Executive Summary 

March 2026 saw the intensification of the U.S./Israel-Iran military conflict, that began in late February with Operation Epic Fury. The Strait of Hormuz was effectively closed following Iranian defensive operations, producing the most severe oil price shock since the 2022 Russia Ukraine invasion. While markets had rotated defensively in February, March saw broader sector pressure as rising energy costs raised inflation concerns and prompted a reassessment of the macro-outlook under the Warsh Fed. 

WTI Crude surged approximately 48% during the month, its largest monthly gain since 2020. Energy was the sole positive S&P 500 sector, rising +10.80%, while Industrials, Health Care, and Technology all declined by more than 8%. U.S. large-cap indices fell across the board, with the S&P 500 losing -5.12% and the Nasdaq declining -7.44%. The month concluded with a powerful relief rally on March 31, after reports emerged that Iranian President Pezeshkian had signaled openness to ending the war. The S&P 500 gained 2.91% and the Nasdaq advanced 3.83% on that single session, their best single-day performance since May 2025.  

Equity Markets Performance 

Major movements in the U.S. indices reflected the broader market stress in March. The S&P 500 fell -5.12% and the Dow Jones dropped -5.24% as markets repriced corporate earnings expectations and inflation risk in response to rising energy costs. The Nasdaq Composite declined -7.44%, pressured by rising real yields and ongoing reassessment of AI-driven disruption to traditional business models. The Russell 2000 fell -5.97%, with small-cap companies remaining sensitive to energy costs and inflation – segments that stand to benefit meaningfully from a stabilization in oil prices. 

International markets reflected the global reach of energy disruption. The MSCI EAFE declined -8.60% as European economies navigated the impact of higher energy costs. China’s CSI 300 fell -4.27%; Beijing’s swift acceleration of strategic reserve deployment and alternative sourcing demonstrated its capacity to manage the supply disruption. India’s Nifty 50 declined -8.87%, with the market remaining sensitive to energy prices. A normalization in oil costs would meaningfully ease pressure on the rupee and the current account deficit.  

Sector Performance 

Energy stood as the sole positive contributor while 10 of the 11 S&P 500 sectors finished the month in negative territory. The war premium in oil provided direct revenue uplift to upstream and midstream producers while simultaneously compressing margins across transportation, consumer discretionary, and industrial sectors dependent on global oil dependent on the Gulf supply chain.   

• Energy (XLE): +10.80% – The only outperformer. WTI crude surged 48% in March as the Strait of Hormuz closure removed approximately 20% of global seaborne oil supply. Exxon and Chevron were reclassified by institutional investors as the safe-haven assets of the mid-decade market.  

• Industrials (XLI): -11.59% – Aerospace, transportation, and capital goods companies faced headwinds from the Hormuz closure’s impact on global supply chains. Defense sector gains provided a partial offset, though fuel cost pressures on airlines and broader supply chain disruptions weighed on the sector’s overall performance. 

• Health Care (XLV): -10.22% – The sector faced an atypical environment. The sell-off stemmed from an inflationary supply shock that slashed real disposable income across the board, unlike a growth slowdown, where healthcare typically outperforms and could rebound strongly. 

• Technology (XLK): -8.11% – Rising real yields compressed growth-stock multiples and the AI disruption narrative continued to weigh on software and cybersecurity names. The sector partially recovered on March 31 when peace signals triggered a sharp rotation back into growth equities.  

• Utilities (XLU): -3.79% – The sector’s bond-proxy characteristics became a liability as Treasury yields rose sharply across the curve. The data center electricity demand narrative remained a structural support but was insufficient to offset the yield headwind.  

Fixed Income 

Treasury yields rose across the curve in March, a sharp reversal of February’s flight-to-safety bond rally. The 2-year yield rose 28.5 basis points from 3.487% to 3.772%, the 10-year climbed 24.0 basis points from 4.051% to 4.291%, and the 30-year increased 18.9 basis points from 4.699% to 4.888%. The 10-year yield reached an eight-month high of 4.44% at its intra-month peak before pulling back as peace signals emerged on March 31.  

This yield surge reflected the market repricing the inflation outlook in response to oil-driven cost pressure. U.S. gasoline prices topped $4 per gallon for the first time since 2022, tempering the usual flight-to-safety trade amid risk-off sentiment due to inflation concerns. The probability of a Fed rate hike rose from approximately 10% at February’s close to 35% at the peak of March’s oil rally, then eased to 20% after Chair Powell’s noted that monetary policy has limited options against supply shocks, framing the Iran war as a one-time price adjustment rather than an ongoing inflation driver. 

Commodities 

Metals 

Gold fell approximately 13.5% in March – its largest monthly drop since October 2008 – from $5,278 per ounce at February’s close to near $4,562. Rising nominal yields outpaced inflation expectations, lifting real yields and challenging gold’s safe-haven appeal, further pressured by a stronger U.S. dollar. Structural central bank demand held firm but was overshadowed by stress selling. 

Silver declined around 23%, ending March near $72 per ounce, as slower global economic activity, signaled by $100+ oil, weighed on its industrial demand component. 

Energy 

WTI Crude began March near $68 per barrel, carrying February’s closing price of $67.02, and surged approximately 48% during the month, briefly touching $113 per barrel before IEA-coordinated emergency Strategic Petroleum Reserve releases provided a partial buffer. WTI settled near $102 per barrel and Brent above $104 at month-end. The IEA estimated that global oil supply would plunge by approximately 8 million barrels per day in March. 

The Trump administration’s April 6 deadline threatening to destroy Kharg Island maintained price uncertainty through month end. Natural gas prices were comparatively stable as LNG rerouting and European storage drawdowns managed supply pressures. 

Cryptocurrency 

Bitcoin clawed back ground in March, posting a +1.0% gain to close near $68,000 and halting a five-month losing streak amid lingering macro headwinds. This resilience hints at a renewed risk appetite, potentially setting the stage ahead of the next halving cycle. 

International Markets  

• MSCI EAFE (Developed): -8.60% – European equities navigated the oil shock head-on. The ECB signaled it would look through the supply-driven inflation spike, holding rates steady at 2%, even as corporate earnings forecasts adjusted lower amid rising input costs and softer consumer confidence. 

• China (CSI 300): -4.27% – The CSI 300 dipped as China, the world’s top buyer of Iranian oil, encountered supply disruptions. Beijing responded swiftly, ramping up strategic reserve releases and alternative sourcing from Russia and Central Asia. 

• India (Nifty 50): -8.87% – India lagged peers, with the oil shock widening the current account deficit, pressuring the rupee, and risking a reacceleration of recently tamed inflation. IT stocks extended losses on concerns over AI-driven outsourcing shifts. 

Outlook: April 2026 

April volatility will be driven by the resolution timeline of the U.S.-Iran conflict and the Strait of Hormuz. The April 6 deadline set by the Trump administration represents the a significant risk event. A diplomatic resolution would likely produce a sharp deflationary reaction, with WTI falling towards the $70–$85 range and triggering a rotation out of energy into equities and bonds. The March 31 signals from Tehran created optimism, but no formal ceasefire or agreement has been confirmed as of month end.