News and Commentary

Why Wealthy Families Should Plan Before the Problem Gets BiggerOne of the most expensive mistakes a wealthy family can make is waiting too long to plan.Estate taxes are based on what you own when you die, not simply what you are worth today. A successful business, real estate, retirement accounts and an investment portfolio can compound for decades and turn a manageable estate into a significant tax problem.In 2026, the federal estate and gift tax exemption is $15 million per person. For a married couple, proper planning and portability may potentially preserve roughly $30 million of federal exemption. The federal estate tax rate reaches 40%.State taxes can become an issue much sooner.Towson Partners Wealth Management works with families throughout the country, but we are based in Maryland, where many of our clients live. Maryland's estate tax exemption is only $5 million per person, although unused exemption may potentially be preserved for a surviving spouse through Maryland portability. Maryland estate tax can reach 16%.That makes estate planning a particularly familiar issue for us, but it is by no means only a Maryland issue. Twelve states plus Washington, D.C. impose their own estate taxes, often at thresholds well below the federal exemption.The Problem Is Often the GrowthA $10 million estate growing at 6% annually becomes roughly $18 million in 10 years and $32 million in 20 years.A $15 million estate becomes approximately $27 million and then $48 million.These are simple illustrations, not forecasts, but they make the point:You may not have an estate tax problem today. You may be growing into one.The federal lifetime exemption can generally be used through taxable gifts during your lifetime or against your estate at death.Why might someone use part of that exemption earlier?Because the asset can then have years to appreciate outside the taxable estate.If $5 million transferred today hypothetically grows at 7% for 20 years, it becomes approximately $19 million.The original $5 million mattered.But so did the roughly $14 million of future appreciation.Move the growth before the growth happens.Start With the Financial Plan, Not the TrustWe believe wealthy families should often do the financial planning before asking an attorney to draft complicated estate documents.Estate planning attorneys are essential. They understand the law, draft the trusts and make sure a strategy is structured properly.But first, the family needs to understand what it is trying to accomplish.At Towson Partners Wealth Management, our financial planning process can help clients visualize questions such as:What could our estate eventually be worth?What happens if we do nothing?How much can we comfortably transfer today?Do we still have more than enough if markets decline or we live to 100?What might different strategies mean for our children, grandchildren and charities?We can model a $2 million gift versus $5 million versus doing nothing.The client can actually see the effect on future net worth, spending capacity, projected estate size and family wealth.That makes the eventual attorney meeting far more productive.Instead of walking in and asking:“Do I need a trust?”the client can walk in saying:“Our financial plan shows we are unlikely to ever need these assets and can comfortably transfer $4 million. How should we structure that for our family?”Figure out the strategy first. Then have the attorney build the legal structure around it.The Estate Planning ToolboxOnce the goal is clear, there are many ways to address it.Annual gifting. In 2026, the federal annual gift tax exclusion is $19,000 per recipient, and each spouse has a separate exclusion. Qualifying annual exclusion gifts generally do not use the donor's lifetime exemption.529 plans. A donor may elect to spread up to five annual exclusions over five years for a 529 contribution. At the current $19,000 exclusion, that is as much as $95,000 per donor, per beneficiary under the election.Irrevocable trusts and SLATs. Families with significant assets they are unlikely to need may want to discuss moving appreciating assets into properly structured trusts with their estate attorney.Special needs planning. A family with a child or grandchild with a disability may need a properly designed special needs trust instead of an outright inheritance. SSA recognizes qualifying special needs trusts as exceptions to its normal SSI trust resource rules. ABLE accounts can also provide tax favored savings for eligible beneficiaries and qualified disability expenses. Beginning in 2026, the disability onset age for ABLE eligibility increased from 26 to 46.Trusts for beneficiaries who need help managing money. Some heirs should not receive several million dollars outright. A properly drafted trust with an appropriate trustee can provide structure and oversight.Roth conversion planning. Traditional IRA distributions received by heirs are generally taxable, and many nonspouse beneficiaries are subject to the 10 year inherited IRA rule. For the right family, it may make sense to model paying some income tax during the parents' lifetime rather than leaving the entire future tax burden to