April 2026 Market Commentary

The first quarter of 2026 ended very differently to how it began. January and February painted an encouraging picture: markets outside the United States were performing strongly, corporate earnings were growing, and the economic backdrop felt broadly constructive. Then came March — and with it, a geopolitical shock that reminded investors just how quickly the landscape can change.

Direct US military action against Iran, and the subsequent effective closure of the Strait of Hormuz, triggered one of the most consequential energy market disruptions in recent memory. Most equity markets fell between 5% and 11% over the course of March alone, wiping nearly $10 trillion from global stock markets. By the end of Q1, the MSCI All Country World Index was down 1.2% in sterling terms.

The Strait of Hormuz is just 21 miles wide at its narrowest point, yet it carries roughly 20% of the world's seaborne oil supply and a similar proportion of global liquefied natural gas. It is also a critical corridor for fertilisers, sulphur, and industrial metals. When Iran moved to restrict access, markets were confronted with an uncomfortable truth: an extraordinary share of global trade flows through a single, vulnerable chokepoint.

Oil prices reflected this immediately. Brent crude surged approximately 63% from its pre-conflict level, reaching a high of around US$120 per barrel in early March, before trading in a US$100–115 range for much of the month. Natural gas prices rose 67%. These are significant moves — though both remain below the peaks reached during the Russian invasion of Ukraine in 2022, when Brent hit US$140 and natural gas prices rose up to ten times their pre-crisis levels.

A two-week ceasefire, brokered by Pakistan and announced on 7 April, provided the clearest sign yet that the warring parties are willing to step back from the brink. Markets responded positively: global equities posted their best weekly gain of the year, and oil fell almost 15% — its sharpest weekly decline since 2020 — dropping back below US$100 per barrel.

But the situation remains delicate. Peace talks broke down over the weekend, and US threats to blockade Iranian ports caused oil prices to spike again at the start of this week. The reaction has been measured rather than panicked. The key task for investors right now is distinguishing signal from noise — Trump's shifting rhetoric alone has driven sharp moves in oil on multiple occasions. What matters is the underlying evidence.

The headline index numbers don't fully capture what has been happening beneath the surface. In January and February, markets outside the US — Japan, Asia ex-Japan, and Emerging Markets — were delivering solid returns. The equal-weighted S&P 500 was outperforming the headline index, reflecting stronger breadth. Then March reversed much of those gains.

For Q1 as a whole, UK equities were a notable bright spot. The MSCI UK index ended the quarter up 2.9%, supported by a heavy weighting towards energy companies — a sector that rose 35% over the period. Europe ex UK fell 2.1% for the quarter. US equities ended Q1 down 2.5% in sterling terms, weighed down by weakness among the large technology companies.

Year to date, the divergence between large-cap and smaller-cap US equities is striking. The S&P 500's "Magnificent Seven" mega-cap technology stocks are down roughly 12% as a group. Mid- and small-cap stocks have fared considerably better. Despite the volatility, FactSet data points to expected S&P 500 earnings growth of 12.6% for Q1 — which would mark the sixth consecutive quarter of double-digit growth. Earnings are the cornerstone of long-term investment returns, and that foundation looks intact.

Traditionally, when equity markets sell off, government bonds rally — yields fall as investors seek safety. That relationship broke down in March. Investors who held both short-dated bonds ("Twos") and S&P 500 futures ("Spoos") — a popular strategy built on an expectation of falling rates and rising equities — found both sides moving against them simultaneously. US two-year Treasury yields surged above 4%, hitting ten-month highs, even as equities were falling. This "double fail" forced rapid de-risking and amplified the sell-off.

The root cause was stagflation risk: oil-driven inflation rising at the same time as growth expectations were being revised lower. Rate expectations have swung dramatically — markets had anticipated two or three Bank of England and Federal Reserve cuts this year, but have now reversed course. The BoE base rate, previously expected to fall to 3.25% by year end, is now priced above 4.25%.

That said, Marlborough's view is that rate hike expectations have overshot. If the ceasefire holds and energy supply recovers, the sell-off in government bonds has — in their view — gone too far, creating a potential opportunity for medium-term investors. 10-year gilt yields are now close to 5% — their highest since 2008 — while the 10-year US Treasury sits at around 4.32%. At these levels, the income generated by bonds provides a meaningful cushion against price volatility.

One surprise of the quarter was gold, which fell more than 11% in March — its worst monthly performance since 2008. Despite its safe-haven reputation, investors often liquidate assets that have performed well in order to meet margin calls or raise cash during sharp sell-offs. A useful reminder that even traditionally defensive assets can behave unexpectedly when volatility spikes.

Meanwhile, the early part of the year saw significant turbulence in technology as new AI tools challenged established business models. AI anxiety has been displaced by geopolitical anxiety for now — but the structural shift is ongoing. The market is actively rotating between perceived winners and losers as each new development reshapes competitive dynamics. For long-term investors, this selectivity creates opportunity.

Periods like this are deeply uncomfortable. But they are also not unusual. In 15 of the last 25 calendar years, the MSCI All Country World Index has experienced an intra-year decline in excess of 10%. On only three occasions has the index ended the year down more than 10%. The discomfort of volatility is the price investors pay to access the historically higher returns that equity markets have provided over time.

History offers another reassurance: there has not yet been an event — including World Wars, financial crises, and global pandemics — from which markets have not ultimately recovered. Knee-jerk reactions to moments of market stress have consistently cost investors more than patience. Portfolios positioned with quality, diversification across geographies, and exposure to real assets have shown resilience precisely when it has mattered most.

Market volatility affects investors differently depending on where they are in their financial journey — and it is worth taking a moment to consider what the current environment means in practice.

If you are still working and have ten years or more before retirement, the picture is actually more encouraging than the headlines might suggest. Falling markets are, counterintuitively, good news for long-term accumulators: you are buying the same assets at lower prices, and every contribution you make today goes further than it did six months ago. This is the power of pound-cost averaging — by investing regularly through periods of volatility rather than waiting for calmer waters, you naturally buy more units when prices are low and fewer when they are high. Over time, this smooths your average cost and can meaningfully improve long-term outcomes. Periods like this one are precisely when the foundations of future wealth are often built.

For those who are already in retirement and drawing an income from their portfolio, the calculus is different. If your portfolio has fallen in value and you are withdrawing money now, you are locking in those losses — selling assets at depressed prices that may recover in the months ahead. It is worth reviewing your risk profile and ensuring your portfolio is positioned appropriately for your needs. A portfolio with lower volatility is better suited to the decumulation phase, as it reduces the risk of being forced to sell at the wrong moment. If you have any flexibility over the timing of withdrawals, it may be worth considering whether some can be deferred until markets have recovered a degree of stability. We are very happy to talk this through with you individually.

The situation in the Middle East will remain the dominant driver of markets in the near term. The key questions are: does the ceasefire hold and evolve into a more durable settlement? How quickly does energy supply through the Strait of Hormuz recover? And how much of the energy-driven inflation pressure is already baked into market prices versus yet to appear in the economic data?

Beyond the geopolitics, Q1 earnings season will increasingly come into focus. Corporate results will give us the first clear picture of how businesses have been affected and what they expect going forward. Early indications suggest that many companies have navigated the disruption with more resilience than feared.

In the meantime, diversification — across geographies, asset classes, and time horizons — remains the most reliable tool available to investors navigating uncertain times. The first quarter demonstrated both why that matters and that it continues to work, even when short-term correlations behave unexpectedly.