And it was not pretty.

The S&P 500 fell 4.6% in the first three months of the year — the worst quarter since Q3 2022, when Russia's invasion of Ukraine sent markets into a tailspin.

This after three straight years of double-digit returns. The kind of reversal that makes you question everything you thought you knew.

But this wasn’t a clean sell-off.

Only about half of the S&P 500 was actually down in Q1. 264 stocks fell.
The rest? Fine. Some of them were absolutely flying.

So this was a market that rotated — violently, aggressively, and with very clear opinions about who wins next.

Here's the story ⇩

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The biggest drag on the index wasn't some random small cap nobody's heard of.

It was Nvidia. Microsoft. Apple. Alphabet. The names on everyone's watchlist, the stocks that carried markets for three straight years — they just became the reason Q1 was rough.

But the real story is software.

SaaS companies — the ones that dominated 2025 — got absolutely demolished. The market has a new fear and it has a name: agentic AI.

The thesis is simple and brutal: If AI agents can do the work that enterprise software automates, why do you need the software?

Investors didn't wait around for an answer. They just sold.

AppLovin — up 108% in 2025 — became the single worst performer in the entire index for Q1 2026.

Short seller reports, a federal investigation, and the software collapse hit it from every angle simultaneously.

One year you're the belle of the ball. Next quarter you're the cautionary tale.

SaaS companies made up more than half of the bottom 20 performers in Q1. And that is a very clear message.

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While everyone was watching the Mag7 stumble, something quietly extraordinary was happening in a corner of the market most people can't name at a dinner party.

→ Memory chips.
→ Optical components.

The physical infrastructure that actually moves AI data around inside data centers.

Sandisk — spun off from Western Digital last year — gained 168% in Q1.

That's not a typo.
One hundred and sixty eight percent. In three months.

Making it the top performer in the entire S&P 500 for the second quarter in a row — something that according to Bloomberg has never happened before in the index's history.

The fuel? Hyperscalers — Amazon, Google, Microsoft, Meta — are spending aggressively on data center buildout.

All that AI compute needs somewhere to live.

✓ Flash storage,
✓ fiber optics,
✓ the cables and
✓ cooling systems that hold it all together.

Nvidia even invested $2 billion each into Coherent and Lumentum, with purchase commitments attached.

The market isn't scared of AI. It's repricing who actually wins from AI.
And right now, the answer looks a lot more like the infrastructure underneath it.

→ Energy was the other big winner.
Fifteen of the top 30 performers in Q1 were energy and chemical stocks, as oil surged well above $100 a barrel.

→ APA up 74%.
→ Occidental up 58%.
→Valero up 52%.

The second best quarter for energy relative to the S&P 500 since 1999.

And then there’s Tesla.⇩

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And then there's Tesla.

This morning, Tesla reported Q1 deliveries: 358,023 vehicles.

Analysts expected 380,500. Tesla's own consensus estimate was 365,645.
It missed both. By a lot.

It gets worse. Tesla produced about 408,000 vehicles in the quarter, meaning it made 50,400 more cars than it sold. The largest production-to-delivery gap in the company's history. By a significant margin.

Shares were down more than 4% before the market opened.

(Not exactly the morning Elon was hoping for.)

Here's the complicated part though.

Tesla is no longer just a car company in the market's eyes.
✓ It's the other half of Terafab.
✓It's the company whose full self-driving chips are being co-developed with SpaceX.
✓ It's the stock retail investors treat like a vote on whether Elon Musk wins the future.

So you've got a company that missed delivery estimates by 6%, is sitting on its biggest inventory overhang ever, and is simultaneously being positioned as a cornerstone of the most anticipated IPO in history.

Two completely different stories. Same ticker.

The question the market is chewing on today: does the SpaceX narrative bail out the Tesla fundamentals? Or do the fundamentals eventually catch up with the story?

History says the fundamentals always win.

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Q1 was... a market that was making up its mind.

→ Software out.
→ Infrastructure in.
→ Energy back.
→ Tesla: complicated 😃

Q2 starts today. The scoreboard just reset.



!!! Not financial advice. The stocks mentioned are for educational purposes only. Do your own research before making investment decisions, please check the disclaimer below.

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