Global Markets​

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In March 2026, global markets weakened materially as investors reacted to a sharp escalation in US–Israel–Iran conflict, which drove a severe energy price shock and revived stagflation concerns across major economies. The disruption to shipping through the Strait of Hormuz has led to higher oil, gas and commodity prices and greater volatility across equities, bonds and currencies during the month.

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Global equities posted negative returns in March, with emerging markets under particular pressure because of prevalent risk-off sentiment. Since more than 80% of global oil and gas that flows through the Strait of Hormuz is destined for Asia, Asian markets were especially hit as investors reassessed Asia’s vulnerability to disrupted energy flows. The US market was weak, as the S&P 500 fell around 5.0% during the month, although large US technology shares proved relatively more resilient than the broader market during the height of the risk-off move. European equities also struggled, with STOXX 600 falling 8% in March as investors concerned about the implications of higher energy costs, weaker growth prospects and persistent geopolitical uncertainty.

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Commodity markets were the standout performer in March. Brent crude oil rose by roughly 63% over the month, its largest monthly increase in four decades, after conflict in the Middle East damaged energy infrastructure and sharply disrupted transport through the Strait of Hormuz. The broader commodity complex also strengthened, supported not only by oil and gas but also by rises in agricultural prices as higher energy and freight costs fed through to food markets.

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Global fixed income markets were volatile and generally negative in March as higher energy prices pushed up inflation expectations and caused a sharp sell-off in government bonds. This sell-off reflected both inflation concerns and a shift in central bank tone. The US Federal Reserve, the European Central Bank and the Bank of England all kept policy rates unchanged during the month but emphasised greater caution around the inflation outlook. The ECB signalled potential upside risks to inflation and the possibility of further tightening if needed, while The Bank of England also alluded to the possibility of needing to hike rates due to the risk of persistent inflationary pressures from higher energy prices. US Treasuries were relatively more resilient than European and Asian counterparts, since US is more insulated from the rise in energy prices and the current cooling US labour market also helped to keep price pressures under control. Credit markets also softened, with spreads widening across both investment grade and high-yield bonds amid heightened risk aversion.

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As of 31 March 2026:

UK 10 Year Gilt Yield 4.856%
US 10 Year Treasury Yield 4.294%
Germany 10 Year Bund Yield 3.006%

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UK Market

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March was challenging as heightened geopolitical tensions and rising energy costs weighed on investor sentiment and the growing concerns over inflation and growth. While the gilt market came under significant pressure, UK equities showed relative resilience over the first quarter, supported by the market’s large weighting towards energy and materials, which benefited from the sharp rise in commodity prices.

Monetary policy was the key macroeconomic theme this month. At its meeting on 18 March, the Bank of England voted unanimously to maintain Bank Rate at 3.75% in order to keep 2% inflation target on track in the medium term. The decision marked a shift from earlier expectations of near-term rate cuts, as policymakers highlighted the impact of the Middle East conflict on global energy prices and the associated upside risks to inflation. CPI inflation is expected to rise to around 3.5% in March, driven largely by higher fuel and utility costs. The Bank also warned of potential second-round effects through wages and price-setting behaviour, particularly if the conflicts endure and elevated energy prices persist. 

At the same time, underlying domestic conditions remained relatively soft. Labour demand continued to be weak and employment growth subdued, suggesting limited underlying momentum in the economy. The prospect of fiscal support to cushion the cost-of-living impact for households, combined with the energy-driven inflation shock, added further upward pressure on yields given the UK’s limited fiscal space. As a result, the gilt market weakened significantly during March, with the 10-year gilt yield increasing to approximately 4.86% by the end of March, edging towards its highest level in 18 years. Compared to earlier in the year, when gilts had benefited from expectations of near-term rate cuts, March marked a clear reversal.

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Ark Insights

March saw a sharp shift in market conditions as escalating conflict in the Middle East drove a surge in energy prices and renewed concerns around inflation. The resulting volatility across equities and bonds serves as a reminder of how quickly macro conditions can change, particularly when geopolitical risks intensify.

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In periods like this, maintaining perspective is essential. Short-term market movements are often driven by factors that are difficult to predict, and reacting to them can lead to suboptimal decisions. Staying focused on long-term objectives and underlying fundamentals remains key.

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At Ark, we continue to prioritise diversification, resilient businesses (dividend-paying stocks such as tobacco companies) and selective exposure to real assets, which have provided support in the current environment. A balanced approach remains particularly important as markets navigate a more uncertain and inflation-sensitive backdrop.

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As always, your advisers would be happy to assist with any questions you may have.
 

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The views expressed in this update are not intended as an offer or solicitation for the purchase or sale of any investment or financial instrument. The views reflect the views of Ark Investment Management at the date of this document and, whilst the opinions stated are honestly held, they are not guaranteed and should not be relied upon and may be subject to change without notice. Investments entail risks. Past performance is not necessarily a guide to future performance. There is no guarantee that you will recover the amount of your original investment. The information contained in this update does not constitute investment advice and should not be used as the basis of any investment decision. Any references to specific securities or indices are included for the purposes of illustration only and should not be construed as a recommendation to either buy or sell these securities or invest in a particular sector. If you are in any doubt, please speak to us or your financial adviser as appropriate.

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