the next generation.Charitable planning. Families who already intend to support charities should also think about which assets go to family and which go to charity. The tax characteristics can be very different.There is no single answer.The point of the financial plan is to show the family why one strategy may make sense and another may not before they commit to it.Gifting Can Tell You Something About Your Heirs TooLifetime gifting has another benefit that does not show up on an estate tax return.You get to see your family enjoy the money while you are still here.Grandparents can watch a grandchild go to college.Parents can help a child buy a home, build an investment account or create financial security.That can be far more rewarding than having children receive everything after Mom and Dad are gone.But there is another useful side effect.Lifetime gifts give parents and grandparents a chance to see how the next generation actually handles money.Does your daughter invest the annual gift?Does your son immediately spend it?Does a grandchild save part of it?Does a son in law or daughter in law make thoughtful financial decisions?In a sense, smaller lifetime gifts can become a real world test run for a much larger inheritance.If an adult child receives $38,000 every year and consistently saves and invests it, Mom and Dad may become more comfortable leaving that child assets outright.If the money disappears every year, that is useful information too.Perhaps the eventual inheritance should remain in trust with an independent or trusted trustee.The family learns this while there is still time to change the estate plan.That can be every bit as valuable as the tax savings.Case Study: Doing Nothing vs. PlanningConsider a hypothetical Maryland couple with:$12 million of net worth today3 adult children3 spouses of those children6 grandchildrenAssume their financial plan shows they have more than enough to support their lifestyle, even under conservative assumptions.They therefore have 12 family members they ultimately intend to benefit.Option 1: Do NothingSuppose the entire $12 million estate remains in Mom and Dad's names and grows at a hypothetical 6% annually for 10 years.The estate grows to approximately:$21.5 millionAssume both Maryland $5 million exemptions have ultimately been preserved through proper portability planning, giving the surviving spouse a hypothetical combined $10 million Maryland exclusion under current law.That leaves roughly $11.5 million above the combined exclusion.For a simplified illustration assuming all assets are subject to Maryland estate tax, no other deductions or credits, and current law remains unchanged, Maryland's 16% limitation could produce an estate tax of roughly:$1.84 millionThe actual Maryland estate tax calculation is more complicated, and the MET 1 calculation uses the lesser of several amounts, but the state's return specifically applies a 16% limitation to the amount above the applicable Maryland exclusion.The family waited.The assets compounded.And a substantial portion of the wealth went to taxes instead of the family.Option 2: Start Gifting IntentionallyInstead, the financial plan shows that Mom and Dad can comfortably begin transferring wealth now.In 2026, each spouse can generally give $19,000 to each recipient under the annual exclusion.With 12 recipients:$19,000 × 12 recipients × 2 spouses = $456,000 per yearAssuming the gifts qualify for the annual exclusion and the applicable ownership and reporting rules are satisfied, the couple could potentially transfer:$4.56 million over 10 yearswithout using federal lifetime exemption for those qualifying annual exclusion gifts.If each year's gifts are invested and hypothetically earn the same 6%, those gifts could be worth approximately:$6.0 million after 10 yearsMeanwhile, Mom and Dad's remaining estate would be approximately:$15.5 millionrather than $21.5 million.Using the same simplified Maryland assumptions, the amount above a hypothetical $10 million combined Maryland exclusion falls to roughly $5.5 million, producing an illustrative Maryland estate tax of approximately:$877,000The DifferenceDo NothingAnnual Gifting PlanEstate after 10 years~$21.5M~$15.5MWealth already moved to family$0~$6.0M*Illustrative Maryland estate tax~$1.84M~$877KIllustrative estate tax reduction—~$960K*Includes hypothetical 6% investment growth on the annual gifts.That is almost $1 million potentially staying with the family instead of going to estate tax, before considering any additional planning strategies.And there is another benefit.Mom and Dad have spent ten years watching their children and grandchildren use the gifts.Maybe one child built a diversified investment portfolio.Another used the money responsibly to pay down a mortgage.A third spent every dollar.That experience gives the parents valuable information about the next decision.Who can responsibly inherit assets outright?Who may benefit from a trust?Who might need a professional or family trustee?Which grandchildren are already developing good financial habits?And throughout the process, Towson Partners can work with the children and grandchildren to help them invest the gifts