Geopolitical tensions increased sharply as US-Israeli strikes on Iran were followed by retaliation and disruption to oil flows through the Strait of Hormuz. Market reaction has been as expected - with commodity assets, notably oil, rising sharply and equities coming under pressure. Over the month, the rotation out of asset light (such as technology/software) into asset heavy (e.g. utilities, mining and energy) sectors continued, driven by investors’ assessment of the relative impact of AI.
The most significant developments unfolded at month end and into March, with coordinated US and
Israeli strikes on Iran, including the capital, Tehran, killing Iran’s Supreme Leader and targeting major
military infrastructure. Iran responded with missile and drone attacks on Israel, US bases and parts
of the Gulf. The confrontation has broadened beyond the initial exchange, with proxy groups and
neighbouring states increasingly drawn in and the wider region on edge.
Crucially, commercial vessels are steering clear of the Strait of Hormuz, a narrow passage through
which around 20% of global oil trade passes, as insurers and shipowners reassess the risks. Energy
markets react quickly when supply is threatened. Oil prices have jumped, freight and insurance costs
have risen, and investors have sought refuge in gold and government bonds. If the conflict proves contained, markets could stabilise once the initial shock fades, as they often have after geopolitical flare-ups. A prolonged disruption to oil flows, however, would risk higher inflation, renewed pressure on consumers and a headache for central banks that were only just beginning to see price pressures ease. This is not just a regional issue; it has clear global economic consequences. That said, markets have historically absorbed geopolitical shocks once the immediate uncertainty passes, and much will depend on whether tensions escalate further or begin to cool.
Away from geopolitics, a shift in market leadership that began last year has continued into 2026,
with parts of the US technology sector feeling distinctly overcast. AI’s recent surge into the
mainstream has changed the tone - rest easy, this was penned by a human with hopes, dreams and
plenty of fears. AI enthusiasm has unsettled companies seen as vulnerable to disruption, leading
to weakness in software firms and even wealth managers (eek!). Meanwhile, asset heavy sectors
such as mining, utilities, and energy have gained ground, helping the UK market perform relatively
strongly. We explore these ideas further in the questions below. And finally, tariffs, because it would not be a monthly update without them. The US Supreme Court ruled that Trump’s emergency IEEPA tariffs were unlawful, potentially triggering refund claims worth billions. Trump took it well… jokes. No, he promptly announced a 15% tariff on the entire world, though it can only last 150 days without Congressional approval. In short, tariff uncertainty remains very much alive.
Bottom Line
Markets have mostly started 2026 strongly, and it’s healthy to see gains driven by more than just
a few mammoth US technology companies. While geopolitical tensions and policy uncertainty are
reminders that the path is unlikely to be smooth, there are steps that can be taken to help insulate
portfolios from these shocks. One simple step is to ensure your portfolio doesn’t live or die by one
theme, sector or type of stock. That won’t prevent every setback, but it may help you sleep more
soundly.
What’s on your mind?
Should I be worried about investing at the moment as markets continue to go up? One of the most common questions investors ask is ‘should I really be investing now, when markets are at record levels?’ The instinct is understandable. But the evidence tells a very different story. Rather, historical analysis of markets shows that returns on investments made at all-time highs are broadly in line with - and in some periods slightly better than - returns from any other starting point. This has largely been attributed to the momentum effect, a period in which positive sentiment and increased investor risk appetite can drive markets higher. It is also important to note that the wide variety of available assets means that as one
region or sector is out of favour another is in favour - helping to dampen any potential losses. This once again highlights the importance of diversification within equities and fixed income. In summary, what the data has shown is that not investing at all presents greater risk than investing at all-time highs. Missing just a handful of the best trading days over a multi-decade period can cut a portfolio's value dramatically, and those days tend to cluster after selloffs, catching investors sitting on the sidelines off-guard.
Why has the UK stock market continued to perform well?
If you’re reading UK newspapers, you would be forgiven for thinking the country is weeks from collapse. However, despite all this doom and gloom, the UK stock market keeps moving like the bus from Speed (1994). Global stock markets have seen a rotation away from high growth US technology stocks towards the “old economy” names of the UK, which, first and foremost, are noticeably cheaper than their US counterparts. With large constituents in traditionally safe sectors such as consumer staples and healthcare, the UK offers the profile many investors currently crave. A sector that has benefited from increased global tensions is aerospace and defence, with Rolls-Royce and BAE enjoying strong starts to the year on the back of planned spending by NATO members. Meanwhile, mining giants like Glencore and Fresnillo are riding a commodities boom; record gold and silver prices, coupled with increased copper demand for AI infrastructure and the green energy transition, have provided a massive boost to the sector. Finally, the UK financial sector has had a strong start to the year, with banks and insurers reporting profits above market expectations.
What has been driving US stock market underperformance?
After years of outperformance, the US lagged global peers in 2025 and that has continued into 2026, marking one of its weakest starts versus the rest of the world in decades. The slowdown has been driven largely by cooling momentum in technology, long the engine of US returns. The biggest tech firms are now in an AI spending race, with Alphabet (Google), Amazon, Meta (Facebook) and Microsoft set to invest around $650 billion in 2026 alone, much of it on AI chips from companies such as Nvidia.
Investors are questioning how quickly that spending will convert into profits. Even strong results have not guaranteed gains. Nvidia, now the world’s largest listed company, beat expectations yet still saw its share price fall. Meanwhile, leadership has rotated toward more defensive, asset heavy sectors such as energy, materials and consumer staples. So-called HALO (heavy asset, low obsolescence) stocks, like Walmart, Exxon Mobil and Caterpillar, have generally benefited from the recent rotation away from high growth technology. While the main US stock market has largely trodden water, the equally weighted version has outperformed, highlighting the value of diversification at a time when almost 40% of the US market sits in just ten names.
