Investment Commentary - March 2026

 

Financial markets experienced significant turbulence in March, bringing a challenging end to what had initially been a constructive start to 2026. While January and February were supported by improving economic data and resilient risk appetite, sentiment deteriorated sharply as conflict broke out in the Middle East, leading to a sharp increase in energy prices and renewed inflation concerns. This shift in the macro backdrop prompted investors to reassess expectations for monetary policy, with markets moving away from anticipating rate cuts and instead pricing in the possibility of further tightening.

Despite the relatively strong performances in January and February, the scale of the March sell-off resulted in negative returns across most major asset classes for the quarter. Several positioning trends also reversed during this March turbulence. Assets that had performed strongly earlier in the year - such as gold and emerging market equities - declined, while the US dollar strengthened as investors sought relative safety.

Global equity markets came under significant pressure in March as rising energy prices and geopolitical uncertainty weighed on sentiment.

In the US, the S&P 500 declined -5.0% over the month, bringing its year-to-date return to -4.4%. Technology stocks remained under pressure, with the Nasdaq falling -4.7% in March and -7.0% over the quarter. Concerns around the sustainability of AI-driven investment and pressure on software business models continued to act as headwinds.

European markets experienced even sharper declines. The STOXX 600 fell -7.5% in March, leaving it down -0.8% for the quarter. Germany’s DAX dropped -10.3% during the month, reflecting sensitivity to both energy prices and global trade dynamics.

The UK market proved more resilient. The FTSE 100 declined -6.2% in March but remained up +3.4% year-to-date, supported by its relatively high exposure to energy and commodity sectors.

In Asia, Japan’s Nikkei fell -12.7% in March but retained a +2.1% gain for the quarter, making it one of the few major markets to remain in positive territory. Emerging markets were particularly weak, with the MSCI Emerging Markets Index falling -13.0% in March, erasing earlier gains to leave it broadly flat at -0.1% year-to-date.

Overall, the rotation away from growth stocks continued, with value sectors significantly outperforming over the quarter despite the broad-based weakness seen in March.

Bond markets also faced a difficult environment in March, as the inflationary implications of higher energy prices led to a sharp rise in yields.

UK gilts were among the worst performers, declining -4.3% in March and -2.1% over the quarter. The UK’s sensitivity to energy prices and a more hawkish tone from the Bank of England contributed to the sell-off.

In the US, Treasuries fell -1.8% over the month but were broadly flat over the quarter. Rising yields reflected a significant shift in market expectations, with anticipated rate cuts largely priced out.

European government bonds also weakened. Broad Eurozone sovereign bonds declined -2.7% in March, leaving them down -0.7% for the quarter.

Credit markets saw spreads widen amid increased volatility. High yield bonds underperformed investment grade, with euro high yield declining -2.5% in March. Emerging market debt also struggled, particularly in Asia, where returns fell -4.8% over the month.

Commodities delivered exceptionally strong performance in March, driven overwhelmingly by energy markets. Brent crude rose +63.3% during the month, while WTI crude gained +51.3%, reflecting significant supply disruptions. This pushed Brent to a +94.5% gain over the first quarter. Agricultural commodities also moved higher, with wheat rising +4.2% in March and +21.5% year-to-date.

Precious metals experienced sharp reversals. Gold fell -11.6% in March, although it remained up +8.1% over the quarter. Silver declined even more sharply, dropping -19.9% in March.

In foreign exchange markets, the US dollar strengthened as investors sought liquidity and safety. The dollar index rose +2.4% in March, contributing to a +1.7% gain over the quarter. Sterling and the euro both weakened against the dollar, falling -1.9% and -2.2% respectively during the month.

Emerging market currencies came under pressure, with the EM FX index declining -3.3% in March, reflecting both risk aversion and the stronger US dollar.