thoughtfully, develop their own financial plans and become better stewards of family wealth.The family did not simply give money away.They changed where the money was growing, watched how the next generation handled it, and planned the eventual inheritance with much better information.That is sophisticated estate planning in practical terms.The Worst Strategy Is Kicking the Can Down the RoadThe most frustrating result is a wealthy family that knows it should plan but keeps saying:“We'll deal with it later.”Later, the portfolio is larger.The business is worth more.The real estate has appreciated.And eventually someone dies.At that point, many lifetime planning opportunities are gone.At Towson Partners Wealth Management, our role is to help clients see the problem while they still have time to do something about it.We build the financial plan.We model the alternatives.We help determine what the client can comfortably transfer.We help the next generation invest and plan responsibly.And we work alongside the family's estate planning attorneys and tax professionals to turn the financial strategy into the appropriate legal structure.The objective is not the most complicated estate plan.It is to keep what you need, intelligently plan for what you do not need, and help more of what you spent a lifetime building reach the people and organizations you actually care about.You may not have an estate tax problem today.The real question is what happens if you wait until you do.Important DisclosureThis material is provided for informational and educational purposes only and should not be construed as individualized investment, tax or legal advice or as a recommendation to implement any particular strategy. Tax and estate planning laws are complex, subject to change and dependent upon individual circumstances.Hypothetical examples are provided solely for illustrative purposes and do not represent actual client results. Hypothetical investment returns are not guaranteed, and actual results will vary. Estate tax calculations shown are simplified illustrations and may differ materially from an actual estate tax return.Towson Partners Wealth Management and Janney Montgomery Scott LLC do not provide legal or tax advice. Clients should consult qualified estate planning attorneys, accountants and other tax professionals before implementing estate, gift, trust, charitable, special needs or Roth conversion strategies.Compliance SourcesIRS, Frequently Asked Questions on Gift Taxes2026 annual exclusion, per recipient and per spouse:https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxesIRS, Frequently Asked Questions on Estate Taxes2026 federal estate tax filing threshold of $15 million and federal portability:https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-estate-taxesIRS, Instructions for Form 706Federal estate tax rate schedule:https://www.irs.gov/instructions/i706IRS, Instructions for Form 709Annual exclusion and five year 529 election:https://www.irs.gov/instructions/i709Maryland Comptroller, Estate and Inheritance Tax FAQs$5 million Maryland exclusion, portability and estate tax calculation:https://services.marylandcomptroller.gov/taxes/en/estate-inheritance-fiduciary-tax-faqs?id=kb_article_view&sysparm_article=KB0010072Maryland Estate Tax Return, Form MET 1Maryland estate tax computation and 16% limitation:https://www.marylandcomptroller.gov/content/dam/mdcomp/tax/forms/2025/met-1.pdfMaryland General Assembly, Tax General §7-309Maryland estate tax exclusion and portability statute:https://mgaleg.maryland.gov/mgawebsite/laws/StatuteText?article=gtg&enactments=false&section=7-309Tax Foundation, State Estate and Inheritance TaxesState estate tax thresholds and rates; Maryland's estate and inheritance taxes:https://taxfoundation.org/data/all/state/estate-inheritance-taxes/Social Security Administration, Spotlight on TrustsSpecial needs trust treatment under SSI rules:https://www.ssa.gov/ssi/spotlights/spot-trusts.htmIRS, ABLE AccountsTax favored ABLE account rules:https://www.irs.gov/government-entities/federal-state-local-governments/able-accounts-tax-benefit-for-people-with-disabilitiesIRS, Instructions for Forms 1099-QA and 5498-QA2026 expansion of ABLE eligibility based on disability onset before age 46:https://www.irs.gov/instructions/i1099qaIRS, Retirement Topics: BeneficiaryInherited IRA beneficiary and 10 year distribution rules:https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiaryIRS, Publication 590-BTaxation of inherited traditional IRA distributions:https://www.irs.gov/publications/p590bWorking With JanneyDepending on your financial needs and personal preferences, you may opt to engage in a brokerage relationship, an advisory relationship, or a combination of both. Each time you open an account, we will make recommendations on which type of relationship is in your best interest based on the information you provide when you complete or update your client profile.If you engage in a brokerage relationship, you will buy and sell securities on a transaction basis and pay a commission for these services. Our recommendations for the purchase and sale of securities will be based on what is in your best interest and reflect