We opened our March 20th commentary with the old expression that “there are decades when nothing happens and days when decades happen”. With the benefit of hindsight, this maxim appears to have been an understatement, and that Q1 was perhaps more accurately described as “a quarter when centuries happened”.
Importantly, the quarter finished much differently than it began. At the start of the year, there was a great deal for investors to be very excited about. The global economy was very strong and corporate earnings growth was expected to be very impressive. In addition, in the U.S., it looked like inflation was moving back towards the Fed’s 2% inflation target and expectations were that the Federal Reserve would cut interest rates two or three times in 2026. In addition, there was excitement about all the fiscal stimulus that was about to benefit the economy because of the One Big Beautiful Bill Act.
In regard to the equity markets, foreign markets had assumed a leadership role, and many were exploding to the upside, while domestic stock markets were showing very promising signs of market breadth expanding beyond the large growth stocks that had dominated over recent years. Indeed, small and mid-capitalization stocks, and even value-oriented stocks, were leading the markets higher. All things considered, it was a very bullish market environment, but then came a wave of geopolitical, trade and economic uncertainty that turned the market outlook on its head.
The quarter started with the capture of Venezuelan President Nicolás Maduro, which would have been the seminal event of most quarters. However, it almost seems like an afterthought in light of all that followed, including a Supreme Court ruling against most of President Trump’s tariff regime, a surprise attack on Iran, and what the head of the International Energy Agency, Fatih Birol, just described as, "the largest supply disruption in the history of the global oil market".1
Importantly, the world economy does not just depend on the largely closed Strait of Hormuz to transfer approximately 20% of the world’s supply of oil and natural gas. It is also a major transit point for much of the world’s fertilizer, in addition to sulfur, methanol, graphite, aluminum, iron, steel and helium, the last of which (along with liquified natural gas) are critical to the manufacturing of semiconductor chips.
It is little surprise that U.S. crude prices surged 77% during the quarter to $101.38, while international crude rose 95% to $118.35 amid the energy shock.2 Understandably, oil and oil stocks were among the quarter’s biggest winners.
Despite the S&P 500 enjoying a 2.9% gain on the last day of the quarter, one of its strongest closes to a quarter on record, the benchmark index finished the quarter 4.4% lower. It is noteworthy however that the S&P 500 decline makes the overall market decline look worse than it actually was, largely because the most impactful of the losses were concentrated in the mega-cap stocks that dominate the S&P 500 as a market capitalization-weighted index.3 Indeed, the equal-weighted S&P 500 Index (where each stock has an equal influence on the performance of the index) managed to finish the quarter with a modest 0.5% gain.
Indeed, outside of the influence of those mega-cap growth stocks, the first quarter returns in the domestic stock market were more than respectable. The S&P 400 Mid-Cap Growth Index gained 4.0%, the S&P 600 Small-Cap Growth Index advanced 2.7%, the S&P 400 Mid-Cap Value Index was basically flat for the quarter (-0.1%), while the S&P 600 Small-Cap Value Index gained 4.3%. Even more impressive was the Dow Jones Dividend Index, which returned an impressive 8.1% during the quarter.4
In general, the domestic equity markets have significantly outperformed most foreign markets since the start of the Iran War, partially because the U.S. is largely energy independent, while Europe and most Pacific Region economies are decidedly not. During the month of March, which encompasses most of the war to date, European markets averaged losses of 9.9%, developed Pacific Region markets, like those of Taiwan and South Korea, averaged declines of 11.3%, and emerging markets, like China, India, and Brazil, fell by an average of 13.1%. World markets, excluding those of the U.S., averaged March losses of 9.7%.5
That said, declines for the quarter as a whole were much less dire, with average quarterly returns in Europe, the Pacific Region, and the emerging markets of -2.8%, +1.9% and -0.2% respectively. Further, if you remove the impact of the strong dollar by measuring returns in the native currencies of each country, foreign equity markets averaged slightly positive returns for the quarter.6
Of course, the war’s impact extends well beyond the world’s stock markets.7 Domestic debt markets (as represented by the Bloomberg Aggregate) fell by -1.76% during March (and -0.1% for the quarter) while the global debt market, excluding the U.S., averaged -4.3% losses in March and -2.2% declines for the quarter.8 From our perspective, the war is having conflicting influences on the world’s debt markets, which should benefit from the expected economic slowdown (Oxford Analytica expects the war to reduce global growth by 1%), but be depressed by the expected surge in inflation.9
From an investor’s perspective, the single most important question might be, with such substantial debt and equity market declines in March, already very bearish investor sentiment, and such a dire outlook for both inflation and economic growth already in place, could the worst-case scenario already be largely (or even entirely) priced in?10
With so much uncertainty, there is a strong temptation to sit on the sidelines until the war is over and the Strait of Hormuz reopens. The potential problem with such an approach is that there is every possibility that the selling in equities will end well before the resolution of the conflict. Indeed, history suggests that, because markets are forward-looking, most market declines end well before the worst of the bad news is realized and instead tend to reverse at the point of maximum pessimism, or when the worst-case scenario is fully priced into markets.
