By the end of March, global markets had been hit by a combination of geopolitical conflict, surging oil prices, renewed inflation fears, and shifting expectations for interest rates. The quarter ended with steep losses across most equity markets, major swings in bonds and currencies, and a dramatic rally in energy prices.

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January: A Strong Opening for International Markets

Global markets began 2026 on a relatively positive note. European and Asian shares outperformed the United States in January as investors rotated away from the expensive U.S. technology sector and into cheaper international stocks.

European equities were among the strongest performers. Major indices such as the STOXX Europe 600 and MSCI Europe rose strongly during the first two months of the year, helped by improving expectations for the eurozone economy, lower valuations, and stronger performance from industrial, defence, and financial companies.

Emerging markets also enjoyed a solid start. A weaker U.S. dollar and improving earnings supported equities in countries such as India, Taiwan, South Korea, and parts of Latin America. Investors increasingly favoured what became known as the “Ex-America trade” — shifting money away from the U.S. market and into Europe and Asia.

Meanwhile, the U.S. stock market struggled to keep pace. The S&P 500 and Nasdaq moved unevenly in January as investors questioned whether large technology companies could continue delivering the rapid earnings growth that had powered markets in 2025.

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February: Europe and Emerging Markets Extend Their Lead

By February, the gap between international markets and the United States had widened.

European stocks were up roughly 6–8% year to date by the end of February, significantly outperforming Wall Street. Germany, France, and Italy all posted strong gains, while defence companies, industrial firms, and banks led the rally.

Emerging-market shares also advanced. Taiwan and South Korea benefited from continued demand for semiconductor and AI-related companies, while India remained supported by strong domestic growth. China’s market was mixed, but signs of stabilisation in manufacturing and consumer spending encouraged investors.

The U.S. market remained weaker than other regions. Investors became increasingly concerned that the Federal Reserve would keep interest rates higher for longer. Inflation had stopped falling as quickly as expected, and there were growing worries that rising wages and strong consumer spending would prevent rapid rate cuts.

Technology stocks, which had dominated the previous year, began to lose momentum. Investors started favouring more defensive sectors such as utilities, healthcare, and consumer staples.

At the same time, bond markets were becoming more unstable. Yields on government bonds rose during February as investors scaled back expectations for lower interest rates. Rising yields hurt growth stocks, especially in the technology sector.

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March: Geopolitical Crisis Sparks a Market Sell-Off

March transformed what had been a mixed quarter into a difficult one.

The biggest shock came from the escalation of conflict involving the United States, Israel, and Iran. Concerns over disruptions to oil exports and shipping through the Strait of Hormuz triggered a sharp rise in energy prices.

Brent crude oil surged above $115 a barrel during the month, while U.S. crude climbed above $100. By late March, oil had recorded one of its biggest quarterly increases in more than two decades.

The jump in energy prices quickly spread through financial markets. Investors feared that more expensive oil would push inflation higher again and force central banks to delay rate cuts.

Global equities sold off sharply:

• The MSCI global stock index fell about 9% in March.
• Europe’s STOXX 600 dropped around 8%, its worst month in almost four years.
• The S&P 500 lost roughly 6–7% during March.
• The Nasdaq entered correction territory as investors dumped technology shares.
• Smaller companies performed even worse, with the Russell 2000 suffering one of its steepest declines since 2020.

Asian markets also weakened. South Korea’s KOSPI and Japan’s Nikkei both declined as higher oil prices and weaker global growth expectations hurt investor confidence. Nifty 50 and BSE Sensex lost more than 11% each in March and are down 5.1% and 7.1% respectively in financial year 2026, which ends ​on 31st March. The Indian Rupee fell to a record low for the third straight session on the last day of March.

The only major equity sector to perform well in March was energy. Oil producers, refiners, and commodity-related businesses surged as crude prices climbed. Fertiliser companies, agricultural producers, and metals companies also gained because investors expected higher commodity prices and supply shortages.

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Bond Markets: A Flight to Safety

Bond markets experienced two distinct phases during the quarter. In January and February, bond yields rose because investors expected central banks to keep rates higher for longer. However, once geopolitical tensions escalated in March, investors rushed back into safer assets.

Government bond prices rose in late March, pushing yields lower. U.S. Treasury bonds, German bunds, and British gilts all benefited from a flight to safety.

However, unlike many previous crises, bonds did not fully protect investors during the quarter. Rising inflation expectations limited the rally in bond prices because investors worried that central banks would still need to keep interest rates elevated.

Currency Markets: Dollar Weakness Gives Way to Safe-Haven Demand

Currency markets also shifted dramatically over the three months.

Early in the quarter, the U.S. dollar weakened as investors moved money into Europe and emerging markets. The euro, Japanese yen, and several emerging-market currencies strengthened.

But in March, the mood changed. As investors became more risk-averse, demand for safe-haven currencies increased.

The Japanese yen and Swiss franc rose strongly during the final weeks of the quarter. The U.S. dollar also stabilised after its earlier decline because investors sought safety in dollar-denominated assets.

Meanwhile, currencies of oil-importing nations weakened as rising energy costs threatened their economies.

Commodities: Oil Dominates the Quarter

No asset class captured the story of the first quarter more clearly than commodities.

Oil was the standout performer. Brent crude recorded one of its strongest quarterly gains since the early 2000s. Natural gas prices in Europe also jumped sharply because of fears about energy supplies.

Gold initially rose as investors sought safe havens, but its gains were uneven. At times, gold struggled because rising bond yields and a stronger U.S. dollar made it less attractive.

Industrial metals and agricultural commodities were mixed. Copper and aluminium prices climbed during periods of optimism about global manufacturing, while food-related commodities gained on concerns about higher transportation and fertiliser costs.

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Conclusion

The first three months of 2026 showed how quickly market leadership can change. The year began with optimism around international stocks and hopes for lower interest rates. But by the end of March, markets were dominated by war, inflation fears, and an energy shock.

Although Europe and emerging markets initially outperformed the United States, nearly all major regions ended the quarter under pressure. One of the only clear winners were defensive and aerospace stocks.

Investors now enter the second quarter facing major questions: whether geopolitical tensions will ease, whether oil prices will remain elevated, and whether central banks can balance slowing growth with renewed inflation pressures. The answers to those questions are likely to determine the direction of global markets for the rest of 2026.

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