The month of March was anything but tranquil, from rising geopolitical tensions in the Middle East to volatility in capital markets. Rising energy prices impacted forward expectations for both growth and inflation, which weighed on capital markets.  In this month’s CIO Signal, we review recent market performance and take a closer look at major news stories, assessing whether they are likely to have meaningful implications for capital markets.

Market Overview

U.S. equities declined in March as markets pulled back following the strong start to the year. The S&P 500 fell -5.0%, while global equities¹ declined -7.3%. International markets were weaker, with developed international equities² falling -10.3% and emerging markets³ down -13.1%.

The Iran conflict triggered a sharp rise in energy and related commodity prices, stoking inflation concerns globally. While all markets have been affected, Europe and parts of Asia are more vulnerable due to reliance on imported energy which might lead to greater economic and equity market pressure. The recent volatility also highlights the degree of concentration in U.S. equity markets, where movements in a small number of large technology companies can have an outsized influence on index performance. Through April 13^th, the so-called Magnificent 7⁴ stocks contributed a weighted -1.92% to the performance of the S&P 500, meaning absent those seven stocks, the index would actually be up over 2% (instead of 0.3%).  This serves as a good reminder that true diversification isn’t solely achieved with a certain number of holdings in a portfolio, investors must also identify the appropriate size/weight for each position.

Fixed Income Markets Also Came Under Pressure

March was a difficult month across fixed-income markets, with most sectors posting negative returns. Treasury Inflation-Protected Securities, or TIPS, and bank loans were notable exceptions.

The typical flight-to-quality into intermediate-term Treasuries that often occurs during volatile markets did not materialize. Instead, concerns around commodity-driven inflation pushed yields higher across the curve. Intermediate maturities led the move, with 2- to 7-year Treasury yields rising more than 40 basis points.

Credit markets behaved in line with expectations. Elevated equity volatility contributed to wider, though still relatively low, credit spreads. The combination of spread widening and higher underlying yields weighed on corporate bond performance relative to duration-matched Treasuries.

Municipal bonds also weakened, reversing a seven-month rally. The asset class gave back year-to-date gains and recorded its worst monthly performance since 2023. Heavy issuance, fund outflows, and persistent inflation concerns appear to have contributed to the decline.

As yields continue to drift higher, forward-looking return profiles have improved, particularly for longer-duration assets over a multi-year horizon. For example, at current levels, an AA-rated 10-year California municipal bond would be approximately flat over the next year if yields rise an additional 50 basis points. Conversely, a 50-basis point decline in yields would imply total returns closer to 8%. These asymmetric outcomes highlight the increasing attractiveness of duration at current rate levels, particularly beyond a 12-month investment horizon.

Figure 1: US Yield Curve

Source: FactSet, as of 3/31/26

Middle East Conflict and Oil Prices: Why Markets Are Paying Attention

On the last day of February, the U.S. and Israeli governments launched a joint military attack on Iran, striking multiple sites across the country. Some of the strikes were specifically targeted at Iran’s leadership, killing Supreme Leader Ayatollah Ali Khamenei along with numerous senior military and political leaders.

At this point, the Trump administration’s goals are unclear. Several reasons have been offered at different times, including destroying Iran’s nuclear capabilities, warding off an impending attack on Israel, and freeing the people of Iran from an oppressive regime. Because the objectives are not clear, it is difficult to speculate on a potential timeline for the conflict.

On the afternoon of April 7, a two-week ceasefire was agreed to between the U.S. and Iran, but it appears that all parties involved, including Israel, are still far apart on terms to officially end the conflict. As of the time of this writing, Iran is still in control of the Strait of Hormuz, a key shipping channel for approximately 20% of global oil consumption.

Oil, Natural Gas, and Fertilizer Prices Could Keep Inflation Elevated

An immediate impact of the conflict has been an increase in the price of oil, both because Iran is a large producer and because of its ability to affect shipping through the Strait of Hormuz. From the date of the initial joint strike, oil prices rose from around $65 per barrel to nearly $118 per barrel before settling near $100 as of April 13.

A large portion of globally traded natural gas and fertilizer is also produced in the region, and fertilizer prices have already increased more than 25% since the conflict began.

Somewhat counterintuitively, natural gas prices fell over the past month, but this was primarily driven by seasonality in demand, as warmer weather in the Northern Hemisphere tends to correspond with lower natural gas demand. It remains to be seen whether this pattern continues, especially if production is disrupted for a meaningful period.

The world’s largest liquified natural gas (LNG) export facility, located in Qatar, was seriously damaged by an Iranian attack. Around 20% of that facility is currently not functioning, and repairs are expected to take years. This will limit the amount of gas available for global trade and is likely to put upward pressure on prices.

What Geopolitical Conflict Usually Means for Investors

Historically, geopolitical conflicts have resulted in short-term market volatility, but the longer-term effects on asset prices have generally been indistinguishable from regular market movement.

One thing we will continue to watch is price levels. An extended conflict would likely mean higher prices for oil, fertilizer, and other commodities from the region. Those higher costs could then flow through to other parts of the economy, raising inflation and affecting both interest rates and economic growth.

What Investors Should Watch Going Forward

Benjamin Graham, often considered the father of value investing, is said to have made the following analogy: in the short run, the stock market is a voting machine; in the long run, it is a weighing machine.

The implication is that while short-term market behavior often reflects investor sentiment and emotion, it is a poor indicator of long-term stock performance, which is much more heavily influenced by company fundamentals and broader economic results. Despite several notable headlines, nothing occurred in March that we believe will have a meaningful long-term impact on the outlook for capital markets.

Several developments remain worth monitoring, including elevated valuations and concentration in AI-related stocks, increasing signs of stress in private credit markets, and historically tight high-yield corporate credit spreads. Risk management remains a central focus in client portfolios, and while we encourage investors to tune out short-term market noise, we remain prepared to adjust portfolios when warranted by empirical evidence.

The CIO Signal
Clear thinking for complex markets.

¹ MSCI All-Country World Index
² MSCI EAFE Index
³ MSCI Emerging Markets Index
⁴ The Magnificent 7 stocks are Nvidia, Apple, Microsoft, Google, Meta, Amazon, and Tesla

*See Disclosures