The first quarter of 2026 ends where it began: in crisis. March 29 marks the final session of a quarter defined by the Iran war's eruption into financial markets — and the closing data confirms its legacy. The S&P 500 fell 1.67% to 6,368.85 on the day, the Nasdaq shed 2.15% to 20,948.36, and the Dow Jones Industrial Average dropped 1.73% to 45,166.64. From peak levels near 6,900 in late December 2025, the S&P 500 has contracted roughly 7–8% over the quarter — its steepest quarterly decline since the early trading days of the Iran conflict itself. Meanwhile, gold surged 2.59% to $4,489.70, re-accelerating toward an all-time high set on March 7, as the safe-haven bid that has characterised Q1 2026 showed no sign of exhaustion.
Q1 2026 Equity Scorecard
The quarter's equity story is one of divergence shaped entirely by energy exposure. US markets absorbed the most damage in absolute terms: the S&P 500 opened Q1 near 6,900 and closes below 6,400, while the Nasdaq Composite has fallen approximately 11–12% over the same period — its worst quarterly performance since the Federal Reserve's 2022 rate-hike cycle. The DJIA, weighted toward industrials and financials rather than technology, underperformed again on the final session but has outperformed the Nasdaq on a quarterly basis.
European indices tell a different story. Germany's DAX fell 1.38% on the day to 22,300.75, and France's CAC 40 slipped 0.87% to 7,701.95. But the FTSE 100 — heavily weighted toward energy majors, miners, and commodity exporters — ended the quarter near 9,967, up from approximately 8,600 at year-end 2025, a quarterly gain of roughly +16% that stands as one of the most striking divergences in global equity markets this decade. As covered in detail in US Market Updates' analysis of tech's worst week and the energy rotation, the sectoral bifurcation between growth-heavy US indices and commodity-linked UK and European benchmarks has been Q1's defining equity theme.
In Asia, Japan's Nikkei 225 held up better than Wall Street, falling just 0.43% on the final session to 53,373.07 — aided by a slightly firmer yen — but still logged a negative quarter as oil import costs strained corporate margins and the BOJ navigated an increasingly difficult policy environment. The Hang Seng Index was the standout exception, adding 0.38% to 24,951.88 on the day and posting the only major positive quarterly return among Asian benchmarks, driven by China's domestic stabilisation measures and its relative insulation from oil-price transmission through long-term energy contracts and strategic reserve drawdowns.
Gold and Brent: The Quarter's Commodity Winners
Gold's trajectory through Q1 2026 has been extraordinary even by war-era standards. The metal opened the year near $2,770 per troy ounce, spiked to an all-time high of $5,400 on March 7 as the Iran conflict escalated through its most acute phase, corrected sharply to approximately $3,900 in the weeks following as ceasefire signals briefly calmed markets, and has now re-accelerated to $4,489.70 — a quarterly gain of roughly +62% from January 1. That pace of appreciation exceeds the 2020 pandemic surge and approaches the 1979–80 gold bull market in annualised terms. Central bank accumulation, sovereign wealth diversification away from US Treasuries, and structurally elevated geopolitical risk premia are all contributing factors, according to data from the IMF's World Economic Outlook and the World Gold Council's Q1 demand tracker.
Brent crude closed at $114.57 per barrel, up 1.78% on the day and roughly +35% for the quarter, having opened Q1 near $85. The Houthi re-entry into the Red Sea conflict — a development whose geopolitical dimensions are tracked in detail at Foreign Diplomacy's analysis of Yemen's return to the Iran proxy arc — contributed to sustained Hormuz disruption fears that prevented a meaningful oil price correction even as ceasefire negotiations flickered on and off through March. Copper fell 1.51% on the session to $1,138.15 per metric tonne, signalling continued caution about industrial demand, while CBOT soybeans rose 1.21% to 1,159.50 as fertiliser supply disruptions from the Middle East conflict continued feeding into the agricultural commodities pipeline.
Bond Markets: Safe Havens and Policy Divergence
Quarter-end sovereign bond dynamics captured a fundamental tension in global monetary policy. The US 10-year Treasury yield fell 1.2 basis points on the day to 4.428%, as flight-to-safety demand supported Treasuries on the final session — but for the full quarter, US 10-year yields are up from approximately 4.1% at year-end 2025, reflecting the inflationary overhang from $114 oil. European yields moved in the opposite direction on the day: Germany's 10-year Bund rose to 3.109% and UK 10-year gilts reached 4.981% — one basis point from the psychologically significant 5% threshold and a level not seen since the 2022 Liz Truss fiscal crisis. Japan's 10-year JGB settled at 2.386%, its highest level since at least 2008, as the Bank of Japan's cautious exit from yield curve control continues to reprice the long end of the Japanese curve.
The divergence reflects fundamentally different policy outlooks. The Federal Reserve faces a stagflationary bind — oil-driven inflation argues against cutting, while a deteriorating equity market and slowing consumer sentiment argue against hiking. The ECB and BOE, facing both oil-import inflation and domestic fiscal pressures, are being priced by markets as more likely to hike next. The US policy divergence and its implications for the US dollar and global capital flows are covered in depth at US Foreign Policy's assessment of the Houthi Red Sea escalation's impact on US strategic posture.
Emerging Markets: India's SENSEX Takes the Day's Worst Hit
India's S&P BSE SENSEX fell 2.25% — or 1,690.23 points — on the final session of Q1, the steepest single-session decline among major global indices on March 29. India's vulnerability is structural: the country imports approximately 85% of its crude oil requirements, and at $114 per barrel, the annualised import bill increases by an estimated $25–30 billion compared to the Q1 2025 baseline. The current account deficit widens, the rupee faces depreciation pressure, and the Reserve Bank of India confronts a policy dilemma structurally identical to the Fed's — cut to support growth, or hold to defend price stability. The Shanghai Composite fell a more modest 0.63% to 3,913.72, and Australia's ASX All Ordinaries edged down 0.16% to 8,712.80, underperforming against its usual commodity-export buffer as Chinese copper demand sentiment stayed cautious.
A notable signal from the periphery: the Philippines and China resumed high-level South China Sea diplomatic talks this week, with both governments confirming preliminary discussions on oil and gas cooperation amid the Hormuz disruption. According to Reuters, Manila and Beijing are exploring joint energy exploration in disputed waters — a development that, if formalised, would represent a significant reorientation of Asia-Pacific energy diplomacy. It reflects a broader pattern of Asian importers scrambling to diversify supply chains as Middle East disruption extends into Q2.
What to Watch in Q2 2026
Four macro events will set the tone for Q2. First, global manufacturing PMIs land on April 1 — the ISM US reading, China's Caixin PMI, and Eurozone final figures will provide the first systematic gauge of how oil-shock transmission into industrial activity has evolved through Q1. Second, the Bank of England meets on April 8; with UK 10-year gilts at 4.981% and sterling at multi-year highs, the BOE's language on rate cuts will be critical — and market pricing suggests the probability of any near-term easing has effectively collapsed. Third, the FOMC meeting in late April will be shaped by March PCE data due in the coming days; core PCE is expected to remain elevated well above the 2% target, complicating any return to an easing bias. Fourth, an OPEC+ ministerial meeting in April or May will determine whether the cartel uses the Hormuz disruption to tighten supply further — or moves to compensate for shortfalls in a bid to moderate prices that are straining demand destruction signals from India, Southeast Asia, and southern Europe. Q1 2026 ends with more questions than answers on all four fronts.
