Smart Investor: Top Sector Stock Picks, Bond Market Tug-of-War and Key Q1 Trends

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This week’s highlights:

Stock investors are often described as inherently optimistic, especially in comparison to the doom and gloomers in the bond market, where prices rise on bad news about the economy. This dynamic was on display when the final day of the first quarter featured another “hope” rally around an end to the Iran war. Those hopes were dashed, but the stock market didn’t fall back much and gained TK% for the week. That move higher came even as prices pushed to new recent highs on Thursday.

This past week, we paused and looked back at the key trends that dominated markets during the first quarter. While the war drew the world’s attention in March, the quarter began on a different note, with a split screen of concerns about the impact of artificial intelligence while investors looked for Federal Reserve rate cuts. I highlighted six key market trends in charts across stocks, bonds, and commodities.

Overall, it was a losing quarter for the stock market with a decline of 4.2%. Bella Albrecht looks under the hood at the stocks that dragged the market lower, finding that some of the biggest and most widely owned stocks were responsible. However, that drop didn’t tell the whole story. Even as investors pulled out of the big tech stocks that dominate the market, they were rotating into other sectors, many of which posted solid gains in the first quarter. Dividend stocks were also a haven. Here’s a look at which stock sectors were in and which were out.

Building on that theme, Morningstar Indexes’ Dan Lefkovitz pulled back the lens to look at 5 winners and losers across the markets, and offers some thoughts on what—if anything—they can tell us about the remainder of 2026.

During the first quarter, there was plenty going on in the bond market, where investors are caught between two significant trends: rising inflation and expectations of slower growth, both because of oil prices. For now, inflation concerns appear to be more pressing, but what might the outlook hold? Leslie Norton checked in with bond fund managers to see what they believe will come next.

Lastly, Morningstar’s equity research team has its quarterly sector outlooks and top stock picks. Across all 11 sectors, they take a deep dive into the key trends affecting the companies they cover and highlight names they feel offer the best opportunities for investors. We’ve collected the pieces here.

As always, be sure to visit our Markets page for our latest coverage and live stock market updates, along with our full weekly calendar of key upcoming data and events.