Indeed, as was noted in a commentary just released by Mark Malek, the Chief Investment officer at Siebert Financial, “when resolution comes, and it will come, in some form, because it always does, the snapback in quality will be VIOLENT and fast.”11 While there are no guarantees, history suggests that Mr. Malek could very well be proven correct.
While we are not yet seeing the obvious signs of capitulation that normally coincide with climactic market bottoms, we may have already seen sufficient bearish sentiment to suggest that most of the potential sellers of equities have already sold, in which case further downside risk may be rather limited. Of course, that assumes that the worst-case scenario is not even worse than the already extremely dire expectations.
In terms of potential outcomes, President Trump has made it clear on multiple occasions that he is more than willing to simply declare victory, withdraw from the conflict, and to leave it to others to either negotiate or force a reopening of the Strait of Hormuz. We suspect that the domestic equity markets would likely celebrate such an outcome, at least initially.
That said, we view the reopening of the Strait of Hormuz (which we consider almost inevitable, but potentially not until after the war ends) as being absolutely critical to both foreign equity markets and the global bond markets, and believe that a full resumption of shipping through the Strait will ultimately lead to lower interest rates, higher debt markets, and a very substantial rebound in the equity markets of both Europe and the Pacific.
There are potentially optimistic signs that both sides in the war are looking for an exit ramp. While Iran said on April 6th that “no rational person” would agree to a ceasefire at this point, Axios has reported that “the US, Iran and regional mediators are discussing terms for a possible 45-day ceasefire”12, which could be a precursor to the end of the war.
Also, Bloomberg is reporting that traffic through the Strait of Hormuz has climbed to its highest level since the early days of the war. Oil tankers carrying crude from Iraq are now transiting through the Strait after Iran granted their ships free passage, and two tankers carrying liquefied natural gas (LNG) from Qatar are currently headed toward the Strait which, if they successfully pass, would represent the first LNG exports from the region since the war started.13
While none of this guarantees an immediate outbreak of peace, we view these as encouraging signs and suspect that we have reached a point where a little patience is likely to be well rewarded. Indeed, as was pointed out in an Easter Sunday commentary by renowned market/economic strategist Ed Yardeni “history offers some reassurance: The S&P 500 has been higher two years after the past four major US military engagements, with gains of 31% to 44% following the Korean War, the Iraq War, the Gulf War, and World War II."14
We will close by paraphrasing legendary investor Sir John Templeton, who posited that “bull markets begin in despair, grow on pessimism, mature in optimism, and die in euphoria”. We view it as further potential good news for investors that there is evidence of a substantial surplus of despair, which may prove to be exactly what the bulls need to support the next move higher, particularly in equity prices.
Disclosures
Advisory services offered through Per Stirling Capital Management, LLC. Securities offered through B. B. Graham & Co., Inc., member FINRA/SIPC. Per Stirling Capital Management, LLC, DBA Per Stirling Private Wealth and B. B. Graham & Co., Inc., are separate and otherwise unrelated companies.
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Definitions
Indices are unmanaged and investors cannot invest directly in an index. Unless otherwise noted, performance of indices does not account for any fees, commissions or other expenses that would be incurred. Returns do not include reinvested dividends.
