Q1 2026 Global Market Review and Perspective

The quarter in summary:

Global markets had a turbulent start to 2026, marked by heightened volatility as investors grappled with geopolitical shocks, rising energy prices, and shifting expectations for monetary policy. Global equities declined during the quarter, while higher‑quality fixed income assets provided relative stability, underscoring the importance of diversification in an uncertain environment.

Global Macro:

Geopolitical developments dominated headlines throughout the quarter. Heightened tensions in the Middle East, alongside US intervention in Venezuela and renewed disputes over Greenland, contributed to elevated volatility. Concerns intensified after US and Israeli strikes on Iran triggered the closure of the Strait of Hormuz, a route that normally carries around one‑fifth of global oil supplies. As the conflict continued and Iran targeted oil and gas infrastructure across the Gulf region, brent crude surged from $72 to over $100 per barrel. Toward the end of the quarter, the US signalled its willingness to end military operations in Iran, and optimism around a potential off‑ramp to the conflict provided some support for equity markets. On 7^th April, the US and Iran agreed to a two‑week ceasefire, contingent on the reopening of the Strait of Hormuz. However, uncertainty remains around both the timing and the durability of any reopening. Oil prices pulled back sharply following the announcement, with brent crude falling to around $96 per barrel.

Higher energy prices fed directly into headline inflation, complicating the outlook for central banks. In response, policymakers in the US, Canada, Europe, and the UK held policy rates steady throughout the quarter, adopting a cautious wait‑and‑see approach as they assessed the inflationary impact of the energy supply shock.

Adding to uncertainty, the US Supreme Court ruled against the use of the International Emergency Economic Powers Act (IEEPA) to justify the reciprocal tariffs introduced in 2025. While the ruling reduced immediate legal risk, tariff‑related costs remain a structural headwind, and the threat of renewed trade frictions continues to weigh on business confidence and global growth expectations.

Equity Market:

Equity markets experienced a broad‑based correction in Q1 as investors navigated multiple cross‑currents. The MSCI USA Index fell –4.6%, underperforming other developed markets, while the MSCI World ex USA Index declined a more modest –0.9%. Emerging markets were relatively resilient, falling just –0.2%, extending the strong relative performance they demonstrated in 2025.

This divergence reflected a combination of valuation differences, sector composition, and varying sensitivity to energy prices and interest‑rate expectations. US equities, which remain heavily skewed toward large growth companies, proved particularly vulnerable as discount rates rose.

 

 

Source: Bloomberg Global equities, Source MSCI: MSCI ACWI NR USD; US equities: MSCI USA NR USD; Developed Market exUS equities: MSCI World ex USA NR USD; EM equities: MSCI Emerging Markets NR USD. All indices are net return in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 31 March 2026.

One of the most striking features of the quarter was the pronounced style rotation beneath the surface. After several years of growth leadership, value stocks materially outperformed growth stocks. The MSCI ACWI Growth Index fell –7.7%, while the MSCI ACWI Value Index rose +1.2%, resulting in an unusually wide performance gap. At the same time, small‑cap equities outperformed large‑caps, with the MSCI ACWI Small Cap Index up +1.1%, compared with a –3.7% decline for the MSCI ACWI Large Cap Index. This pattern was evident across regions, although it was most pronounced in the US market.

 

 

Source: Bloomberg, Source: MSCI. All indices are net return in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 31 March 2026.

Looking beyond the quarter, the past five years provide useful context on style cycles and valuation discipline. Over this period, value and growth equities delivered broadly similar headline returns, but value achieved those outcomes with meaningfully lower volatility. In practical terms, this meant comparable returns with less downside risk. That risk‑adjusted profile helps explain why extended periods of growth dominance are often vulnerable to sharp reversals, including the one seen in Q1, and why value remains a deliberate and enduring allocation of our portfolios.

Fixed Income Market:

Across both key developed and emerging markets, government bond yields rose over the quarter, reflecting higher inflationary pressures. Moves were more pronounced at the short end of the yield curve, as investors adjusted expectations for central‑bank policy.