reasonably available alternatives at that time.If you engage in an advisory relationship, you will pay an asset-based fee, which encompasses, among other things, a defined investment strategy, ongoing monitoring, and performance reporting. Your Financial Advisor will serve in a fiduciary capacity for your advisory relationships.For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs, which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.By establishing a relationship with us, we can build a tailored financial plan and make recommendations about solutions that are aligned with your best interest and unique needs, goals, and preferences.Contact us today to discuss how we can put a plan in place designed to help you reach your financial goals.For more information about Janney, please see Janney’s Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest.To learn about the professional background, business practices, and conduct of FINRA member firms or their financial professionals, visit FINRA’s BrokerCheck website: http://brokercheck.finra.org/

Markets staged an impressive rebound in the second quarter as a surge in tech-related corporate earnings growth combined with rising hopes for a U.S./Iran ceasefire to push stocks sharply higher, as the major U.S. averages hit new all-time highs. Markets received positive news almost immediately in the second quarter as, on April 7th, President Trump announced a two-week ceasefire with Iran, ending direct hostilities between the two countries. That news (and the subsequent move lower in oil prices) helped stocks recoup the geopolitically driven March declines, but it was really a stellar first-quarter earnings season that fueled the market rally in April. Annual earnings growth surged to approximately 15% for the S&P 500 following the Q1 results, a number nearly double the long-term average. While AI-linked tech companies posted some of the stronger earnings growth on booming data center demand, a broad swath of companies and sectors posted strong financial results as more than 80% of the companies reporting during the Q1 season beat Wall Street estimates. That AI-led earnings growth, along with the U.S./Iran ceasefire, helped fuel the strong rebound in stocks.Market gains accelerated in May and were driven by the same factors that drove the April rally: Strong earnings and expectations for a U.S./Iran ceasefire. Earnings in May, while not as plentiful as the April reporting season, were similarly strong with major tech companies such as Nvidia, Intel, Dell, Snowflake and others posting strong results that reinforced the simply massive demand for AI infrastructure. But while the tech sector again posted some of the strongest results, earnings on the whole in May were impressive with Walmart producing solid results and pushing back on fears that higher prices were hurting consumer spending. Meanwhile, surges in demand for data center components such as memory and semiconductors led to massive gains in certain tech stocks through the end of May, as the S&P 500 hit multiple new all-time highs during the month. Geopolitically, while there was no official U.S./Iran ceasefire, markets firmly believed there would be no material escalation either, so the lack of an official agreement didn’t weigh on stocks.The rally continued in early June thanks initially to reported progress on a U.S./Iran ceasefire agreement, which was signed by President Trump and Iranian leaders in mid-June. Anticipation for the SpaceX IPO (the largest IPO in history) also helped to further support the tech sector and AI-linked investments, as the S&P 500 hit another new all-time high mid-month. However, also in mid-June, investors received a surprise from new Federal Reserve Chairman Kevin Warsh. The Fed made no change to interest rates in June, as expected, but the meeting statement and Warsh press conference were viewed as “hawkish,” and the probabilities for a rate hike later this year rose sharply. That deviation from previous Fed policy expectations caused some market volatility. However, stocks generally proved resilient as falling oil prices (which dropped back to pre-war levels) led investors to believe the current inflation spike will be temporary. In sum, the stock market completed an impressive rebound from the steep declines of late March, as much-better-than-expected earnings growth (powered primarily by AI-linked tech stocks), continued solid economic activity, and the signing of a U.S./Iran ceasefire helped send the S&P 500 to new all-time highs. Second Quarter Performance ReviewThe gains in the S&P 500 in the second quarter were broad, but the impact of the AI boom was evident across and throughout markets. By market capitalization, small caps outperformed large caps thanks to a combination of strong economic growth (which can disproportionately benefit smaller company earnings), falling oil prices and the “trickle down” of AI optimism towards small-cap tech and AI infrastructure companies.  