Market Review: Darkest before the dawn
The recent conflict in the Middle East sparked a global financial market selloff in March. Headline-driven volatility and energy market disruption caused the S&P 500® to post its lowest monthly return since March 2025. Crude oil recorded its highest monthly gain since May 2022, but oil futures curves suggest moderating prices ahead (Figure 1). Developed international and emerging market equities were the relative underperformers for the month, given their status as net energy importers.
The mix of inflation risk and economic growth concerns raised the specter of stagflation. Energy was one of the few asset classes with positive returns as even bonds and precious metals turned negative for the month.
Figure 1. Crude Oil Prices and Oil Futures Curve ($/Barrel)
Crude oil recorded its highest monthly gain since May 2022, but oil futures curves suggest moderating prices ahead
As of 3/31/2026. Source: Bloomberg L.P.
View accessible version of this chart.
Short takes
- Energy security will take on increasing importance globally
- Fiscal stimulus for renewables and electrification should promote growth.
- Financial markets can bottom well before the tangible economic impacts are positive
- For example, financial markets bottomed right around the time of the Iraq invasion in 2003.
- Federal Reserve (Fed) policy may no longer serve as a tailwind
- Futures markets now price in only a low probability of a Fed interest rate cut in 2026.
The big picture: A ceasefire allows the market to refocus on fundamentals
The ceasefire for the Iran conflict, announced on April 7, 2026, sparked a global rally in equities. While a final peace plan agreement has yet to be reached, the indications of productive negotiations have removed some of the tail risk that pressured markets for weeks. Resuming the unfettered flow of energy through the Strait of Hormuz may remain a bumpy path, but the current direction should allow markets to refocus on five fundamental drivers, in our view.
The first of those fundamental drivers is healthy business spending. Business surveys conducted by regional Fed districts point to continued strength in capital expenditure (capex) (Figure 2). Part of this strength derives from stimulus in The One Big Beautiful Bill Act, signed into law on July 4, 2025, which provides for a 100% first-year depreciation deduction for machinery, equipment, computers, etc. and immediate expensing of research & development. As uncertainty dissipates in the coming months, we believe the environment for business spending should strengthen.
Figure 2. Fed Capex Forecasts
Regional Fed surveys continue to show strength in business spending
As of 3/6/2026. Source: Bloomberg L.P.
View accessible version of this chart.
Rising earnings estimates are a second fundamental driver that points toward strength. On February 28, 2026, when the current Iran conflict began, analysts’ consensus for S&P 500 earnings growth was 14.4% for the second quarter. As of April 8, 2026, those second-quarter estimates have risen to 18.2% expected growth. As always, forward guidance regarding future profitability will be paramount for market direction.
A third economic and market driver is better-than-expected labor market health. The March jobs report from the Bureau of Labor Statistics indicated a robust increase of 178,000 jobs created in the month, combined with a slight decrease in the unemployment rate to 4.3%. Weekly initial unemployment claims have also tracked at very low levels, and concerns about widespread artificial intelligence-related job losses are receding.
The fourth and fifth fundamental drivers both relate to interest rates. The yield on long-term bonds has remained range-bound despite concerns about near-term inflation and additional military spending. In credit markets, the spreads on publicly traded high-yield debt have remained contained and not signaled broader credit stress. These drivers provide a stable foundation for growth as geopolitical risk moderates.
Outlook and portfolio positioning
We continue to believe the environment for taking equity market risk is favorable this year. The economy has remained resilient amid waves of policy uncertainty and technological disruption over the past 12 months, and we expect this resiliency to continue.
During the past six weeks, international markets have experienced greater difficulty due to energy market exposure, but a greater bounce back is also likely, in our view as energy disruptions diminish. Additionally, the planned meeting in Beijing between President Trump and China’s President Xi has been rescheduled for mid-May, and we believe there is additional impetus on both sides to pursue a trade breakthrough.
Figure 1. Crude Oil Prices and Oil Futures Curve ($/Barrel) (view image)
Crude oil recorded its highest monthly gain since May 2022, but oil futures curves suggest moderating prices ahead
Date |
WTI Crude Oil |
Brent Crude Oil |
12/2020 |
48.52 |
51.80 |
6/2021 |
67.72 |
70.25 |
12/2021 |
65.57 |
68.87 |
6/2022 |
115.26 |
116.29 |
12/2022 |
81.22 |
86.88 |
6/2023 |
70.10 |
74.28 |
12/2023 |
74.07 |
78.88 |
6/2024 |
76.99 |
81.62 |
12/2024 |
68.00 |
72.94 |
6/2025 |
60.79 |
63.90 |
12/2025 |
59.32 |
63.17 |
6/2026 |
85.67 |
90.16 |
12/2026 |
72.02 |
77.72 |
6/2027 |
69.77 |
74.66 |
12/2027 |
68.31 |
73.21 |
As of 3/31/2026. Source: Bloomberg L.P.
Figure 2. Fed Capex Forecasts (view image)
Regional Fed surveys continue to show strength in business spending
New York Fed |
Philadelphia Fed |
Dallas Fed |
|
3/2024 |
12.4% |
12.7% |
13.3% |
6/2024 |
3.6% |
17.6% |
13.5% |
9/2024 |
3.2% |
15.9% |
22.9% |
12/2024 |
11.6% |
23.7% |
17.1% |
3/2025 |
11.7% |
22.1% |
19.7% |
6/2025 |
-4.1% |
15.7% |
16.2% |
9/2025 |
1.5% |
23.2% |
17.3% |
12/2025 |
5.2% |
26.6% |
19.3% |
3/2026 |
16.7% |
23.5% |
19.2% |
As of 3/31/2026. Source: Bloomberg L.P.