The Standard & Poor's 500 (S&P 500) is a market-capitalization-weighted index of the 500 largest publicly-traded companies in the U.S with each stock's weight in the index proportionate to its market. It is not an exact list of the top 500 U.S. companies by market capitalization because there are other criteria to be included in the index.
The S&P 500® Equal Weight Index (EWI) is the equal-weight version of the widely-used S&P 500. The index includes the same constituents as the capitalization weighted S&P 500, but each company in the S&P 500 EWI is allocated a fixed weight - or 0.2% of the index total at each quarterly rebalance.
This Standard & Poor's Midcap 400 Index is a market weighted index that serves as a barometer for the U.S. mid-cap equities sector. To be included in the index, a stock must have a total market capitalization that ranges from roughly $750 million to $3 billion dollars. Stocks in this index represent household names from all major industries including energy, technology, healthcare, financial and manufacturing.
The S&P SmallCap 600 Index, more commonly known as the S&P 600, is a stock market index from Standard & Poor's that covers the small-cap range of US stocks, using a capitalization-weighted index. The index covers roughly three percent of the total US stock market.
The Dow Jones U.S. Dividend 100 Index is designed to measure the performance of high-dividend-yielding stocks in the U.S. with a record of consistently paying dividends, selected for fundamental strength relative to their peers, based on financial ratios.
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The VIX or Volatility Index – Shows the market's expectation of 30 – day volatility. It is constructed using the implied volatilities of a wide range of S&P 500 index options. The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".
Small capitalization securities involve greater issuer risk than larger capitalization securities, and the markets for such securities may be more volatile and less liquid. Specifically, small capitalization companies may be subject to more volatile market movements than securities of larger, more established companies, both because the securities typically are traded in lower volume and because the issuers typically are more subject to changes in earnings and prospects.
Citations
- “The Strait of Hormuz crisis affects more than just oil. Here are 9 other commodities”, Rebecca Geldard, Posted 4/1/2026, https://www.weforum.org/stories/2026/04/beyond-oil-lng-commodities-impacted-closure-hormuz-strait/
- “Markets Just Made History. 23 Stats That Prove It.”, Matthew Bemer, Posted 3/31/2026, https://www.barrons.com/articles/markets-historic-march-8aa9bcd0
- “The Bespoke Report”, Bespoke Investment Group, Posted 4/2/2026, https://www.bespokepremium.com/category/bespoke-report/
- “The Bespoke Report”, Bespoke Investment Group, Posted 4/2/2026, https://www.bespokepremium.com/category/bespoke-report/
- “Total Return Review”, Bianco Research, Posted 4/1/2026, https://www.biancoresearch.com/
- “Total Return Review”, Bianco Research, Posted 4/1/2026, https://www.biancoresearch.com/
- “Global Stock Markets: Top Performers and Laggards in March 2026”, Econovis, Posted 4/2/2026, https://x.com/econovisuals/status/2039741924823715864
- “Total Return Review”, Bianco Research, Posted 4/1/2026, https://www.biancoresearch.com/
- “A Crude Awakening for the Global Economy”, Sabrina Escobar, Posted 4/7/2026, https://www.barrons.com/articles/trump-iran-stock-market-tariffs-nato-canada-mexico-e126dd0b?mod=djem_b_Feature
- “Fear & Greed Index”, CNN, As of 4/7/2026, https://www.cnn.com/markets/fear-and-greed
- “A Crude Awakening for the Global Economy”, Sabrina Escobar, Posted 4/7/2026, https://www.barrons.com/articles/trump-iran-stock-market-tariffs-nato-canada-mexico-e126dd0b?mod=djem_b_Feature
- “Trump Issues New Ultimatum to Iran”, Tiago Ramos Alfaro, Posted 4/6/2026, Trump Issues New Ultimatum to Iran - Bloomberg
- “Trump Issues New Ultimatum to Iran”, Tiago Ramos Alfaro, Posted 4/6/2026, Trump Issues New Ultimatum to Iran - Bloomberg
- “Dow Holds Steady After Trump Makes Fresh Iran Threats”, Connor Smith, Posted 4/6/2026, https://www.barrons.com/livecoverage/stock-market-news-today-040626