March 2026 Market Commentary

March was a volatile, risk-off month for financial markets, as investors navigated a rapidly changing geopolitical environment, rising energy prices, and renewed inflation concerns. The primary drivers of market sentiment included the escalation of conflict involving Iran and the growing risk of prolonged disruption to global energy supplies, particularly through the Strait of Hormuz. Moreover, oil prices surged, raising concerns about renewed inflationary pressure and the potential for central banks to keep interest rates higher for longer.

At the same time, markets continued to grapple with uncertainty surrounding artificial intelligence’s long-term impact on corporate earnings, ongoing tariff concerns, and mixed economic data. The combination of geopolitical risk, higher interest rates, and elevated valuations—particularly in technology stocks—created a difficult backdrop for equities. As a result, March saw a broad risk-off move across equities, rising volatility, and a rotation away from growth-oriented sectors into more defensive and commodity-linked areas of the market.

Despite the volatility, the underlying economic backdrop remained mixed but relatively stable, with steady job growth and resilient consumer data earlier in the quarter. However, investor sentiment was driven more by macro risks than fundamentals during the month, which resulted in widespread declines across major indices and increased market dispersion.

U.S. equity markets finished March lower, reflecting the risk-off tone that dominated most of the month. The S&P 500 declined approximately 2.0%, the Nasdaq Composite fell roughly 1.2%, and the Dow Jones Industrial Average was roughly flat to slightly positive, depending on the measurement period.

The S&P 500 experienced broad-based weakness as selling pressure spread beyond the large technology names that had previously led the market higher. Elevated volatility persisted throughout the month, with markets reacting sharply to geopolitical headlines and movements in oil prices. By mid-March, the S&P 500 had fallen to one of its lowest levels of the year as investors reassessed risk and earnings expectations in a higher-energy-price environment.

The Nasdaq Composite underperformed for much of the month, as rising interest rates and valuation concerns weighed on technology and growth stocks. The technology sector was particularly sensitive to rising discount rates and investor positioning, leading to continued weakness in software and high-growth names. This trend reflects a broader shift away from long-duration growth assets during periods of macro uncertainty and rising commodity prices.

The Dow Jones Industrial Average held up better than the broader market, supported by its heavier weighting toward industrial, energy, and defensive companies. This relative outperformance highlights the ongoing rotation away from growth and toward value-oriented and cyclical sectors that tend to perform better in inflationary or commodity-driven environments.

Energy and Utilities were the strongest performers during the month, benefiting from rising oil and natural gas prices and investor demand for defensive, cash-flow-oriented sectors. Additionally, Materials and Industrials performed well, supported by higher commodity prices and continued infrastructure and industrial spending trends. Consumer Staples and Health Care outperformed as investors rotated toward defensive sectors with more stable earnings profiles. Consumer Discretionary struggled as rising energy prices and inflation raised fears of weakening consumer spending. Meanwhile, Information Technology lagged due to valuation pressure, rising interest rates, and continued investor repositioning away from growth stocks. Overall, March was characterized by high volatility, sector rotation, and macro-driven market movements risk rather than company-specific fundamentals.

Fixed income markets in March reflected many of the same crosscurrents seen in equities, with yields moving higher and volatility increasing as investors repriced inflation expectations and monetary policy. The primary driver was the sharp rise in energy prices stemming from escalating geopolitical tensions, which raised concerns that inflation could remain elevated for longer than previously anticipated. As a result, Treasury yields drifted higher throughout much of the month, particularly on the front end of the curve, as markets pushed out expectations for potential rate cuts.

The U.S. Treasury curve remained relatively flat to modestly inverted during March, reflecting the tension between near-term inflation risks and longer-term growth concerns. Short-term yields remained elevated as the market adjusted to a “higher-for-longer” Federal Reserve stance, while longer-duration bonds were anchored by expectations that tighter financial conditions and rising energy costs could weigh on economic growth over time. This dynamic continued to limit the effectiveness of duration as a hedge against equity volatility during the month.

