending on the availability of assets or income, the individual may be rendered ineligible for SSI and Medicaid. Some of the lost benefits may include assisted housing, employment assistance, medical assistance, personal care aides, and transportation assistance.
In planning for the continued receipt of public benefits, one option that may be considered is leaving assets to other family members. This is usually done with the understanding that the other family members will take the individual's needs into consideration. One issue with leaving assets to others is that there may be no formal plan for the benefit of the special needs individual. What if that other family member were to suffer from incapacity, disability, or death? What if the assets become subject to creditor claims or divorce? What if the caretaker's subsequent decisions are not in line with your goals or the needs of the individual being planned for? Or what if the entrusted family member mismanages the funds even with good intentions?
One strategy to address these questions is to leave assets to a Supplemental Needs Trust (SNT). A SNT is designed to provide access to trust owned assets that will not otherwise disqualify a beneficiary from receiving public benefits that are available based on their needs and income levels. The trust must follow requirements regarding continued qualification for these benefits.
Additionally, an SNT may be considered a first or third‐party trust. A self‐settled SNT created by the beneficiary is considered a first party trust, while a trust created and funded by someone other than the beneficiary is considered a third‐party trust. There are different rules regarding each of these trusts. It is important to consult with a qualified attorney who has experience in drafting SNTs to make sure that it is drafted appropriately based on the individual circumstances of the intended beneficiary.
Some additional benefits that may be realized through an SNT are to provide (i) a level of asset protection against misuse of those funds; (ii) protection from claims from creditors, such as landlords, credit card companies, and other lenders, and (iii) proper investment management of the assets to increase the probability that they will meet the long‐term needs of the beneficiary. In creating an SNT, consider the benefits that a professional trustee may provide in terms of administering the trust.
Tax Planning Considerations
As more US taxpayers accumulate wealth for retirement inside of qualified retirement plans (such as 401(k), 403(b) and IRAs), there is growing deferred tax liability not only for the account owner, but also the legacy that they leave behind to others. Those qualified retirement assets are generally passed on to others in the form of an Inherited IRA.
An additional consideration for creating an SNT is that it may be designed to be the beneficiary of an Inherited IRA. The SNT will receive and administer the required minimum distributions (RMDs) received from the Inherited IRA. While the default rule for most Inherited IRAs with an individual beneficiary is a 10-year distribution period, there is an exception to allow a disabled beneficiary to stretch the distributions out over their own life expectancy.
However, if the trust is not drafted properly, not only could the distribution period for Inherited IRAs be reduced to just 60 months, but the trust might disqualify the beneficiary from receiving public benefits. Under previous law, to qualify for the extended life expectancy RMD term, a trust would be required to distribute IRA withdrawals to the beneficiary in the same year the trust received those withdrawals. These trusts are referred to as conduit trusts.
However, a change in the law at the end of 2022 now allows the trust to retain the IRA withdrawals inside the trust and still qualify to use the stretch method for calculating RMDs. The retention of IRA withdrawals in a properly structured SNT can enable the Inherited IRA assets to last longer due to increased tax deferral. Keeping funds in the SNT can also preserve the beneficiary's eligibility for government benefits.
There may be other considerations particular to a person's plan or circumstances. In the end, this is a process that should be done under the advisement of an attorney who specializes in planning for special needs. It is also helpful to engage a team of advisors who can help achieve the planning objectives through assistance with preparation of a long‐term cash flow analysis; design and implementation of the appropriate investment strategy; and ability to provide professional trustee services. In closing, an organized plan done with the right team can help ensure the needs of the beneficiary are met now and into the future.
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