Market Update - March 2026
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March was dominated by the ongoing conflict in the Middle East, with markets navigating heightened geopolitical uncertainty. Oil prices (which have surged as much as 80% since the conflict began) were highly volatile throughout the month, with equity markets generally moving inversely, albeit in a more measured way. Market movements were often driven by headlines and short-term developments, with sentiment shifting quickly in response to news flow rather than underlying fundamentals.
Throughout the month, attention also turned to potential ceasefire negotiations. The US presented a 15-point ceasefire proposal to Tehran, while Iran responded with its own set of demands - highlighting the wide gap between the two sides and the uncertainty around any near-term resolution. Public commentary from President Donald Trump continued to influence market direction, including the decision to extend the pause on strikes against Iran’s nuclear facilities. At the same time, the Pentagon signalled preparations for a potential escalation, with troop levels in the region rising to around 50,000 and additional forces being deployed.
Oil has been the primary transmission channel through which the conflict has impacted financial markets, with prices spiking sharply during the month (Brent crude went above US$100 a barrel). Significantly, oil markets have been in “backwardation”, with spot prices well above future prices, suggesting investors expect the disruption to be temporary and prices to ease over time. As such, the key variable remains duration - if the conflict is contained, the impact is likely manageable; if prolonged, it presents a more meaningful risk to both inflation and growth.
Even so, many major indices remained relatively close (5-10% in many instances) to their record highs, highlighting how measured the pullback has been in the context of the geopolitical backdrop. Solid global economic data through the month likely helped support this resilience.
Since month-end, a ceasefire has been tentatively agreed between the US and Iran, providing some near-term relief to markets - although the situation remains fluid and dependent on the US, Israel and Iran refraining from further attacks and on how negotiations evolve.
US markets
US markets have held up relatively well compared to other regions, supported by a resilient economy (the recent non-farm payrolls print showed that the US economy created 178,000 jobs in March, while PMI data has the US still in expansion mode) and anticipation of strong corporate earnings in Q1- particularly in technology and AI-related sectors.
While major indices moved lower during March (S&P 500 -5.1%, Dow Jones -5.4%, Nasdaq -4.8%), the declines have been modest in the context of the geopolitical backdrop, with markets still sitting not far from record levels. The US continues to benefit from its sector composition, with some large-cap technology companies providing support, and from entering this period with relatively solid economic momentum.
That said, there are signs of cooling. US consumer sentiment has weakened, and higher petrol prices - now around US$4 per gallon - are beginning to weigh on households. Inflation data during the month came broadly in line with expectations, suggesting price pressures are stable for now, although energy costs present an upside risk in the near term.
Corporate earnings remain a key offset to broader uncertainty. Companies exposed to artificial intelligence continue to report strong demand, reinforcing the structural growth story in this area. More broadly, US corporates have shown resilience, with many noting only modest impacts from the conflict so far. Recent developments in the private AI space also highlight the pace of growth, with Anthropic’s revenue run rate reportedly increasing from around $9bn at the end of 2025 to over $30bn recently - a reminder of how quickly this theme is scaling.
The Federal Reserve kept rates unchanged during the month and remains in a difficult position. While growth is slowing, higher energy prices risk keeping inflation elevated. As a result, markets have scaled back expectations for rate cuts this year.
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Europe & Asia economy
European markets were weak, with the FTSE100 falling 6.7% and the STOXX 50 down 9.3%, while Asia also declined, led by a sharp 13.2% fall in Japan’s Nikkei.
The impact of higher energy prices has been particularly evident in Europe. Eurozone inflation rose sharply to 2.5% in March (from 1.9% in February), moving back above the European Central Bank’s 2% target. The increase was driven largely by energy costs, reinforcing concerns around a stagflationary backdrop and raising the prospect that the ECB may need to maintain or even tighten monetary policy despite weakening growth.
Recent data out of China has been more encouraging. The official manufacturing PMI rose to 50.4 in March, returning to expansion after two months of contraction and coming in ahead of expectations. Production and new orders strengthened, while services activity also edged back into expansion. While higher input costs linked to the Middle East conflict are creating pressure, the data suggests the Chinese economy may be stabilising from a relatively low base.
Central banks have responded cautiously to the conflict. The European Central Bank, Bank of England and Bank of Japan all left rates unchanged during the month, but the tone has shifted slightly more hawkish given the inflationary implications of higher energy prices. Markets have correspondingly pushed out expectations for rate cuts.
Australian economy
Australian equities experienced a volatile month, with the ASX 200 falling 7.8% in March, before showing signs of stabilisation toward the end of the period.
Inflation remains a key challenge. While monthly CPI showed some signs of easing, annual measures, particularly core inflation, remain elevated, and the OECD has warned that Australia could face relatively high inflation among advanced economies. The Middle East conflict is also creating risks via fertiliser supply disruptions, which could flow through to higher food prices.