Credit markets showed resilience despite the broader risk-off environment. Investment-grade corporate bonds held up relatively well, supported by still-solid corporate balance sheets and steady demand for income. However, spreads widened modestly as investors demanded additional compensation for risk amid increased macro uncertainty. High-yield bonds experienced more pressure, particularly in economically sensitive sectors, as rising input costs and concerns about future growth weighed on lower-quality issuers.

From a sector perspective within fixed income, energy-related credits were a relative bright spot, benefiting from improved cash flow expectations tied to higher oil prices. In contrast, more rate-sensitive segments, such as longer-duration corporates and certain areas of securitized credit, faced headwinds from rising yields. Municipal bonds were somewhat mixed, with performance influenced by duration exposure and localized supply-demand dynamics, though the asset class continued to benefit from its tax-advantaged status for many investors.

Overall, March reinforced the importance of active positioning within fixed income portfolios. With inflation uncertainty resurfaced and rate volatility elevated, investors were rewarded for maintaining a balanced approach—favoring shorter-duration exposure, emphasizing credit quality, and remaining selective in spread sectors.

March economic data releases surprised to the upside, led by improving manufacturing activity and a resilient February jobs report. Equity leadership is rotating away from long-duration software and toward cheaper, cash‑flow‑oriented companies. With corporate earnings beating expectations and the median stock showing its best growth in years, the broadening of market leadership supports the view that a new cycle is emerging.

Inflation data released in March painted a more nuanced picture of price stability, as disinflation continued but showed signs of becoming less linear. The Consumer Price Index (CPI) rose modestly on a month-over-month basis, reflecting a balance between easing core components and renewed pressure from energy-related categories.

Headline CPI increased 0.3% month-over-month, accelerating slightly from February’s 0.2% gain, driven primarily by higher gasoline and energy prices. On a year-over-year basis, CPI remained on a gradual downward trajectory, though the pace of improvement slowed down compared to late 2025. The reacceleration in energy prices—largely tied to geopolitical tensions and rising crude oil prices—was the most significant contributor to the monthly increase, reversing some of the disinflationary momentum seen earlier in the year.

Core CPI, which excludes food and energy, rose 0.2% month-over-month. This was consistent with the prior month and indicative of continued, albeit gradual, progress in underlying inflation. Shelter inflation remained one of the largest contributors to core CPI, though its rate of increase continued to moderate. This reflects a lagged adjustment to softer rent growth, observed in real-time housing data over the past several quarters. Services ex-shelter—closely monitored by the Federal Reserve—showed mixed signals, with certain categories, such as transportation services stabilizing, while others remained sticky.

From a disinflationary standpoint, goods prices continued to provide relief. Core goods inflation remained flat to slightly negative on a month-over-month basis, supported by improving supply chains, moderating demand for durable goods, and ongoing normalization in vehicle and consumer goods pricing. Food prices also showed signs of stabilization, contributing less to overall inflation compared to prior periods.

However, the resurgence in energy prices introduces a more complex inflation outlook. Energy acts as both a direct and indirect input across the economy, meaning sustained increases can filter through to transportation, manufacturing, and ultimately consumer prices more broadly. This dynamic raises the risk that the final leg of disinflation may prove more challenging, particularly if geopolitical tensions persist.

Labor market data released in March indicated a more pronounced cooling in employment conditions, signaling that tighter financial conditions and slowing economic momentum are beginning to weigh more meaningfully on hiring activity.

Nonfarm payrolls declined by approximately 92,000 jobs, marking a notable deterioration from the prior month’s positive job growth. This shift breaks from the steady hiring momentum seen throughout 2025 and suggests businesses are growing more cautious in their workforce planning amid rising uncertainty. Weaknesses were most evident in cyclical sectors, while more stable areas such as government and health care provided some offset but were not enough to prevent an overall contraction.

