Q1 2026 Market Commentary

Q1 2026 Market Commentary

Period covered: 1 January – 31 March 2026

RBIM_MarketUpdateQ12026.pdf

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Overview

The first quarter was dominated by geopolitical turbulence. US-led regime changes in Venezuela, renewed Greenland tensions paired with tariff threats towards European allies, and a Supreme Court ruling limiting emergency tariff powers collectively reshaped the global trade outlook. Most significantly, the escalation of conflict involving Iran disrupted shipping through the Strait of Hormuz, triggering an oil shock reviving stagflations concerns.

The Global Importance of the Hormuz Strait

The situation in the Middle East has oscillated almost daily between escalation and de-escalation, whipsawing energy, and risk markets. Disruptions to energy flows, particularly through the Strait of Hormuz, have introduced a meaningful supply shock, pushing energy prices higher and raising the risk of more persistent inflation. While there are signs of potential de-escalation, the timing remains uncertain, and markets are increasingly focused on second-order effects, how higher energy costs feed through to inflation, government and central bank policy and, ultimately, growth.

Despite the uncertain backdrop, markets have remained relatively resilient. Equity markets have been supported by still-decent real growth rates, earnings expectations and ongoing AI investment. However, beneath the surface, leadership has continued to rotate away from large-cap growth and toward value and more cyclical areas. At the same time, investors are increasingly focused on the returns from AI-related capex, as well as potential risks in areas such as private credit.

Equity & Bond Markets

Equities and bonds sold off globally during March as markets focused on both rising inflation expectations and potential downside risks to growth resulting from the conflict in the Middle East. Energy stocks were a notable exception, delivering strong gains as oil prices surged. Correlations between many assets rose as financial stress sweep across the globe. Traditional safe havens such as government bonds sold off as yields rose across developed markets as higher inflation started to get priced into markets.

Trades that had been popular prior to the conflict unwound, most notably gold, European and Japanese stocks falling while the US dollar rallied as investors perceived the US as being less impacted from the conflict given their energy independence.

The rotation away from mega-cap tech names earlier in the quarter helped value stocks beat growth stocks. Emerging market equities outperformed their developed market counterparts despite being particularly challenged by the events in the Middle East.

US Technology stocks had a challenging start to 2026 as investors grew concerned that new AI capabilities would threaten the software as a service (SaaS) model. Further, while technology stocks posted strong fourth quarter earnings, investors increasingly began to scrutinise the ability of the hyperscalers to deliver returns against the ever-increasing levels of AI-related capex being announced.

However, the first few weeks of the Middle East conflict witnessed the tech sector prove to be relatively more resilient than the broader US market as investors looked to higher-quality companies at a time of elevated economic uncertainty.

Overall, the quarter highlighted the importance of diversification across our strategies, with leadership broadening away from US mega‑cap growth stocks towards value, regional equities, and commodity‑linked sectors.

Portfolio Changes

•Firstly, we sold our holdings in physical gold to cash across all the model portfolios. While gold has had an exceptional run in terms of performance, gold became much more volatile and more recently correlated to other risk assets such as equities. Gold typically struggles in an environment of rising inflation expectations, rising interest rates, and where a strong US dollar prevails.

•We also reduced our exposure to emerging market debt to limit risk and increased cash slightly to maintain flexibility. Typically, a strong US dollar is a headwind for local currency emerging market debt, and therefore, we felt it prudent to reduce some risk in the current environment.

•Holding cash in this environment not only reduces the volatility within the model portfolios but also provides us with some dry powder to reinvest in opportunities in the near term.

Outlook

Fundamentally, the outlook remains highly uncertain, with the potential for both significant upside and downside risks. Unlike the tariff-related shocks, where the narrative was largely shaped by the US administration, the current situation is influenced by a broader range of global perspectives. As long-term investors, we believe it is essential to look beyond short-term market volatility and focus on enduring fundamentals as we work our way through the challenges ahead.