Market Commentary Q1 2026

The first quarter of 2026 proved to be a challenging period for global equity markets, as geopolitical tensions, interest-rate uncertainty and shifts in investor sentiment created a more volatile backdrop for investors.

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Global equities retreat after strong previous years

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Global stock markets entered 2026 following several strong years of returns, with many indices reaching historically high valuations by the end of 2025. However, this momentum faded during the first quarter as markets reassessed the outlook for inflation, interest rates and global growth. 

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U.S. equities experienced particular weakness during the quarter. The S&P 500 declined approximately 4–5%, with technology shares leading the pullback after a period of strong performance in recent years. 

International markets also softened, although the picture was mixed. Early in the quarter, emerging markets and Asia-Pacific equities initially outperformed developed markets, supported by improving economic activity and investor diversification away from concentrated U.S. technology exposure. 

Geopolitical tensions drive volatility

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A major theme during the quarter was the resurgence of geopolitical risk, particularly escalating tensions in the Middle East. The conflict increased uncertainty in global energy markets, causing sharp movements in oil prices and contributing to broader market volatility. 

Rising oil prices raised concerns about renewed inflationary pressures, particularly for energy-importing economies. This created uncertainty around the path of interest rates and led investors to reassess expectations for central bank policy.

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Interest Rate expectations shift

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At the start of 2026, markets were anticipating that central banks (particularly the U.S. Federal Reserve) might continue cutting interest rates following the easing cycle that began in 2025. However, inflation risks linked to energy prices and resilient economic activity led investors to question how quickly further policy easing could occur. 

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As a result, bond yields rose during the quarter and financial markets began to price a more gradual path for future rate cuts.

 

Sector and asset class divergence

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Performance across sectors and asset classes diverged significantly during the quarter:

• Technology stocks faced pressure after strong multi-year gains.

• Energy companies benefited from higher oil prices.

• Precious metals, particularly gold, gained as investors sought safe-haven assets amid geopolitical uncertainty. 

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This divergence highlighted the importance of diversification, as not all areas of the market moved in the same direction.

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Looking ahead

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While the first quarter saw a pause in the global equity rally, the broader economic backdrop remains relatively resilient. Many economists still expect moderate global growth during 2026, supported by ongoing investment, improving corporate earnings and structural themes such as artificial intelligence and digital infrastructure. 

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Nevertheless, investors are likely to continue navigating a more complex environment. Key factors to watch in the months ahead include the evolution of geopolitical tensions, inflation trends and central bank policy decisions.

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