The unemployment rate rose to 4.4% in February (reported in March), up from 4.0% in the prior month, reflecting a meaningful loosening in labor market conditions. While still within a range that is not historically recessionary, the magnitude and pace of the increase point to a labor market that is moving out of its previously tight equilibrium. The rise in unemployment appears to be driven by both softer hiring demand and a modest increase in layoffs.

Wage growth showed continued signs of moderation, with monthly gains easing relative to prior readings. On a year-over-year basis, wage growth remains above pre-pandemic levels but is clearly trending lower, helping to alleviate some of the inflationary pressure stemming from labor costs. This deceleration is particularly relevant for services inflation, which has been one of the more persistent components of overall price pressures.

Additional labor market indicators reinforced the cooling trend. Job openings continued to decline, and quit rates moved lower, suggesting reduced worker confidence and less competition for labor. At the same time, unemployment claims have begun to trend higher, indicating that displaced workers are facing a more challenging reemployment environment.

Overall, the March labor data reflected a transition from a resilient labor market toward a more balanced—and increasingly fragile—environment. While this moderation helps reduce inflationary pressures, it also raises concerns about the durability of consumer spending and broader economic growth. For policymakers, the combination of a softening labor market and renewed inflation risks from higher energy prices further complicates the path forward, reinforcing a cautious, data-dependent approach to monetary policy.

The Conference Board Leading Economic Index (LEI) continued to signal a slowing economic backdrop in data released during March. The index declined on a month-over-month basis, extending its downward trend and reinforcing concerns that forward economic momentum is weakening, even as certain coincident indicators remain relatively stable.

The LEI fell approximately 0.4% month-over-month, following a modest decline in the prior reading. While the pace of contraction has moderated compared to the sharper declines seen in 2024, the index remains firmly in negative territory, indicating that risks to growth persist. Historically, sustained declines in the LEI have been a reliable signal of economic slowdowns, though the timing and severity of any downturn can vary.

Weakness in the index was driven by several key components. Consumer expectations for business conditions remain the greatest pain point for the index, as rising energy prices and geopolitical uncertainty weighed on sentiment. Housing-related indicators also contributed to the decline. Building permits, a forward-looking measure of construction activity, remained subdued as elevated mortgage rates and affordability constraints continued to pressure the housing market. This is consistent with broader trends showing a slowdown in interest rate-sensitive sectors of the economy.

There were, however, a few areas of relative stability. Labor market indicators, including initial jobless claims, remained within a range consistent with a still-functioning labor market, though they have begun to show signs of gradual deterioration. Financial market conditions, including equity performance earlier in the quarter, provided some offset, though this support weakened as volatility increased toward the end of March.

Overall, the LEI continues to point toward below-trend growth in the coming quarters rather than an immediate contraction. The persistent decline reflects the cumulative impact of tighter monetary policy, elevated interest rates, and growing macroeconomic uncertainty. While not definitive on its own, the index reinforces the broader narrative emerging across economic data: the U.S. economy is gradually losing momentum, even as it remains resilient in the near term.

For investors, the LEI serves as an important reminder that forward-looking risks are building beneath the surface, particularly as geopolitical developments and inflation dynamics introduce additional uncertainty into the outlook.

Operation Epic Fury remained the dominant risk factor for markets throughout March, driving elevated volatility and reinforcing a broadly risk-off environment. In the five weeks since the conflict began, investors have increasingly focused on the potential for disruption to global energy supply, particularly through the Strait of Hormuz. As highlighted in prior commentary, roughly 20% of global petroleum liquids consumption transits this narrow passage, making it the most critical energy chokepoint in the world. Its importance extends well beyond transportation and electricity—petroleum is a key input across agriculture, chemicals, pharmaceuticals, and manufacturing, meaning any sustained disruption has far-reaching economic consequences.

While the United States is often viewed as relatively insulated due to its status as a net energy exporter, the reality is more complex. The U.S. remains the world’s largest consumer economy, accounting for approximately 30% of global consumption despite representing only a small share of the global population. As a result, it remains deeply interconnected with global supply chains, particularly through imports of manufactured goods from China. Any disruption to global energy markets ultimately feeds through to higher production and transportation costs, which are passed along to U.S. consumers.

