Q1 2026 market summary: A strong start, then a global shock

Not every geopolitical event has the same impact on markets. This one matters because of where it is.

The Middle East sits at the heart of global energy supply. Key routes such as the Strait of Hormuz handle around a fifth of the world’s oil and gas flows. When that flow is threatened, or even appears at risk, prices tend to respond quickly.

And energy is not just another part of the economy. It feeds into almost everything:

• how much it costs to heat our homes
• how expensive it is to transport goods
• the day-to-day running costs for businesses

In other words, it has a direct link to the cost of living for households across the UK.

As tensions escalated towards the end of March, oil prices rose sharply and markets began to reassess what this could mean for inflation and growth. Even without a full disruption to supply, uncertainty alone is often enough to move prices.

This is where things become more complicated.

Higher energy prices tend to push inflation upwards. This in turn leads to slower economic activity by leaving households and businesses with less to spend elsewhere.

That puts central banks in a difficult position.

The Bank of England has already signalled that rising energy costs are likely to push inflation higher than expected this year, while also acting as a drag on growth. Similar concerns are being felt in the US and across Europe.

Only a few weeks ago, markets were increasingly confident that interest rates might start to come down. Now, that path looks less certain. Investors are beginning to question whether rates could stay higher for longer, or even rise further if inflation proves more persistent.

There are also signs that the UK is entering this period from a relatively fragile starting point. Growth has been modest, and recent forecasts suggest it may remain subdued this year. At the same time, the latest inflation figures, which showed CPI at 3.0% in February, do not yet reflect the impact of rising energy prices, as the data was collected before the conflict escalated.

As always, markets have not moved in a uniform way.

Some of the sharpest falls have been seen in the large US technology companies that have driven much of the market’s gains in recent years. These businesses, including Apple, Microsoft and Nvidia, are particularly sensitive to changes in interest rate expectations.

When borrowing costs look likely to stay higher, or uncertainty increases, valuations can come under pressure.

More broadly, equity markets have been weaker over the quarter, while bond markets have also been unsettled as investors reassess inflation and interest rate expectations.

That said, not everything has moved in the same direction.

• Energy stocks have held up well, benefiting from higher oil prices and outperforming the wider market.
• There’s also been a shift towards more defensive areas, such as utilities and consumer staples, which have historically been more resilient in periods of slower growth and higher inflation.
• Utilities, in particular, have held up relatively well during recent volatility, reflecting demand for more stable, income-generating assets.

Although the Middle East has dominated headlines towards the end of the quarter, it’s not the only factor shaping the global economy.

Trade policy, particularly in the United States, has continued to evolve, with tariffs and broader tensions still influencing global supply chains and pricing.

At the same time, global trade has been supported by strong demand for technology-related goods. The World Trade Organisation (WTO) reports that AI-related products such as semiconductors and data-centre equipment were a major driver of trade growth in 2025, rising around 20% year-on-year.

However, that strength is not expected to continue at the same pace. The WTO has downgraded its global trade growth forecast for 2026 to 0.5%, reflecting the delayed impact of higher tariffs, cooling economic conditions and rising policy uncertainty.

In most quarters, the US‑led removal of Venezuelan President Nicolás Maduro would have stood out as a defining geopolitical development. This quarter, however, it has received comparatively limited attention amid a backdrop of even larger global events.

The transition of power to Delcy Rodríguez represents one of the most visible and consequential US interventions in the region in recent years. Executed swiftly, the move highlights a more assertive US posture in shaping political dynamics within its regional sphere of influence. Its significance is amplified by Venezuela’s substantial energy reserves and its historically limited alignment with Western strategic partners.

Analysts are divided on the broader implications. Some view the action as part of a coordinated effort to strengthen regional stability and reaffirm US leadership during a period of heightened global tension. Others see potential ramifications for global energy markets, particularly as geopolitical risks continue to accumulate elsewhere. For some observers, the intervention may signal an attempt to secure greater influence over regional energy supply or recalibrate Venezuela’s position within the Western alliance structure.

Gold is often seen as a safe haven, and earlier in the quarter, it was exactly that.

But towards the end of March, things became a bit more complicated. Despite rising tensions, gold actually fell back from its highs, dropping below $4,700 per ounce.

That might seem surprising, but there are a few reasons behind it. A stronger US dollar made gold less attractive, some investors took profits after its earlier rise, and others were forced to sell as markets became more volatile.

So rather than suggesting gold has stopped doing its job, this is better seen as a short-term wobble. A reminder that even traditionally “safe” assets don’t always move in the way we expect in the moment.

With so much focus on recent events, it’s easy to overlook where we started the year.

Before the escalation in the Middle East:

• economic activity was holding up
• global trade was being supported by investment in technology
• inflation was gradually easing, even if still above target

Those underlying trends haven’t disappeared. They’ve been disrupted by a significant geopolitical shock. But when the situation stabilises, the global economy could head back towards the path it was already on.

As we move into the next quarter, the key question is not just what has happened, but what happens next.

In particular:

• how long the conflict continues
• whether energy supplies are disrupted or stabilise
• and how central banks respond if inflation remains elevated

If the situation stabilises relatively quickly, there is a reasonable case for markets to refocus on the more positive underlying picture we saw earlier in the year.

If it persists, then energy, and the uncertainty they bring, are likely to remain a central theme.

Times like this can feel uncomfortable, and that’s a very natural reaction. But it’s also worth remembering that uncertainty is part of the investment journey, not a sign that something has gone wrong.

What matters most is not reacting to every headline, but staying anchored to a clear, long-term plan. Markets may move in the short term, but your financial plan is designed to look much further ahead.

And as we’ve seen many times before, periods of disruption do pass, and when they do, attention often returns to the underlying fundamentals that were there all along.