Market Update: March 2026

Geopolitical Escalation and Capital Markets

From a historical perspective, geopolitical shocks have often created short-term volatility but have not always resulted in lasting structural damage to capital markets. Initial reactions in risk assets can be sharp, but those moves frequently moderate as investors reassess fundamentals.

Recent headlines regarding leadership changes in Iran and reports surrounding the Strait of Hormuz have understandably unsettled markets. However, price action suggests investors are adopting a measured “wait-and-see” approach as facts continue to develop.

To frame the current environment, it is helpful to look at historical market behavior during prior military conflicts. While every situation is unique, history shows that equity markets have often demonstrated resilience unless a conflict triggers a broader systemic economic shock (for example, the 1973 oil embargo).

Historical Market Performance During Conflict

S&P 500 Total Return Index

Conflict	Start Date	3-Month Return	Total Annualized Return*
World War II	Dec 1941	-9.0%	+16.9%
Korean War	June 1950	+10.3%	+18.7%
Vietnam War	March 1965	+3.6%	+6.4%
Gulf War	Aug 1990	+18.2%	+11.7%
Iraq War	March 2003	+13.6%	+9.8%
Russia–Ukraine	Feb 2022	-8.0%	+12.4% (to date)

*Annualized returns through March 3, 2026.Source: Bloomberg. S&P 500 Total Return Index. Index performance is unmanaged and not investable. Past performance does not guarantee future results.

Historically, markets have frequently recovered within 12 months following geopolitical disruptions, though outcomes vary depending on economic conditions, energy dynamics, and monetary policy.

Why Markets Often Stabilize After Conflict Begins

While counterintuitive, several forces can support markets during periods of geopolitical stress:

Fiscal Policy Effects: Defense-related spending can act as a form of fiscal stimulus.

Corporate Earnings Resilience: Large multinational companies often continue operations across diverse geographies, reducing localized disruption risk.

Flight to Quality Dynamics: U.S. Treasuries and the U.S. dollar often attract capital during periods of uncertainty, which can eventually stabilize financial conditions.

That said, no two conflicts are identical, and historical patterns are not predictive of future outcomes.

The Energy Transmission Mechanism

Energy remains the primary channel through which Middle East instability can impact the global economy.

West Texas Intermediate (WTI) crude, which traded near $57 in December, recently spiked to approximately $79 before settling back toward the low-$70 range. Oil markets are particularly sensitive to perceived disruptions in the Strait of Hormuz, a critical global shipping lane.

Several offsetting factors are currently influencing pricing:

Global Supply Adjustments: OPEC+ has announced incremental production increases beginning in April. Additionally, the U.S. maintains Strategic Petroleum Reserve capacity if needed.

Infrastructure Considerations: Historically, even during periods of heightened tension, physical oil flows through the Strait have not been fully halted. Shipping costs and insurance premiums may rise, but sustained supply disruption would require a broader escalation.

Energy price trends will likely determine whether this event becomes an inflationary impulse or remains a temporary shock.

Technology and the AI Investment Cycle

Despite geopolitical noise, structural growth themes particularly artificial intelligence continue to influence equity markets.

According to recent company filings, Nvidia reported fiscal Q4 2026 revenue of approximately $68 billion, up 69% year-over-year. Large technology firms have publicly indicated continued capital expenditure plans related to AI infrastructure in 2026.

While geopolitical events may affect short-term sentiment, they do not necessarily alter long-term secular investment cycles. That said, valuation levels and earnings delivery remain critical variables.

Macro Snapshot: Inflation and Growth

The broader economic impact depends largely on energy price persistence.

Inflation Sensitivity: Historically, a sustained $10 increase in oil prices has contributed approximately 0.20% to headline CPI, though actual outcomes depend on duration and broader economic conditions. Estimates vary and are based on prior historical sensitivity analysis.

Federal Reserve Policy: Because energy is excluded from Core PCE (the Federal Reserve’s preferred inflation gauge), policymakers may look through short-term oil spikes if broader inflation trends remain contained.

Current consensus forecasts project U.S. GDP growth of approximately 2–3% in 2026, though forecasts are subject to revision as conditions evolve.

Bottom Line

Early market signals suggest investors are treating the conflict as contained for now. However, geopolitical environments are fluid and can change rapidly. Volatility may persist as additional information becomes available.

For diversified, long-term investors, disciplined portfolio construction and risk management remain more important than short-term headline reactions.

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Disclosure

This material is for informational purposes only and does not constitute individualized investment advice. All investing involves risk, including the potential loss of principal. Index performance is shown for illustrative purposes only and cannot be invested in directly. Past performance does not guarantee future results. Forward-looking statements are based on current expectations and are subject to change without notice.