Following a volatile 2025, improving inflation data and growing expectations of interest rate cuts have supported gains across equities, while bond markets stabilised. Gradual disinflation and resilient economic growth across major economies have bolstered investor confidence, despite ongoing geopolitical risks and political uncertainties. We believe the two-week-long conflict in the Middle East does not change the long-term picture, but these geopolitical tensions have introduced fresh volatility into energy markets, and stock markets have reacted accordingly. This quarter’s Market Commentary was written before the outbreak of the commentary.
Equity markets have delivered strong returns over the last 12 months, with Developed Europe and Asia Pacific ex-Japan leading the way. Emerging markets also outperformed in January, driven by a softer US dollar and sustained demand for AI-related infrastructure. US markets, however, showed more mixed performance as enthusiasm for artificial intelligence themes moderated.
Central bank policies diverged further during this period. The Federal Reserve and the Bank of England initiated rate cuts as inflation pressures eased, while the European Central Bank maintained a firmer stance. Meanwhile, the Bank of Japan signalled a gradual shift away from ultra-accommodative policies, reflecting differing domestic inflation dynamics.
Bond markets exhibited more measured performance, with yields fluctuating in response to shifting inflation expectations. However, the overall trend suggested that peak rates may now be behind us. Credit markets remained resilient, and alternative assets continued to attract capital as investors sought diversification.
As markets enter the second quarter of 2026, attention will focus on the conflict in the Middle East, how that affects inflation data, labour market conditions, and central bank communication. While risks such as sticky services inflation, geopolitical tensions, and trade policy uncertainty persist, the macroeconomic backdrop appears more stable. Investors are increasingly reassessing their positioning with greater confidence, supported by a more balanced environment and improving clarity on monetary policy.
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Download our March 2026 Market Commentary here.