Economic momentum is softening. PMI data indicates the private sector has slipped back into contraction, and consumer confidence has fallen to record lows. Minutes from the Reserve Bank of Australia’s March meeting, released late in the month, reinforced the increasingly complex backdrop. The RBA raised interest rates for a second time this year, lifting the cash rate to 4.1%, as higher oil prices increased the risk that inflation remains above target for a prolonged period.
The minutes highlighted that policymakers saw a need for further tightening, but also acknowledged a high degree of uncertainty around the outlook, particularly given the unpredictable duration of the Middle East conflict. This leaves the path for interest rates less certain, even as markets continue to price the possibility of additional hikes.
This combination - weakening growth alongside elevated inflation - leaves policymakers with a difficult balancing act, particularly as higher energy costs continue to feed through the economy.
NZ economy
The New Zealand market was not immune to global weakness, with the NZX50G declining 5.9% over the month.
However, a weaker New Zealand dollar has provided a tailwind for exporters, while the agricultural sector remains a key pillar of stability. Global dairy prices have remained resilient, with auction results this year in positive territory, supporting the rural economy. Fonterra delivered a strong result during the month, increasing its forecast farmgate milk price to $9.70/kgMS at the mid-point, reinforcing the positive outlook for the sector. Tourism has also continued to recover, with inbound travel nearing pre-pandemic levels, supported by the lower currency.
However, the impact of higher oil prices is being felt domestically. Petrol prices have risen to around $3.50 per litre, placing pressure on household budgets and contributing to a sharp decline in consumer confidence. The ANZ-Roy Morgan consumer confidence index fell sharply in March, reversing the improvement seen in February and highlighting how rising fuel costs are weighing on households. Spending is increasingly being “crowded out,” with households prioritising essentials over discretionary purchases.
This softer backdrop was reinforced by the ANZ Business Outlook survey late in the month. Business confidence fell sharply, with forward-looking activity indicators weakening and firms reporting a noticeable pullback in demand as uncertainty increased. At the same time, cost and pricing pressures moved higher, highlighting the stagflationary nature of the shock, with weaker activity alongside rising input costs.
This was also consistent with GDP data, which showed the economy growing just 0.2% in the December quarter - highlighting how fragile momentum was even before the latest escalation in geopolitical tensions.
The Reserve Bank of New Zealand has meanwhile signalled it will look through the initial spike in oil price-driven inflation, focusing instead on whether second-round effects - such as wage and price-setting behaviour - become entrenched. While markets are still pricing in rate hikes this year, the path forward will depend heavily on the duration of the conflict and how it impacts inflation and growth, respectively.
Encouragingly, there are also signs that growth could recover later in the year if global conditions stabilise. In the meantime, the combination of a resilient export sector and defensive market structure continues to provide some insulation against global volatility.
Uncertainty but opportunity
From a market perspective, the recent pullback has been orderly and well within historical norms. Corrections of 10–20% are a regular feature of equity markets and often create opportunities for active investors to add to high-quality companies at more attractive valuations. As always, markets tend to “climb a wall of worry,” with long-term returns ultimately driven by earnings growth and innovation rather than short-term geopolitical events.
Looking Ahead
Markets have begun April on a stronger footing, following President Trump’s announcement of a 2-week, “two-sided” ceasefire between the US and Iran. The immediate reaction has been a broad “risk-on” move, with oil prices falling sharply as fears of a prolonged disruption to supply through the Strait of Hormuz eased. This should help unwind some of the inflation pressure seen in March, and support equity markets globally. The situation however remains highly unpredictable.
Markets appear to be treating this as a temporary circuit breaker rather than a lasting resolution. The ceasefire remains conditional, and the reopening of the Strait of Hormuz will be a key test in the days ahead. With many global indices still sitting within 5–10% of record highs, there is an element of cautious optimism, but also a recognition that this remains a highly fluid, headline-driven environment. Volatility is therefore likely to persist, particularly if negotiations stall or tensions re-escalate.
This backdrop creates a challenging environment for central banks. The Reserve Bank of New Zealand met recently, keeping rates on hold, with policymakers unwilling to move rates (either way) while the outlook is so uncertain. The Federal Reserve, European Central Bank, Bank of Japan and Reserve Bank of Australia are all due to meet in the coming weeks. Policymakers are facing a difficult balancing act- navigating the inflationary impact of higher energy prices alongside growing risks to economic activity.
Against this backdrop, we have remained disciplined in our approach. Periods like this are often driven by headlines, but our focus continues to be on underlying fundamentals and long-term opportunities. Rather than stepping back, the investment team have been selectively adding to high-conviction areas where we see strong structural growth.
In particular, we have been increasing exposure to areas such as agentic AI, where we see significant long-term potential and where earnings are already beginning to come through. Consensus expectations for US technology earnings this quarter are around 45% growth, well ahead of the broader market. Importantly, adoption remains in its early stages, with less than 20% of US firms currently utilising AI applications.
As always, periods of uncertainty can create opportunities. While the near-term outlook remains uncertain, our focus remains on positioning portfolios to benefit from longer-term trends, while actively managing risk through changing market conditions.