Global markets entered 2026 supported by expectations of interest rate cuts, signs of resilient economic activity and buoyant company earnings growth. Equity markets rallied with several indices reaching multi‑year highs. However, this optimism was derailed in early March by the outbreak of war in the Middle East. The resulting surge in oil prices unsettled markets worldwide, leading to increased volatility, a sharp rotation in sector leadership and a renewed focus on inflation risks.
In equity markets, Technology and other growth stocks, which had driven early gains, sold off sharply in March. High‑valuation, AI‑focused companies were particularly weak as investors reassessed stretched valuations in a higher‑inflation, more uncertain environment. These stocks became the main drag on US equity indices. In contrast, energy stocks surged as oil prices spiked following supply disruptions through the Strait of Hormuz. Defensive areas such as utilities and essential consumer goods like food, also performed relatively well as investors sought stability. By quarter‑end, US equity market weakness was concentrated in a small number of very large companies, while performance outside these areas was more resilient.
Regional performance diverged meaningfully. European equities rallied strongly through February but gave back those gains in March. The UK stood out as a relative outperformer: the FTSE 100 rose by around 4%, supported by its heavy weighting to energy, mining and banking stocks. The index reached an all‑time high in late February before retreating modestly amid March’s volatility. Asian markets were more mixed. Rising energy import costs weighed on sentiment, although Japan was a notable bright spot. Japanese equities surged earlier in the quarter following a decisive election result and pro‑growth policy signals, finishing the period with solid gains despite a late pullback. Emerging markets also proved resilient, with commodity‑exporting countries benefiting from higher oil and metals prices. Overall, international markets outperformed the US during the quarter, reversing the pattern of 2025.
Fixed income markets were volatile. Bond yields initially fell as inflation pressures eased and investors anticipated interest‑rate cuts. However, the oil price shock reversed this trend, reigniting concerns about inflation and pushing yields higher towards the end of the quarter. Credit markets remained relatively resilient, with only modest widening in corporate bond spreads, supported by generally strong corporate balance sheets. Nevertheless, heightened volatility and heavy issuance limited bond price gains.
Inflation dynamics became more complex as the quarter progressed. While headline inflation had been easing early in the year, the late‑quarter surge in energy prices reversed some of that progress. Core inflation remained stubbornly above central bank targets in the US and Europe. The sharp rise in oil and natural gas prices raised concerns that inflation pressures could persist for longer, placing policymakers in a difficult position.
In response, central banks adopted a more cautious, “wait‑and‑see” approach. The US Federal Reserve paused further rate cuts following its late‑2025 easing, citing increased uncertainty. The European Central Bank also held rates steady, and the Bank of England shifted to a more hawkish tone, warning that higher energy prices could push inflation higher, meaning that further policy tightening could not be ruled out. The Bank of Japan maintained its cautious approach, balancing modest domestic inflation against heightened global risks.
By the end of March, investor sentiment was cautious but not panicked. Volatility spiked in March but eased as oil prices retreated from their highs on hopes of a diplomatic resolution. The quarter reinforced the importance of diversification and discipline. Despite significant short‑term uncertainty, global markets remain close to recent highs, and history suggests that maintaining a balanced, long‑term investment approach remains the most effective way to navigate periods of geopolitical and economic stress.
Market Update April 2026
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Global markets entered 2026 supported by expectations of interest rate cuts, signs of resilient economic activity and buoyant company earnings growth. Equity markets rallied with several indices reaching multi‑year highs. However, this optimism was derailed in early March by the outbreak of war in the Middle East. The resulting surge in oil prices unsettled markets worldwide, leading to increased volatility, a sharp rotation in sector leadership and a renewed focus on inflation risks.
In equity markets, Technology and other growth stocks, which had driven early gains, sold off sharply in March. High‑valuation, AI‑focused companies were particularly weak as investors reassessed stretched valuations in a higher‑inflation, more uncertain environment. These stocks became the main drag on US equity indices. In contrast, energy stocks surged as oil prices spiked following supply disruptions through the Strait of Hormuz. Defensive areas such as utilities and essential consumer goods like food, also performed relatively well as investors sought stability. By quarter‑end, US equity market weakness was concentrated in a small number of very large companies, while performance outside these areas was more resilient.
Regional performance diverged meaningfully. European equities rallied strongly through February but gave back those gains in March. The UK stood out as a relative outperformer: the FTSE 100 rose by around 4%, supported by its heavy weighting to energy, mining and banking stocks. The index reached an all‑time high in late February before retreating modestly amid March’s volatility. Asian markets were more mixed. Rising energy import costs weighed on sentiment, although Japan was a notable bright spot. Japanese equities surged earlier in the quarter following a decisive election result and pro‑growth policy signals, finishing the period with solid gains despite a late pullback. Emerging markets also proved resilient, with commodity‑exporting countries benefiting from higher oil and metals prices. Overall, international markets outperformed the US during the quarter, reversing the pattern of 2025.
Fixed income markets were volatile. Bond yields initially fell as inflation pressures eased and investors anticipated interest‑rate cuts. However, the oil price shock reversed this trend, reigniting concerns about inflation and pushing yields higher towards the end of the quarter. Credit markets remained relatively resilient, with only modest widening in corporate bond spreads, supported by generally strong corporate balance sheets. Nevertheless, heightened volatility and heavy issuance limited bond price gains.
Inflation dynamics became more complex as the quarter progressed. While headline inflation had been easing early in the year, the late‑quarter surge in energy prices reversed some of that progress. Core inflation remained stubbornly above central bank targets in the US and Europe. The sharp rise in oil and natural gas prices raised concerns that inflation pressures could persist for longer, placing policymakers in a difficult position.
In response, central banks adopted a more cautious, “wait‑and‑see” approach. The US Federal Reserve paused further rate cuts following its late‑2025 easing, citing increased uncertainty. The European Central Bank also held rates steady, and the Bank of England shifted to a more hawkish tone, warning that higher energy prices could push inflation higher, meaning that further policy tightening could not be ruled out. The Bank of Japan maintained its cautious approach, balancing modest domestic inflation against heightened global risks.
By the end of March, investor sentiment was cautious but not panicked. Volatility spiked in March but eased as oil prices retreated from their highs on hopes of a diplomatic resolution. The quarter reinforced the importance of diversification and discipline. Despite significant short‑term uncertainty, global markets remain close to recent highs, and history suggests that maintaining a balanced, long‑term investment approach remains the most effective way to navigate periods of geopolitical and economic stress.
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