China’s economy, already facing structural challenges, has become increasingly vulnerable to energy shocks. The loss of key external energy sources, combined with reduced supply from Russia due to ongoing geopolitical disruptions and infrastructure damage, has tightened energy availability. This dynamic places additional pressure on China’s manufacturing sector, raising the likelihood of higher global prices across a broad range of goods—from industrial inputs such as fertilizer to finished consumer products.

The economic impact of the conflict ultimately depends on both the duration of hostilities and the extent of disruption to energy flows and infrastructure. A prolonged conflict or sustained closure of the Strait of Hormuz would significantly exacerbate the global supply-demand imbalance. Countries heavily reliant on Persian Gulf energy imports—including India, Bangladesh, and much of Southeast Asia—have already begun implementing measures to manage shortages, including fuel rationing and reduced economic activity. These responses, while necessary, contribute to slower growth and higher inflation globally.

From a market perspective, the primary transmission mechanism remains inflated. Following meaningful progress in reducing inflation throughout 2025, the recent surge in energy prices introduces renewed upside risk. A commonly cited rule of thumb suggests that every $10 increase in crude oil prices adds approximately 0.2% to 0.3% to CPI over a 12-month period. Under a more extreme scenario, in which oil prices rise materially from current levels, the cumulative impact on inflation could be significant.

Sustained higher energy prices effectively act as a tax on both consumers and businesses. Rising fuel and utility costs reduce disposable income, while higher input and transportation costs compress margins and push prices higher across the economy. This dynamic complicates the policy outlook for the Federal Reserve, as policymakers must balance slowing growth against the risk of reaccelerating inflation. As a result, market expectations for interest rate cuts have continued to decline, with the probability of policy easing this year becoming increasingly uncertain.

While geopolitical headlines continue to dominate the global narrative, April marks the start of the Q1 2026 earnings season—an increasingly important catalyst for markets searching for direction. Consensus expectations remain constructive, with earnings growth projected between 12% and 14% year-over-year, representing a sixth consecutive quarter of double-digit expansion. Revenue growth is also expected to remain solid in the 8% to 9% range, indicating that underlying demand remains intact despite macroeconomic uncertainty.

However, growth remains highly concentrated. The Technology sector is expected to account for the majority of earnings expansion, with projected growth of over 45%, contributing nearly 87% of total S&P 500 earnings growth. Within the sector, AI-related companies continue to dominate, with stocks tied to artificial intelligence expected to drive more than 60% of overall index EPS growth. Notably, NVIDIA and Micron Technology alone are projected to account for more than half of that contribution. While this underscores the strength of the AI theme, it also highlights the market’s increasing reliance on a narrow group of leaders.

At the same time, signs of moderation are emerging. While earnings and revenue growth remain strong, both have decelerated from their 2025 peaks. Margins are expected to come under early pressure, though not to a degree that suggests broad deterioration. Importantly, despite the escalation in the Middle East, analyst estimates have remained relatively resilient. However, the lagged nature of earnings revisions suggests that any material economic impact from higher energy prices or supply chain disruptions is more likely to appear in Q2 or Q3 results.

Beneath the surface, market breadth continues to weaken. Although 7 of the 16 sectors have seen upward revisions heading into earnings season, leadership has narrowed meaningfully. The prospect of “higher-for-longer” interest rates has weighed on small-cap and mid-cap equities, erasing gains seen earlier in the year. Outside of the largest technology names, leadership has increasingly rotated toward defensive sectors, reflecting rising caution as the probability of a prolonged geopolitical conflict increases.

