MARKET COMMENTARY – MARCH 2026

Markets faced several crosswinds during February. A US Supreme Court ruling challenged the legal basis for previously announced reciprocal tariffs, creating policy uncertainty. At the same time, tensions between the US and Iran escalated into armed conflict, although this occurred after markets had closed for the month. Despite these geopolitical concerns, economic data was broadly encouraging. Business surveys pointed to continued broadening in global growth, and inflation pressures eased further in the US, UK and Japan, which reassured investors. The situation in the Middle East has since deteriorated, with direct military action between the US, Israel and Iran raising concerns of a wider regional confrontation, contributing to a pullback in global equity markets and a sharp increase in oil prices as investors price in the risk of potential supply disruptions.

Equity markets continued to rotate away from the largest US technology companies. Although the US earnings season delivered another round of strong results, investors questioned whether the heavy spending on artificial intelligence will generate sufficient returns. Large technology companies announced further increases in capital expenditure, and this weighed on performance. As a result, global growth equities declined over the month.

This shift in leadership benefited value-oriented sectors and companies linked to the build-out of AI infrastructure. Manufacturers in parts of Asia and raw material exporters in Latin America performed well, helping emerging markets outperform developed markets. Developed market equities delivered modest gains overall, with performance broadening beyond the US. The US market itself was one of the weaker performers, as concerns about AI disruption and spending weighed on technology and parts of the financial sector. In contrast, materials, utilities and energy stocks were among the strongest sectors.

Japan was a standout performer. Markets reacted positively to the snap election victory of Prime Minister Sanae Takaichi, which delivered a strong parliamentary majority. Investors anticipated further fiscal support, and Japanese equities rose sharply. UK equities also performed strongly, helped by their sector composition, with large-cap stocks benefiting from the rotation into energy and materials. The more domestically focused mid-cap segment lagged behind.

In fixed income markets, government bonds performed well as investors sought higher quality assets amid geopolitical uncertainty and concerns about the longer-term impact of AI on employment. Bond yields generally fell, supporting positive returns across developed markets. UK gilts were among the strongest performers as inflation continued to cool, increasing expectations that interest rates could be reduced in the near term, although the Middle East situation has cast doubt over interest rate movements. In the euro area, inflation remained below target and long-dated bond yields declined as investors grew more cautious about the growth outlook. Corporate bond spreads widened modestly, reflecting some increase in risk awareness, but overall returns remained positive.

Commodities delivered positive returns. Precious metals rebounded strongly after a weak January, supported by ongoing geopolitical uncertainty. Energy prices were softer during most of February due to rising inventories, although oil prices moved higher at the start of March following the escalation of tensions in the Middle East.

Overall, February was a positive month for diversified investors, with gains across most asset classes despite increased volatility beneath the surface. Growth appears to be broadening geographically and across sectors, reducing reliance on a narrow group of US technology stocks. However, uncertainty remains elevated, particularly around geopolitics and the long-term impact of artificial intelligence. While opportunities are expanding across regions and sectors, maintaining diversification remains essential to manage concentration risk and navigate what is likely to remain a more volatile environment.

Total returns in GBP to 28/02/2026

*February 2026

Source of data: FE Analytics, www.bankofengland.co.uk, www.ons.gov.uk

This commentary in no way constitutes a solicitation of investment advice and should not be relied upon in making investment decisions. Past performance is not a reliable indicator of future results. The value of your investments can fall as well as rise and are not guaranteed.