Investment environment overview 03/2026

The global geopolitical environment deteriorated sharply in March, marked by the culmination of yet another  “Ginger Swan” event. Operation “Epic Fury” shifted from a largely speculative geopolitical narrative to a tangible supply side macroeconomic shock, notably impacting equity markets. As both sides exchanged threats, missiles and other military escalations throughout the month, the risk of further hostilities still remains high, although a two-week ceasefire between the U.S. and Iran was brokered on the 8th of April, which triggered a sell-off in oil futures and a relief rally across other asset classes.

U.S. equity markets delivered a broad and synchronized retreat in March. The S&P 500 fell 5.1%, its worst first quarter performance since 2022, while the Nasdaq Composite dropped 4.8%. This was not merely an unwinding of stretched valuations, it was a wholesale risk repricing. The DJIA, which had been riding a ten-month winning streak, also buckled, declining 5.4%. The correction reflected a broader reassessment of the growth and policy backdrop as investors rotated away from the earnings and AI narrative that had supported performance earlier in the year. In Europe, damage was even more pronounced. The STOXX 600 posted an 8.0% monthly decline, its worst performance since June 2022, as the region’s greater dependence on imported Middle Eastern energy and thinner domestic buffers leaves it exposed to increasing industrial input costs. Energy stood out as the sole area of strength, with the S&P 500 Energy sector gaining roughly 12% and the STOXX 600 Oil & Gas index surging 14.6%.

Oil moves reframe stagflation risks

The vertical climb in Brent crude, after surging to nearly USD 120 with historic 60% monthly gain, has effectively reframed the global narrative from transitory friction to a structural shock. While the 1970s oil shocks were defined by embargoes, the current crisis is driven by the physical de facto closure of the Strait of Hormuz, stranding roughly 11m bpd of crude and 20% of global LNG. Unlike previous spikes, this move directly anchors inflation expectations while hollowing out corporate margins. In Europe, the shock is unique this time: the loss of Middle East flows coincides with historically low gas storage (approx. 30%), and while Norway remains a critical supplier, the market is on edge as the annual pipeline maintenance season begins. This has forced a bidding war for the remaining global cargoes, particularly as damage to Qatar’s Ras Laffan LNG facility, which is estimated to require 3-5 years for repair, potentially signals a multi-year supply deficit. The result is a textbook stagflationary setup.

Bonds price hard days for central banks

Yields reacted quickly. U.S. Treasury yields rose sharply through the month, with the 10-year yield climbing to around 4.4%, near the highest level in half a year, as investors reduced expectations for policy easing. Before March, investors had been focused on the timing of rate cuts, but by month end the discussion had shifted toward how long policy might remain restrictive, or whether inflation persistence could even force a renewed tightening bias. German Bund yields moved in the same direction, with the 10-year benchmark approaching 3.0%. Bond markets thus confirmed what equities were already signaling: investors were no longer debating whether the conflict would have macro consequences, but how severe and lasting those consequences might be.

Policymakers now face the reality: energy shocks are impossible to ignore when they arrive atop mild financial conditions. The ECB, which entered March with inflation nearing target, watched Eurozone inflation accelerate to 2.5% on imported energy costs. This places European officials in a “pro-cyclical” corner, potentially forcing restrictive policy just as growth stalls. While the U.S. is cushioned by domestic production, the Fed has watched market pricing strip out near-term cuts. While the U.S. navigates a slowdown from relative strength, Europe faces a direct hit that threatens to turn a cyclical downturn into prolonged economic stagnation, so all eyes (and hopes) are now on the Strait of Hormuz.

No haven in safe havens

A standout feature of March was the counterintuitive behavior of traditional hedges. Despite escalating geopolitical risk, Gold fell ~12%, suggesting the move was driven by a forced adjustment to rising real yields and a dominant USD rather than classic fear-driven accumulation.

In a departure from historical playbooks, the oil surge did not trigger a rush into bullion: instead, it raised the opportunity cost of holding non-yielding assets. Similarly, Bitcoin failed its “digital gold” test, remaining weak as liquidity sought the safety of the greenback. The USD remained heavily bid, with EUR/USD hovering around 1.15, reflecting the perceived resilience of the U.S. economy relative to its energy sensitive peers.