Tomorrow closes the books on Q1 2026.

And before we look ahead, let's be honest about what this quarter actually was.

$QQQ ( ▲ 1.68% ) entered correction territory.

$DIA ( ▲ 1.08% ) joined it last week.

All 2026 gains are gone.

Oil is up over 40% since the war began.

The Fed shifted from rate cuts to potential hikes.

And most investors spent three months reacting to headlines instead of executing a process.

Markets are green to start the week.

$SPY ( ▲ 1.4% ) up nearly 1%.

$DIA ( ▲ 1.08% ) up nearly 1%.

$QQQ ( ▲ 1.68% ) up 0.8%.

But before you read too much into the green, let me walk you through what is actually driving it.

Because this morning has been a wild ride of contradictory signals.

Trump posted on Truth Social that the US is in serious discussions to end the military operation in Iran.

Markets rallied on that.

Then in the same breath he threatened to obliterate Iran's key desalination and energy infrastructure if a deal is not reached shortly.

Oil popped above $114 on Brent at one point.

Then Treasury Secretary Scott Bessent said on Fox News that the US is going to retake control of the Strait of Hormuz through US or multinational escorts.

Oil pulled back slightly on that.

And now we are sitting with Brent above $107 and WTI above $100.

This is the pattern that defined Q1.

Hope appears.

Oil spikes.

A contradictory statement follows.

Markets settle into confused uncertainty.

Repeat.

Here is the story from this morning that got less attention than it deserved.

Fed Chair Powell spoke at Harvard today and said something that moved bond markets meaningfully.

He said inflation expectations remain well anchored.

He said energy shocks have tended to come and go pretty quickly.

And he said the tendency is to look through supply shocks rather than respond to them with rate hikes.

The 10-year Treasury yield dropped 10 basis points immediately.

The 2-year dropped 10 basis points.

This is significant.

For the past two weeks the market has been pricing in rate hikes because of oil.

Powell just walked that back, at least for now.

The message from the Fed is clear.

We are watching.

We are not acting yet.

And we do not believe this oil shock justifies a policy response until we see it show up in longer term inflation expectations.

That is genuinely good news for income investors.

It means the higher-for-longer rate narrative that was building is not as locked in as it seemed last week.

$ALK ( ▲ 4.8% ) dropped 8% this morning after disclosing that refining margins on their jet fuel from Singapore surged roughly 400% since early February.

Their expected first quarter adjusted loss is now $1.50 to $2.00 per share.

This is not a financial chart.

This is a real company telling you in a securities filing that the Iran war is costing them dramatically more money than expected.

And Alaska Air is not alone.

Every company that burns fuel, ships products, or uses aluminum in their supply chain is having this same conversation internally right now.

The earnings impact of sustained $100 plus oil is going to show up in guidance over the next two quarters.

And when it does, the companies with pricing power, recurring revenue, and minimal commodity exposure are going to look very different from the ones without it.

This is exactly the kind of environment where quality filtering in your portfolio matters enormously.

It is a holiday-shortened week.

Markets close Friday for Good Friday.

The March jobs report drops Friday when markets are closed, which creates an unusual dynamic where you may not see the full market reaction until Monday April 7th.

Between now and then, JOLTS job openings on Tuesday, ADP private payrolls Wednesday, and $NKE ( ▲ 1.87% ) earnings will tell us something real about consumer spending in the current environment.

$BJ ( ▲ 0.6% ) is already down 10% this morning on sluggish consumer spending reports.

That is a warning sign worth watching.

And of course, April 6th is the Iran deadline.

Here is what most investors missed in Q1.

While the headlines were screaming, quality companies were getting sold off indiscriminately.

Consumer staples. Healthcare. Financials. Dividend growers.

All of them dragged down alongside the garbage.

And for disciplined put sellers, that created some of the best entry points of the year.

RSIs at oversold levels.

Implied volatility elevated.

Premium at multi-year highs on quality names.

And earnings flags giving clear structure to when to enter and when to wait.

The investors who had a systematic screening process in Q1 knew exactly which names to watch and when to act.

The investors who were manually screening through hundreds of tickers missed most of it.

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— Pete

This newsletter is for educational purposes only and is not financial advice. Options trading involves substantial risk of loss and is not suitable for all investors. Most traders lose money. Always conduct your own research and consult a qualified financial professional before making any investment decisions.

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