Global Macro Events
The final month of the first quarter of 2026 had a significant bearing across asset class returns for the overall three-month period, with the joint US/Israeli attacks on Iran leading to the closure of the Strait of Hormuz – a critical chokepoint in global trade, handling roughly 20% of global oil and gas exports.
Initial optimism at the start of this year around strong projected company earnings – 15% at a global level – easing inflation and increased fiscal support, faded, as markets began to price in elevated price levels and slowing consumer demand, driven by a surge in oil prices (93% over the quarter). In the month prior to this, the narrative around AI – a dominant theme over the last three years – was reframed as a threat to software-as-a-service companies, as the sector dropped 30% following the launch of Anthropic’s Claude Cowork, capable of automating a range of different workflows.
Despite these various challenges, since the end of the second quarter markets have rebounded strongly, supported by the announcement of a two-week truce between Iran and the US at the beginning of April, and expectations that a resolution will be reached between both sides. Conversely however, any prolonged negotiation is likely to have a detrimental impact on asset class returns, given the significance of the Strait of Hormuz and the implications its ongoing closure could have on global inflation.
Equity
Despite the headwinds faced by global equities, including inflation risk and the potential impact to GDP growth, overall performance for the quarter suggested more resilience – largely thanks to returns established in the first two months of the year. As investors increasingly allocated outside of the US over concerns around high valuations – particularly in the technology sector – the S&P 500 US (-4.33%, USD) underperformed both the MSCI Emerging Market (-0.17%, USD) and other developed markets, including the MSCI Europe (-2.82%, USD). Elevated valuations in the US also led to a resurgence in Value names, with a c. 10% dispersion between Value (+1.33%, USD) and Growth (-8.41%, USD) over the quarter.
The software sub-sector was the primary laggard, suffering a significant pullback due to AI assistant Claude by Anthropic and its potential impact on software-as-a-service companies. Elsewhere, while both the UK and other European countries faced risks around rising energy prices, the UK stock market outperformed the Europe (MSCI UK All Cap +0.77% vs MSCI Europe -2.82%, USD), due to the index’s larger exposure to energy companies, as well as high levels of international revenue generation.
Fixed income
Towards the end of the quarter, investors adjusted their full year forecasts from two interest rate cuts in the US, to just one, reflecting revised inflation expectations centered around the price of oil, as well as increased defense spend from governments too, adding to already stretched debt burdens. Some estimates suggest that the Federal Reserve’s preferred measure of inflation, Personal Consumption Expenditure (PCE), could move as high as 3.7%, before trending back down again – it is currently at 3.1%. That said, the Bloomberg Global Aggregate Index was only marginally down (-0.15%, USD over the quarter), reflecting gains in the earlier part of the quarter. At a corporate level, bonds held up relatively well, supported by strong company balance sheets and investors’ search for income, with the Bloomberg Global Aggregate Corporate Index posting +0.89% (USD) over the three-month period.
Commodity
Commodities were volatile throughout the first quarter due to the Middle East conflict, led by a surge in Brent crude oil price by 93% (USD). Despite rising bond yields and a stronger dollar posing headwinds for non-yielding assets, gold demonstrated resilience through this period, albeit did give up gains towards the end of the quarter, owing to some profit-taking after its 60% rise through 2025. Silver, typically even more volatile than Gold and also coming off the back of a very strong 2025 (rising over 100%), moved around significantly over this period too, but ultimately ended up flat. Natural gas, another commodity impacted by closure of the Strait of Hormuz, also surged over 93%, particularly after Qatar’s LNG plant was severely impacted by direct attacks from Iran.
Conclusion
Clearly this was a volatile quarter, marked by events in the Middle East through March, and – because of that – it is easy to forget other news earlier in the year; Nicolás Maduro’s ‘arrest’ in Venezuela, US claims on Greenland, concerns over Private Credit firms’ exposure to software names and more. Despite this, equity and bond markets held up relatively well, albeit bigger challenges remain over the duration of the closure of the Strait of Hormuz and the knock-on effect this has – and will have had – on consumer demand, by way of increased oil and gas prices.
However, the strong equity market rebound since the start of April, supported by 88% of S&P500 company earnings so far being ahead of expectations, as well as the prospect of a resolution to the current conflict in the Middle East, validates a well-supported thesis that remaining invested in the market is almost always the best course of action. As ever, strong levels of diversification across portfolios – including at asset class, region and style level – should support more resilient returns, which is particularly important when faced with the current levels of uncertainty.
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