Q1 Market Update: Resilience amid geopolitical shocks

Senior Investment Specialist Rebecca Cretney shares Q1 insights on how portfolios are positioned to stay resilient through energy‑driven volatility while remaining focused on long‑term opportunities.

Filmed on Friday 24 April 2026.

Q1 2026 Market Commentary: a comprehensive breakdown of Q1 investment markets from our colleagues at Nedgroup Investments.

The first quarter of 2026 was shaped overwhelmingly by rising geopolitical risk, with the escalation of conflict involving Iran fundamentally altering the market backdrop as the period progressed. Early optimism gave way to sharp cross‑asset volatility, as energy markets repriced and inflation expectations rose.

The quarter began constructively. Strong economic data through January and February supported risk assets, with both US and European equities reaching record highs. However, tensions in the Middle East were already building beneath the surface. In January, oil prices began to move higher amid speculation around potential US action, following increasingly confrontational rhetoric from President Trump towards Iran. By the end of the month, Brent crude had recorded its largest monthly increase in four years.

These concerns intensified in February, culminating in direct strikes at the end of the month. The immediate market response was a sharp surge in oil prices, with Brent recording its largest daily jump since 2022. As expectations for a swift resolution faded, energy prices continued to climb through March, ultimately registering their largest quarterly increase since the Gulf War in 1990. Futures markets also reflected growing expectations of a prolonged disruption.

Rising oil prices reignited concerns around inflation and growth, triggering a broad-based sell‑off across risk assets. Global equities fell sharply during March, with US and European markets experiencing their steepest monthly declines in over a year. Beyond the headline indices, technology stocks were particularly weak. Software companies came under pressure as the release of new AI tools intensified debate around future earnings sustainability, resulting in the sector’s largest quarterly decline since the global financial crisis.

Fixed income markets were similarly affected. Inflation expectations moved sharply higher, prompting investors to reassess the outlook for central bank policy. In the US, markets largely priced out the prospect of rate cuts for 2026, while in Europe expectations shifted decisively towards further tightening. Government bond yields rose materially over the quarter, with both US Treasury yields and German Bund yields reaching levels not seen for over a decade.

Trade policy also contributed to market uncertainty early in the quarter. Renewed tariff threats from President Trump emerged as he sought to orchestrate a deal involving US control of Greenland, briefly unsettling European assets. These concerns eased after indications that a negotiating framework was being discussed. Later in the quarter, a Supreme Court ruling overturned the legal basis for a portion of previously imposed tariffs, only for these to be partially reinstated under alternative legislation, prolonging uncertainty around the global trade environment.

Japan stood out as a relative area of resilience. Political developments early in the quarter led to initial weakness in government bonds, as expectations for fiscal easing intensified ahead of elections. Equity markets responded more positively, with Japanese stocks advancing following a decisive electoral outcome for Prime Minister Takaichi and remaining one of the few major markets to post gains over the quarter despite the global sell‑off.

As the quarter closed, markets were left grappling with the implications of higher energy prices, tighter financial conditions and elevated geopolitical risk. While periods of heightened volatility such as this can be uncomfortable, they also serve as a reminder of the importance of diversification and a long‑term perspective when navigating uncertain environments.

How has this translated to financial markets?

Given this backdrop, equities were mixed over the quarter, with the global index down by -2.6%, with Japan (+2.9%) and the UK (+4.0%) leading the way, whilst the US (-4.9%) lagged. In terms of equity styles, value stocks (+1.3%) outperformed growth (-7.6%), and small-cap stocks (+1.2%) outperformed large caps (-2.6%). There was wide variation in sector performance, with Energy (+33.8%) by far the strongest sector, while Consumer Discretionary (-10.8%) and Communication Services (-7.8%) lagged significantly.

Fixed income markets were broadly negative as yields rose. Looking at the details, global government bonds (-0.1%) finished the quarter slightly below water, but outperformed Investment Grade Credit (-0.5%), Global High Yield (-0.6%) and global emerging market debt (-1.1%).

In the real assets space, global real estate (+0.9%) and global infrastructure (+7.6%) diverged, with both outperforming equity markets. Finally, Commodities (+24.4%) had a very strong quarter with Oil (+79.8%) being a clear stand out, whilst Agriculture (+8.0%), Gold (+7.1%) and Industrial Metals (4.6%) were also positive.