In the first quarter of 2026, markets were reshaped by a confluence of forces that few had expected at the end of the year: an escalating geopolitical conflict in the Middle East, a dramatic energy price shock, renewed inflation concerns, and a reassessment of central bank policy paths globally. What began as a continuation of the broader rotation away from US mega-cap technology in late 2025 quickly became dominated by the broader economic implications of the US-Iran conflict. The quarter ended largely in the red for risk assets, but meaningful areas of outperformance in energy, defensive equities and select non-US markets validated the importance of diversification.
macro background
The defining macro event of the quarter was the escalation of conflict between the United States, Israel, and Iran. On 28 February 2026, coordinated airstrikes targeted Iranian military and nuclear facilities. Iran retaliated with missile and drone attacks…
