Quarterly Market Report – Quarter Ending 31 March 2026
General
| May 12, 2026
General Market Update
Taking a step back
If you only looked at where markets started the year and where they finished the quarter, you might think it was a fairly unremarkable few months. The reality was anything but.
The first two months of 2026 were genuinely encouraging. Equity markets were advancing, and for the first time in a while, it wasn’t just a handful of giant technology companies doing the heavy lifting. Smaller companies, international equities, and value-oriented stocks were all participating.
The leadership of markets was broadening, which is generally a healthy sign.
Escalation of Conflict in the Middle East
Then, in the final days of February, the escalation of conflict in the Middle East changed the picture materially. The disruption to the Strait of Hormuz sent oil prices sharply higher, and March became one of those months where almost nothing was spared.
The S&P 500 fell around 4.6% for the quarter. The MSCI World Index declined 3.5%. Stocks and bonds fell together, which is relatively unusual and makes it harder for traditional portfolios to find shelter.
A Shift in Conditions
Here in Australia, conditions shifted meaningfully. The RBA raised the cash rate twice during the quarter: to 3.85% in February, driven by domestic inflation that had picked up through the second half of 2025 and a labour market that remained tighter than expected, and then to 4.10% in March, with the additional concern of higher fuel prices adding to inflation risk. After several years of hoping for rate relief, the direction of travel reversed.
This is the kind of quarter that can feel unsettling in the moment. But it is also exactly the kind of quarter why receiving advice and maintaining appropriate strategy is so important.
Outlook
Key considerations moving into the future include:
Oil Prices and Inflation
The most immediate question for markets is whether the oil price increase proves temporary or persistent. The conflict in the Middle East and the disruption to the Strait of Hormuz drove much of the repricing this quarter. If oil prices remain elevated, the inflationary consequences will continue to weigh on central bank decisions, both globally and here in Australia. The RBA’s March statement was explicit that higher fuel prices, if sustained, would add to inflation.
Equity Markets: Broadening Out
Before March’s sell-off, the most encouraging development in equity markets was the broadening of leadership. For the first time in several years, it wasn’t just a handful of mega-cap technology stocks driving returns. Smaller companies, international markets, and value-oriented strategies were all participating. The sell-off interrupted that rotation, but the underlying dynamic remains.
Monetary Policy: A More Complicated Picture
Central bank paths diverged further during the quarter. The RBA is raising rates. The ECB has signalled a possible hiking bias. The outlook for US rate cuts has been pushed back significantly. For portfolios, this means fixed income markets will remain volatile, and the relationship between stocks and bonds (which moved in the same direction this quarter) may continue to behave differently from historical norms. This is one of the reasons why genuine diversification is important.