Monetary policy remains another key focus. The upcoming April 29 FOMC meeting is expected to result in no change to interest rates, with market-implied probabilities near certainty. Jerome Powell has maintained a cautious stance, balancing a still-resilient labor market with renewed inflation risks stemming from higher energy prices. While underlying inflation trends may support eventual easing, the Federal Reserve appears reluctant to act prematurely, reinforcing the “wait-and-see” approach that has defined policy in recent months.

While volatility has been a defining feature of markets over the past two years, the recent wartime-driven pullback has begun to create more compelling entry points. Periods of heightened uncertainty often test investor conviction, yet they can also present opportunities to deploy capital at more attractive valuations. As Warren Buffett famously advised, periods of fear can create long-term opportunities for disciplined investors.

Valuations have adjusted meaningfully. The S&P 500 ended March with a forward price-to-earnings ratio below 20x for the first time since Q3 2022. Since the market peak in late October 2025, the forward multiple has compressed by approximately 15%, reflecting a significant reset in expectations. This repricing has not been limited to large-cap equities—breadth deterioration has been notable, with more than half of the Russell 3000 trading at least 20% below their 52-week highs. This broad-based correction suggests that much of the excess valuation premium in U.S. equities has already been worked off.

Despite this reset, forward expectations remain relatively stable. Wall Street’s average year-end 2026 price target for the S&P 500 currently stands near 7,650, which implies a 15% to 20% upside from late-March levels. While this reflects a degree of optimism around an eventual normalization of geopolitical risks, it also suggests confidence in the durability of earnings growth. That said, we remain cautious in interpreting these projections, favoring a data-driven approach that prioritizes earnings clarity over forward-looking assumptions.

From a thematic standpoint, we continue to focus on key structural bottlenecks within artificial intelligence—most notably memory and energy.

Memory, particularly high-bandwidth memory (HBM), has emerged as a critical constraint in AI scaling. Advanced GPUs require continuous, high-speed data transfer, making memory throughput a limiting factor in overall system performance. While compute capabilities have advanced rapidly, memory supply—driven by companies such as Micron Technology, SK Hynix, and Samsung Electronics—has struggled to keep pace. HBM is complex to manufacture, has lower yields, and depends on advanced packaging capabilities from firms like TSMC. As a result, memory availability—not compute—has become one of the most binding constraints in AI development.

Energy represents the second major bottleneck. AI data centers require immense and continuous power consumption, with large-scale training and inference workloads placing unprecedented strain on electrical infrastructure. Hyperscalers such as Microsoft, Alphabet, and Amazon are now among the largest electricity consumers globally. This has driven increased demand for reliable baseload power, including natural gas and nuclear energy, while also accelerating investment in grid infrastructure. The constraint is no longer limited to semiconductors—it increasingly extends to whether sufficient energy capacity exists to support AI at scale.

Another emerging area of interest, further accelerated by recent geopolitical developments, is the commercialization of space—particularly low Earth orbit (LEO) satellite deployment. Modern warfare has highlighted the importance of real-time intelligence, surveillance, and communications, much of which relies on LEO satellite networks. Commercial launch providers such as SpaceX and Rocket Lab have dramatically reduced the cost of launching payloads into orbit—from approximately $65,000 per kilogram during the Space Shuttle era to as low as $1,500 to $2,700 today using reusable rocket systems. This cost compression has expanded access to space for both governments and private enterprises.

As a result, U.S. defense spending is increasingly being directed toward commercial launch capabilities and satellite infrastructure. The Department of Defense is expected to allocate significant capital toward launch services, with growing overlap between commercial space technologies and defense applications, including hypersonic systems and advanced communications networks. Continued innovation, alongside potential capital markets activity such as a future SpaceX IPO, could further shape investor interest in the sector.

In this environment, our portfolio positioning remains grounded in risk management, diversification, and long-term opportunity identification. We do not attempt to time short-term market movements. Instead, we evaluate evolving macroeconomic conditions and structural trends, making measured adjustments to maintain an appropriate balance between return potential and downside protection. Periods of volatility often create dislocations, and maintaining adequate liquidity allows us to capitalize on these opportunities as they arise.