S&P 500 and Russell 1000 Growth indexes fell 4.3% and 9.8% respectively amid rising energy prices and weaker economic data.
US growth stocks tumbled in Q1 2026, with the Russell 1000 Growth index dropping 9.78% and the S&P 500 declining 4.33%. Market volatility surged as rising energy prices and weaker economic data fueled stagflation concerns, prompting investors to reassess Federal Reserve rate cut expectations.
The shift in sentiment moved capital away from growth and tech stocks, particularly enterprise software firms perceived as vulnerable to AI disruption. Semiconductor companies linked to AI infrastructure spending outperformed, while software holdings faced heavy sell-offs. The Federal Reserve held rates steady in January and February, but inflation and supply chain pressures weighed on investor confidence.
Despite the downturn, fund managers expressed long-term confidence in portfolio valuations, citing structural growth opportunities in select sectors. The rotation away from software and underweight positions in semiconductors impacted fund performance during the quarter.