March 2026 Market Recap: Geopolitics, Inflation, and the Return of Macro Risk

March was a reminder that markets don’t move in a vacuum. After a relatively stable start to the year, equities pulled back meaningfully as geopolitical tensions escalated and macro uncertainty re-entered the picture in a very real way.

Market Overview

• The S&P 500 declined approximately -4.35% during the month

• Fixed income held up relatively well, with the Bloomberg U.S. Aggregate Index essentially flat (-0.05%)

• Investor positioning shifted toward risk-off amidst the rising conflict with Iran

Geopolitics Takes Center Stage

The dominant driver in March was the escalation of conflict involving the U.S., Israel, and Iran.

• The conflict began on February 28 with coordinated strikes targeting Iranian leadership and infrastructure

• Oil markets reacted immediately, with prices hovering around $100/barrel and briefly exceeding $120

• Elevated energy prices reintroduced concerns around stagflation (a combination of slowing growth and persistent inflation). Of course, this is a potential disaster scenario where the Federal Reserve couldn’t bail out markets like it had during the COVID crisis and the Financial Crisis.

Historically, sustained spikes in energy prices have been one of the clearest catalysts for macro deterioration.

What Happens Next?

1. Resolution Scenario (Bullish)

If peace deal between the nations is consumated and the Strait of Hormuz remains open:

• Energy prices likely normalize

• Inflation pressure subsides

• Markets recover quickly

2. Prolonged Conflict (Bearish)

If conflict persists or supply routes continue to be disrupted:

• Oil remains elevated

• Inflation re-accelerates

• Growth slows

This scenario materially increases the probability of a recessionary environment. At this stage, the market is oscillating between these two outcomes. As such, equity markets have been extremely volatile during the month of Marh.

Inflation: Progress, But Not Out of the Woods

February CPI (Consumer Inflation)

• Year-over-year: 2.4%

• Month-over-month: 0.3%

Inflation continues to trend lower and remains close to expectations. However, these figures do not yet reflect the potential impact of rising energy costs due to the Iran war.

February PPI (Producer Inflation)

• Year-over-year: 3.4%

• Month-over-month: 0.7% (above expectations)

The divergence between CPI and PPI is important. Producer-level inflation suggests that cost pressures are building upstream, which could eventually flow through to consumers, especially in a supply-driven inflation environment. This is why we view both metrics to tell the broader story around inflation. The Federal reserve looks at both in determining monetary policy direction.

The Federal Reserve: Still in Wait-and-See Mode

• The Fed held rates steady as expected

• Current projections point to no cuts in 2026

• This marks a shift from the expectations of multiple cuts earlier in the year

Despite rising geopolitical risk, the Fed appears comfortable maintaining flexibility.

Importantly:

• While the risk of rate hikes crept up initially, those fears seem to be abating

• The bias still leans toward eventual easing, particularly if a peace deal is reached soon between the U.S. and Iran

Earnings & Market Leadership: AI Still Dominates

While macro concerns drove headlines, underlying earnings trends continue to reinforce a key theme:

AI remains the primary structural growth driver in the market

CrowdStrike

• Beat expectations on both revenue and earnings

• Continued demand for cybersecurity tied to AI infrastructure

Micron

• Strong earnings driven by AI data center demand

• Stock pulled back despite results due to prior run-up and increased capex

The takeaway:

• Demand is real

• Investment is accelerating

• Supply constraints are emerging

Even in a volatile macro environment, capital continues to flow toward AI-related infrastructure. We believe as the Iran conflict abates, AI will be a major leader for the markets for the remainder of 2026.

Key Takeaways

March highlighted a few important realities:

1. Macro risk

Geopolitics and energy markets are driving short-term market behavior and that will continue until there is a resolution on the Iran conflict.

2. Inflation is improving but fragile

Progress before the war was real, and as we saw, the energy shock from the war can quickly erode that progress. Needless to say, this is why a quick resolution to the conflict is imperative to normalize energy prices, and in turn, get inflation to return back to its pre war trend.

3. The Fed is constrained

The Fed is balancing:

• Slowing growth and potential unemployment and underemployment

• Persistent inflation

• External uncertainty

4. AI remains the dominant long-term theme

Despite short-term volatility, structural growth trends are intact.

Final Thoughts

Markets are currently navigating a tug-of-war between macro risk and structural growth.

• In the short term, geopolitics and energy prices will likely dictate direction

• In the long term, innovation, particularly in AI, continues to drive the investment landscape

As always, environments like this reinforce the importance of:

• Scenario-based thinking

• Portfolio resilience

• and avoiding purely narrative-driven decision making

Disclosure

The S&P 500 (Standard & Poor's 500) is a stock market index tracking the performance of roughly 500 leading U.S. publicly traded companies, representing about 80% of the total U.S. market capitalization.

The Bloomberg US Aggregate Bond Index (often called "the Agg") is a broad-based, market-capitalization-weighted benchmark measuring the performance of the US dollar-denominated, investment-grade, fixed-rate taxable bond market.

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