From an investment style standpoint, growth outperformed value but not as much as one would think given the strength in AI-linked tech stocks in the second quarter. Growth styles benefited from a surge in AI infrastructure stocks such as memory and semiconductor manufacturers while value strategies received a boost from industrials. On a sector level, 10 of the 11 S&P 500 sectors finished the second quarter with positive returns. The best performing sector in Q2 was, by a very wide margin, the technology sector as it benefited from huge rallies in memory stocks such as Micron and SanDisk as well as continued gains in the semiconductor stocks. Industrials also logged strong gains as companies in that sector were poised to benefit from increased AI data center construction as well as more defense spending. Finally, real estate also posted strong returns on anticipated data center demand, as several tech and AI-linked REITs posted very strong gains in the second quarter. Turning to the sector laggards, energy was the only sector to post a negative return for the quarter. The energy sector was pressured primarily by falling oil prices as they were sharply higher at the start of April before the U.S./Iran ceasefire process started. The communication services sector was the other clear laggard in the third second quarter (that sector saw only a small gain) as weakness in the legacy internet and mobile providers weighed on the sector (the IPO of SpaceX reminded investors Starlink and other satellite internet providers are legitimate threats to those legacy business models). International market performance was also influenced by tech/AI as emerging markets handily outperformed the S&P 500 in the second quarter thanks to an extreme rally in South Korean shares, as they benefited from the boom in memory companies. Foreign developed markets, however, lagged the S&P 500 as they received little AI performance-related boost compared to the S&P 500. Commodities saw moderate declines in the second quarter, thanks primarily to the drop in oil prices due to reduced geopolitical tensions. Oil prices were volatile but ended the quarter solidly lower on a combination of increased ship transit through the Strait of Hormuz and the U.S./Iran ceasefire agreement. Gold prices also fell during the quarter on the aforementioned decline in geopolitical concerns and a stronger U.S. dollar, which hit a one-year high in June on rising rate hike expectations.Switching to fixed income markets, the leading benchmark for bonds (Bloomberg U.S. Aggregate Bond Index) realized a modest positive return for the second quarter as falling commodity prices reduced inflation concerns.  Looking deeper into the fixed income markets, shorter-duration bonds again outperformed longer-duration fixed income as some inflation statistics hit multi-year highs and ended Q2 far above the Fed’s 2.0% target. Turning to the corporate bond market, both investment grade and lower quality but higher-yielding bonds posted solidly positive quarterly returns. High-yield bonds outperformed investment grade debt, as generally resilient economic growth and falling geopolitical risks prompted investors to reach for higher yield despite greater credit risks. Third Quarter Market OutlookAs they did in 2025, stocks proved resilient in the first half of the year despite several macro-economic surprises, as strong corporate earnings and underlying economic growth overcame doubts about AI profitability, war and higher interest rates. To that point, investors had to confront numerous market surprises over the first six months of 2026, including a direct war between the U.S. and Iran, a spike in oil prices to multi-year highs, a rebound in inflation (which caused rate hike expectations to replace rate cut hopes) and some doubts about the broad profitability of AI. But while those surprises each caused temporary bouts of market volatility (with the worst coming in March after the U.S./Iran war began), they were largely offset by foundational bull market metrics: Strong earnings and solid economic growth. The Q1 earnings season was much stronger than expected, and while the earnings gains were led by AI-linked tech stocks such as Nvidia, Micron and others, the reality is the vast majority of companies reported better-than-expected revenue and earnings and that strong corporate performance helped to offset macroeconomic uncertainty.Economic growth, meanwhile, pushed back consistently on fears of stagflation following the war-driven spike in oil prices. Yes, inflation metrics and prices rose but economic growth never wavered, as virtually all economic indicators from the labor market, manufacturing and service sectors showed solid activity. Finally, AI enthusiasm remained a key driver of the stock rally, as numerous large tech companies reaffirmed their commitment to spend hundreds of billions of dollars on data center and AI infrastructure buildout, which gave investors continued confidence in the future of AI and provided a broad economic boost, as these massive tech companies spend across the economy to build out data centers and other AI infrastructure. However, while the market and economy were again impressively resilient in the first half of 2026, we must caution against allowing this resilient market to lull us into a false sense of security as we embark on the second half of the