Market Brief — March 2026: Volatility Returns, Fundamentals Hold

Commentary as of March 9, 2026

February was a reminder that markets rarely move in straight lines. After a firm start to the year, volatility resurfaced as investors navigated evolving AI leadership dynamics, renewed trade policy adjustments in the US, and escalating geopolitical tensions in the Middle East.

While headlines drove short-term swings across equities, bonds and commodities, the broader macro and earnings backdrop has not materially deteriorated. Distinguishing between temporary volatility and changes in underlying fundamentals remains critical.

1. Macro Backdrop

February unfolded against a backdrop of resilient global growth, ongoing trade policy adjustments, and rising geopolitical tension.

In the United States, economic activity remained steady.¹ Manufacturing indicators showed tentative improvement², and fourth-quarter earnings surprised positively in aggregate, particularly within technology and selected cyclical sectors. Inflation trends remain mixed. Core inflation has moderated from prior peaks³ but is not yet decisively back at target, leaving the Federal Reserve cautious in its policy communication.

Trade policy developments were also in focus. The US Supreme Court struck down certain tariffs imposed under emergency powers, prompting the administration to reintroduce tariffs through alternative legal channels. The net effect appears to be a modest reduction in the average effective tariff rate compared with prior levels, although policy uncertainty remains.

Late in the month, geopolitical risk intensified as US and Israeli strikes on Iran triggered retaliatory actions across the region, including disruptions and threats to shipping through the Strait of Hormuz. Oil prices rose sharply in response. While most research assessments continue to assume only temporary supply disruption, markets are likely to remain sensitive to signs of prolonged escalation.

2. Market Developments: Rotation and Repricing

Equity markets reflected both solid fundamentals and shifting narratives.

February marked the S&P 500’s weakest monthly performance in nearly a year⁴, as volatility tied to AI positioning and geopolitical developments weighed on US equities. Early March has seen continued volatility as energy markets reacted to escalating Middle East tensions. Diving deeper beyond the index level, dispersion widened within sectors. Software and selected growth segments saw broad-based multiple compression, as investors reassessed cash flow assumptions and questioned whether earlier AI-driven valuation expansion was fully justified. In contrast, semiconductors and infrastructure-linked companies continued to benefit from sustained capital expenditure guidance tied to AI buildout.

International markets showed improving breadth. Japanese equities remained supported by corporate governance reforms and rising return on equity trends. Emerging market equities began the year strongly, aided by resilient global growth and a more stable US dollar environment.

In fixed income, yields initially retraced lower during risk-off episodes, with the US 10-year Treasury briefly dipping below 4% during the selloff⁵, before rebounding as rising energy prices renewed concerns around inflation and the path of interest rates. Starting yields remain elevated relative to the past decade, providing a more meaningful income cushion than in prior years.

Gold extended its gains amid geopolitical uncertainty and ongoing central bank demand, reinforcing its role as a potential portfolio diversifier during periods of stress.

3. Asset Class Perspectives

Equities

Corporate earnings remain broadly supportive. US technology sector earnings growth expectations for 2026 continue to outpace most other sectors. However, valuation dispersion has increased. The repricing in software highlights how quickly sentiment can shift when narratives evolve. In this environment, diversification across sectors and geographies may be more prudent than concentrated exposures.

Fixed Income

With high-quality bond yields near the upper end of their 15-year range, fixed income once again provides meaningful income. That said, sustained energy price increases could influence inflation expectations and rate trajectories. Credit spreads remain relatively tight, suggesting careful risk calibration remains appropriate.

Commodities and Real Assets

Gold remained well supported amid heightened geopolitical uncertainty and continued central bank demand, reinforcing its role as a potential portfolio diversifier during periods of stress. While short-term price movements can be volatile, structural drivers such as reserve diversification and geopolitical fragmentation remain in place. Energy markets have reacted sharply to Middle East developments, highlighting sensitivity to supply risks, while broader real assets continue to be influenced by longer-term themes but remain sensitive to interest rate conditions.

4. A Few Things To Watch

• Energy Supply Disruption: Sustained interruption through the Strait of Hormuz could have broader macro implications.

• AI Investment Returns: Capital expenditure plans remain elevated, but markets are increasingly focused on the eventual monetisation path for companies.

• Policy and Trade Uncertainty: Ongoing tariff adjustments and electoral considerations may contribute to episodic volatility.

5. Behavioural Perspective: Navigating Volatility

Periods like February often amplify behavioural biases. Recency bias may lead investors to extrapolate short-term geopolitical shocks into permanent structural change. Conversely, anchoring to prior peak valuations in growth sectors may obscure shifts in underlying fundamentals.

Disciplined portfolio construction, diversification across asset classes and regions, and alignment with long-term objectives may help mitigate reactive decision-making during volatile periods.

6. Looking Ahead

The coming months are likely to be shaped by the durability of global growth, the evolution of inflation and central bank policy, and geopolitical developments. While uncertainty has risen, underlying earnings trends and improved income opportunities in fixed income provide a more balanced starting point than in recent years.

Capital is at risk and market values can rise or fall. Should you wish to discuss how recent developments relate to your broader portfolio objectives, feel free to schedule time with our Investment Advisory team on the app.

¹ Federal Reserve; IMF World Economic Outlook.

² Institute for Supply Management (ISM); S&P Global PMI.

³ US Bureau of Labor Statistics.

⁴ Bloomberg; S&P Dow Jones Indices.

⁵ Bloomberg; U.S. Treasury.