Market conditions became more unsettled through March as geopolitical risks escalated, driven primarily by the intensification of the conflict involving Iran. While volatility (the extent by which markets go up and down) increased across asset classes, we have seen a range of responses from different ways of investing. Rising concerns around oil supply, particularly through the Strait of Hormuz, have prompted a reassessment of inflation risks and, by extension, interest rate expectations and growth prospects.
Oil prices rose posted one of their strongest monthly increases on record. The disruption to tanker traffic, alongside damage to regional energy infrastructure, has embedded a renewed geopolitical risk premium into oil prices. Uncertainty has been amplified by concerns around the duration of supply disruption. Even under relatively benign scenarios, it is increasingly recognised that a full return to pre‑conflict supply levels could take several years. As a result, markets have begun to focus not just on the immediate price shock, but on the longer‑term implications for inflation persistence and economic resilience.
This shift in focus has had different consequences across asset classes. Equity markets have been most sensitive to the rise in energy prices and the associated squeeze on margins and consumer spending. Bond and currency markets, by contrast, have been more directly influenced by changes in inflation expectations and short‑term interest rate pricing.
Source: Bloomberg
Global equity markets declined over the month, though performance varied meaningfully by region. In euro terms, US equities (in green) fell by 2.8%, while UK equities (in orange) declined by 6.2%. Other regions, including Europe, experienced larger drawdowns, with losses across Japan, emerging markets and Asia exceeding 11%.
The relative underperformance of Europe and parts of Asia largely reflects their greater reliance on imported oil and gas. Higher energy prices act as a drag on both household spending and corporate profitability, making these regions more vulnerable to a prolonged supply shock. By contrast, markets with greater domestic energy security, particularly the United States, have been relatively more resilient.
China has been also relatively less affected than many regional peers. While the country remains a significant importer of crude oil, it also holds substantial strategic reserves and has made rapid progress in expanding renewable energy capacity. Large‑scale investment in wind and solar generation has reduced China’s reliance on fossil fuels over time, with crude oil accounting for only around a fifth of total energy consumption in 2024. These factors have helped to limit the direct economic impact of higher oil prices relative to other energy‑importing economies.
At a sector level, we saw pronounced differences in performance. Energy stocks were clear outperformers, supported by rising commodity prices and improving earnings expectations. Utilities and Financials also held up relatively well, benefiting from more stable cash flows, and the prospect of higher interest rates.
More cyclical and growth‑sensitive sectors, including Industrials and communication services, lagged as investors weighed the potential impact of higher input costs and weaker demand. This pattern of returns is consistent with a cautious re‑pricing of risk rather than a broad withdrawal from equities.
Looking beyond the month, equity markets have remained relatively resilient year‑to‑date. Despite heightened volatility, global equities are down less than 2% since the start of the year. Corporate earnings expectations have continued to edge higher overall, as upgrades within the energy sector have offset softer trends elsewhere. Markets continue to operate on the assumption that geopolitical tensions ease later in the spring, helping to limit downside for now.
Currency movements once again played an important role in shaping investor outcomes. In line with a more risk‑averse environment, the US dollar strengthened over the month, acting as a traditional safe‑haven currency.
For euro‑based investors, this provided a partial offset to equity market weakness. Although US equities posted significant declines in local terms, the stronger dollar meant losses were less severe when translated back into euros. This highlights the ongoing diversification benefits of global portfolios, particularly during periods of market stress.
Source: Bloomberg
Bond markets also experienced some significant moves during March, as investors moved quickly to reprice inflation risks linked to higher energy prices. While major central banks broadly held policy rates steady, markets adjusted expectations for the path of future rate cuts, with near-term policy easing priced out across much of the developed world. Bond markets react negatively to expectations of rising inflation and consequent increases in interest rates.
In March, government bonds generally outperformed corporate bonds, reflecting a more cautious investor stance. US Treasuries, in particular, held up relatively well, to some extent seen as a safe haven in the midst of uncertainty. Company balance sheets remain in a reasonably healthy state but the wider “risk off” environment dragged down corporate bond prices.
Despite heightened uncertainty, for now, market behaviour remains broadly consistent with a period of adjustment rather than crisis. Different asset classes are responding to different pressures, reinforcing the importance of diversification across regions, sectors and asset classes.
Our central view remains that the global economy is sufficiently robust to absorb the current shock, albeit with increased volatility in the near term. While risks remain elevated, markets are not pricing a severe downturn. Maintaining a disciplined, long‑term approach continues to be the most appropriate response in an increasingly complex global environment.
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This publication was prepared by Bernard Walsh, Head of Investments & Pensions for Fairstone Asset Management DAC trading as Fairstone & askpaul.
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Information as of the date of publication 01/04/2026