year, because risks to this bull market remain. First, expectations for Fed rate hikes are rising. At the start of 2026, investors widely expected one or two rate cuts in 2026. Now, because of high inflation, the market is expecting, perhaps, one or two rate hikes. And while that is not automatically negative for markets, the reality is that the last time the Fed embarked on a rate hike campaign (2022) stocks dropped sharply. Second, the exposure of the entire economy and market to continued AI investment remains a source of concern. Massive AI infrastructure investment is helping to power the economy, but if the companies spending that money begin to doubt the ROI of AI infrastructure investment, they could reduce spending and that would be an economic negative that impacts markets. Finally, the U.S. economy has proved historically resilient over the past several years, but it is not infallible. The rebound in inflation, if it continues, threatens consumer spending and the housing market and we will be watching the economy closely, because at elevated valuations, the stock market is not at all pricing in a loss of economic momentum.In sum, we start the second half of 2026 with a strong market: Earnings growth is above historical averages, economic growth is solid and AI enthusiasm remains as boisterous as ever. However, risks remain in the form of high inflation (which could hurt economic growth), potential rate hikes and vulnerability to AI infrastructure spending, and we will monitor these risks closely as we continue to balance risk and reward.    At Towson Partners Wealth Management, we understand the risks facing both the markets and the economy, and we are committed to helping you effectively navigate this challenging investment environment. Successful investing is a marathon, not a sprint, and even intense volatility is unlikely to alter a diversified approach set up to meet your long-term investment goals.Therefore, it’s critical for you to remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.Rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.Please do not hesitate to contact us with any questions, or comments, or to schedule a portfolio review.Sincerely,Towson PartnersThis is provided for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed are those of the author as of the date of publication and are subject to change without notice. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. You should consult your own tax or legal advisor regarding your individual situation. Please consult your Financial Advisor to determine whether any strategy discussed is appropriate for your individual circumstances.

Market volatility spiked in the first quarter of 2026 as a surge in geopolitical tensions combined with stress in private credit markets and growing concerns that AI may pose threats to certain industries to push the S&P 500 moderately lower to start the year.Geopolitical surprises started immediately in 2026 as on January 3, the U.S. military performed a daring raid in Venezuela and arrested Venezuelan President Maduro, causing a temporary pop in market volatility given uncertainty around the country’s vast oil supplies. The action proved limited, however, and the new Venezuelan leader pledged to work with the U.S., easing market tensions. Shortly after markets recovered from that initial surprise, we received another one, as the U.S. Attorney for the District of Columbia issued two grand jury subpoenas to Fed Chair Powell surrounding the renovation of the Federal Reserve building. That action renewed concerns about attacks on Fed independence, which, if compromised, could lead to sustainably higher inflation. In response, several prominent Republican Senators pushed back against the subpoenas and voiced support for Fed independence, easing market concerns. While these surprise headlines caused short bursts of market volatility, stable economic data and a generally solid fourth-quarter earnings season helped keep economic and earnings growth forecasts intact, while the Fed reminded investors at the January meeting that it still planned to cut rates again this year. Despite the headline volatility, the S&P 500 ended the month with a solid gain.Volatility continued in early February, but this time it was more focused on specific sectors of the market such as tech and financials. AI company Anthropic released a Claude Cowork app that caused a steep decline in the software sector, as fears surged that AI advancements could ultimately eliminate the need for entire sectors of the economy. That idea jolted investors’ previous opinions that AI was nearly all beneficial to the markets and economy. Meanwhile, underlying fears of credit risks in private credit funds grew, as numerous large alternative asset managers limited redemptions from specific funds, fueling concerns there was a bubble in the industry. Finally, on the last day of February, geopolitical risks surged as the U.S. launched a massive attack on Iran, sparking a war between the two countries that effectively closed the Strait of Hormuz and drastically reduced available global oil supplies, which caused oil prices to surge overnight. These factors combined to push the S&P 500 slightly lower for the month but the index remained positive for the year.     