U.S. stock investors faced a challenging first quarter as mutual funds and ETFs declined 2.8% to start 2026. The downturn reflected broader market anxieties as both stocks and bonds were battered by escalating tensions between the U.S. and Iran, which pushed oil prices higher and created uncertainty across financial markets.

A late-quarter surge provided some relief for investors, with stocks rallying on the final trading day. Market participants dubbed this brief recovery the "Hormuz Rally," sparked by indications that the Middle East conflict could conclude soon. Optimistic traders jumped into positions ahead of what they hoped would be a swift resolution to the geopolitical tensions.

The quarter's volatility highlighted the delicate balance between geopolitical risks and market resilience. While the Hormuz Rally improved final numbers, the underlying concerns about oil supplies and regional stability remain. Investors will monitor whether this temporary rally signals a fundamental shift or merely a pause in broader market uncertainty.