Short‑dated global government bonds proved relatively resilient. The FTSE World Government Bond 1–5 Year Index (hedged to USD) delivered a +0.2% return in Q1. Investment‑grade corporate bonds also posted modest gains, with the Bloomberg USD Corporate 1–5 Year Index returning +0.1%, although widening credit spreads during intermittent risk‑off periods weighed on performance.

Inflation‑linked bonds outperformed nominal government bonds, supported by rising energy prices and renewed concerns around the inflation outlook. Overall, an emphasis on higher‑quality fixed income, with no exposure to high yield, helped mitigate volatility and preserve capital during a challenging quarter for equity markets.

Summary, Outlook and Investment Considerations

Overall, despite the volatility and headline noise, global equity markets are down only around 3% year‑to‑date, following three consecutive years of double‑digit gains. Looking ahead, elevated geopolitical risks and sticky inflation suggest that volatility is likely to persist as markets continue to reassess the path of monetary policy. At the same time, greater dispersion across regions, styles, and asset classes is creating a broader opportunity set for well‑diversified portfolios. In this environment, diversification remains essential: periods of uncertainty tend to reward patience, discipline, and a long‑term approach, and maintaining balanced portfolios aligned with long‑term objectives remains the most effective way to manage risk while positioning for opportunities as they emerge.

Source: All index data from Bloomberg as of 31 March 2026, unless otherwise stated. See end of report for further information. Please note any past performance mentioned is not a guide to future performance and may not be repeated.

Notes:

Certain information contained herein (the “Information”) is sourced from/copyright of MSCI Inc., MSCI Solutions LLC, or their affiliates (“MSCI”), or information providers (together the “MSCI Parties”) and may have been used to calculate scores, signals, or other indicators. The Information is for internal use only and may not be reproduced or disseminated in whole or part without prior written permission. The Information may not be used for, nor does it constitute, an offer to buy or sell, or a promotion or recommendation of, any security, financial instrument or product, trading strategy, or index, nor should it be taken as an indication or guarantee of any future performance. Some funds may be based on or linked to MSCI indexes, and MSCI may be compensated based on the fund’s assets under management or other measures. MSCI has established an information barrier between index research and certain Information. None of the Information in and of itself can be used to determine which securities to buy or sell or when to buy or sell them. The Information is provided “as is” and the user assumes the entire risk of any use it may make or permit to be made of the Information. No MSCI Party warrants or guarantees the originality, accuracy and/or completeness of the Information and each expressly disclaims all express or implied warranties. No MSCI Party shall have any liability for any errors or omissions in connection with any Information herein, or any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.

MSCI All Country World Index is a market capitalization weighted index that measures the performance of large and mid-cap stocks across 23 Developed Markets and 24 Emerging Markets (EM) countries.

FTSE World Government Bond 1-5 Year Index Hedged (WGBI) Is a broad index providing exposure to the global sovereign fixed income market. The index measures the performance of fixed-rate, local currency, and investment-grade sovereign bonds. It comprises sovereign debt from over 20 countries, denominated in a variety of currencies.

Bloomberg USD Corporate 1-5Yr TR USD Index is a measure of USD‑denominated, investment‑grade, fixed‑rate, taxable corporate bond market with remaining maturities from 1 to 5 years.

MSCI All Country World Value Index captures large and mid-cap securities exhibiting overall value style characteristics across 23 Developed Markets countries and 24 Emerging Markets countries.

MSCI All Country World Growth Index captures large and mid-cap securities exhibiting overall growth style characteristics across 23 Developed Markets countries and 24 Emerging Markets countries.

MSCI All Country World Large Cap Index captures large cap representation across 23 Developed Markets and 24 Emerging Markets countries.

MSCI All Country World Small Cap Index captures small cap representation across 23 Developed Markets and 24 Emerging Markets countries.

The Legal Stuff

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