The market declines accelerated in March as hopes for a quick resolution to the U.S./Iran war faded. While the U.S. and Israel dominated the conventional military conflict, Iran and its proxies attacked neighboring Gulf states’ energy infrastructure and oil tankers in the Persian Gulf, causing the price of oil to surge above $100/bbl and increasing pressure on the global economy. The S&P 500 fell modestly on the surge in geopolitical risks, although hopes of a ceasefire late in March did help limit losses. The S&P 500 declined moderately in March and finished the quarter in solidly negative territory.          The first quarter of 2026 saw volatility surge, as military conflicts combined with more traditional market concerns of overvalued assets (in private credit) and potentially negative impacts of AI to pressure stocks moderately, although still-stable economic growth and corporate earnings helped to support markets throughout the quarter.First Quarter Performance ReviewMarket internals and performance in the first quarter were driven primarily by the U.S./Iran war, but also by concerns about private credit and potentially negative impacts from AI. On an index level, the three major large cap stock indices finished the quarter with losses. The Nasdaq was the worst performer among them thanks to weakness in AI-related tech and software stocks. Small caps, however, relatively outperformed large caps as the Russell 2000 finished the first quarter with a small gain, as small-cap stocks are generally viewed as more insulated from the headwinds of the first quarter (i.e., geopolitical tensions, private credit worries, AI concerns). Turning to value vs. growth, value massively outperformed growth in the first quarter and managed a modest gain, as value-focused strategies benefited initially from a rotation away from tech and towards sectors less exposed to AI. Additionally, late in the quarter, value styles benefited from the surge in the lower-multiple energy and materials sectors, which rallied following the outbreak of the U.S./Iran war. Tech-heavy growth strategies finished solidly lower for the quarter. On a sector level, performance was mixed as six of the 11 S&P 500 sectors finished the quarter with a positive return. The best-performing sector in Q1, by a large margin, was energy, which surged more than 30% in the first quarter thanks to rising oil prices. The materials sector, which includes companies with heavy commodity exposure, also was a solid performer on rising natural resource prices following the U.S./Iran war. Finally, consumer staples and utilities also finished the first quarter with strong gains, as investors rotated to less volatile, more defensive parts of the market. Looking at sector laggards, the financial sector was the worst-performing S&P 500 sector in Q1 and suffered solid losses, thanks to aforementioned private credit concerns. The consumer discretionary sector also posted a moderately negative return on worries that higher oil prices would reduce consumer spending. Finally, the technology sector dropped on weakness in software stocks and AI-linked technology stocks. Internationally, foreign markets relatively outperformed the S&P 500 and ended the quarter with only a small decline, despite the surge in geopolitical risks. Emerging markets outperformed both developed markets and the S&P 500 and registered only a fractional loss despite the strong dollar, as the surge in commodity prices was seen as offsetting the rising U.S. dollar. Foreign developed markets declined in Q1, but only modestly, and solidly outperformed U.S. markets thanks mostly to the smaller weighting of tech shares in foreign indices.  Commodities were generally speaking, sharply higher in the first quarter thanks to the surge in the geopolitical risk premium following the outbreak of the U.S./Iran war. Oil prices hit the highest levels since 2022 thanks to the U.S./Iran war and following Iranian attacks on Gulf oil infrastructure, which further reduced global supply. Gold, meanwhile, hit a new all-time high above $5,000/oz. early in the quarter but finished with just a moderate quarterly gain, as the surging dollar pressured gold prices late in Q1.   Switching to fixed income markets, the leading benchmark for bonds (Bloomberg Barclays US Aggregate Bond Index) finished the quarter with a slight loss as bonds were solidly higher mid-quarter but declined in March on rising inflation concerns, as surging oil prices and hotter-than-expected inflation readings reduced expectations for Fed rate cuts. Short-term bills modestly outperformed longer-duration bonds and logged a positive return as they are less sensitive to rising inflation risks compared to longer-duration debt. Turning to the corporate bond market, both high yield and investment grade corporate bonds declined slightly in the first quarter as the U.S./Iran war and spiking oil prices raised concerns about an economic slowdown. Reflecting general investor anxiety about economic growth given the war and rising oil prices, both lower yielding but higher quality investment grade corporate bonds and high yield bonds (which have a better yield but also more credit risk) experienced similar small losses for the quarter.      Second Quarter Market OutlookStocks begin the second quarter facing three distinct market headwinds: Higher oil prices (a result of the U.S./Iran war), credit concerns (emanating from private credit funds) and worries that AI, while a transformative technology, could have unanticipated negative impacts on important market sectors. Each of these concerns will need to be resolved if the market is going to fully rebound from the Q1 declines, although it’s important to note that economic growth and corporate performance remained solid in Q1 and that is helping to support markets.Starting with geopolitics, the focus for markets remains on the price of oil. Elevated oil prices pose a risk for the markets and economy in multiple ways including 1) No Fed rate cuts as the Fed worries higher oil prices may spur inflation, 2) Depressed consumer spending as higher gas prices reduce disposable income and 3) Tighter corporate margins given increased transportation and infrastructure costs. Ultimately, that could lead to stagflation in the economy, which would be negative for most assets. For geopolitical risks to fully recede, we will need to see a credible ceasefire agreement between all parties (the U.S., Israel and Iran), transit through the Strait of Hormuz return to something close to pre-war levels and a decline in oil prices back towards pre-war levels. Private credit, meanwhile, is evoking memories of the financial crisis amongst more tenured investors, fueling fears that the recent influx of investor capital into private credit funds led to poor investing standards and overvaluation. While analogies to the financial crisis are understandable, it’s important to realize the private credit market is much, much smaller than the markets that caused the financial crisis and Fed officials have recently said they see no indication of a systemic problem. While that is reassuring, private credit concerns are still weighing on the financial sector, which is the second-largest sector in the S&P 500 by weight and an important market leader. An easing of private credit concerns and a rebound in the financials is needed to help the market further stabilize in the second quarter.Finally, turning to AI, opinions on the impact of AI on the economy and markets have shifted from mostly positive to that of increased skepticism, and there are two main concerns associated with AI currently. First, that massive spending on AI infrastructure by large tech companies may ultimately have a poor ROI and depress future earnings. Second, that AI advancements may disrupt entire portions of the economy (such as the software sector) and lead to large job losses that hurt overall economic growth. Both of these concerns need to be addressed and countered for AI and the tech sector to fully rebound in Q2. Bottom line, the first quarter did contain several negative surprises for investors and we begin the second quarter with uncertainty over geopolitics, credit and AI. But there are also positive factors at work that must be considered, including a still-resilient economy, strong corporate earnings growth and a Federal Reserve that is still signaling rate cuts. Those factors supported stocks and bonds in the first quarter and despite the volatility and elevated uncertainty, the outlook for the economy and markets is not universally negative and as we saw firsthand in Q1, the geopolitical and corporate landscape can change quickly.    At Towson Partners Wealth Management, we have experienced these types of markets before and are committed to helping you effectively navigate this challenging investment environment. Successful investing is a marathon, not a sprint, and through both bull and bear markets, we will remain focused on the diversified approach we have set up to meet your long-term investment goals.Therefore, it’s critical for you to stay invested, remain patient, and stick to the plan, as we’ve worked with you to establish a unique, personal allocation target based on your financial position, risk tolerance, and investment timeline.We remain vigilant towards risks to portfolios and the economy, and we thank you for your ongoing confidence and trust. Please rest assured that our entire team will remain dedicated to helping you successfully navigate this market environment.Please do not hesitate to contact us with any questions, comments, or to schedule a portfolio review.________________________________________________________________________________________________________________This is provided for informational purposes only and is not intended as investment advice or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed are those of the author as of the date of publication and are subject to change without notice. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. You should consult your own tax or legal advisor regarding your individual situation. Please consult your Financial Advisor to determine whether any strategy discussed is appropriate for your individual circumstances.