Q1 2026 Economic & Market Commentary

Global financial markets endured a turbulent first quarter of 2026, as early optimism gave way to significant uncertainty triggered by the outbreak of the US-Iran war in late February. What had begun as a quarter focused on artificial intelligence valuations, Federal Reserve policy, and resilient corporate earnings was rapidly reshaped by a geopolitical shock of historic proportions. Markets that entered January expecting a strong year of continued gains exited March nursing meaningful losses.

Global Overview

Global equity markets turned sharply negative in the first quarter of 2026, ending a three-year run of strong consecutive gains for major indices. The principal driver of this reversal was the outbreak of armed conflict between the United States, Israel, and Iran, which commenced on 28 February 2026 and sent shockwaves across every major asset class. Prior to the conflict, markets had largely focused on the pace of artificial intelligence adoption, the trajectory of interest rate policy in the United States, and whether stretched valuations in technology stocks could be sustained.

The war in Iran introduced what the International Energy Agency described as the largest supply disruption in the history of the global oil market, with the closure of the Strait of Hormuz halting approximately 20% of the world's oil and a significant proportion of global LNG exports. Brent crude, which had traded between $60 and $70 per barrel for much of the preceding year, surged past $100 per barrel, touching levels not seen since 2022, and briefly approaching $120 as the conflict escalated into March.

Bond markets diverged from their typical safe-haven role. Rather than rallying in the face of geopolitical uncertainty, global bond markets sold off sharply as investors grappled with the inflationary implications of sustained high energy prices. US 10-year Treasury yields, which had been below 4% in late February, climbed towards 4.50% before pulling back slightly toward quarter-end. The combination of rising energy prices, volatile equity markets, and a bond market sell-off created a particularly challenging environment for balanced portfolios. Emerging markets faced dual headwinds: global risk-off sentiment driven by the war, combined with dollar strength and commodity price volatility. Currency pressures were broadly felt across developing economies, while energy importers in Asia and Africa faced the most acute economic disruptions from the Strait of Hormuz closure.

South Africa

South Africa entered 2026 on a broadly positive footing, building on the exceptional gains of 2025. The first two months of 2026 showed continued momentum, with the ALSI touching all-time highs of approximately 129,339 index points and year-on-year gains of over 40% recorded as recently as early February.

The outbreak of the US-Iran war on 28 February proved to be a decisive turning point. March 2026 was a poor month for the ALSI, with the metals and mining sector — which accounts for approximately 27% of the index — bearing the brunt of the selloff. Gold prices, which had been a significant driver of the JSE's 2025 rally, came under severe pressure as higher oil prices and dollar strength dominated sentiment, leading gold miners such as AngloGold Ashanti, Gold Fields, and Harmony Gold to fall sharply. By late March, the USD/ZAR exchange rate had surged to around 17.06, as foreign investors retreated from South African equities, exacerbating rand weakness. The ALSI's Q1 total return was a negative 0.61%, representing a painful reversal after a strong start to the year.

United States

The US equity market endured one of its worst quarters since 2022. The S&P 500's total return of -4.33% and the Dow's -3.20% decline marked a sharp reversal after the strong gains of 2025. US markets came into 2026 with elevated valuations, stretched AI-sector positioning, and a growing debate about whether the Federal Reserve would deliver the rate cuts investors had priced in.

Through January, the S&P 500 managed a modest gain of approximately 1.4%, supported by solid corporate earnings and resilient consumer spending. February brought increasing turbulence as concerns mounted about AI capital expenditure sustainability, with several mega cap technology companies seeing significant share price corrections. The launch of the Iran war on 28 February proved to be the decisive break, sending markets sharply lower. The S&P 500 went on to post five consecutive weeks of losses — an unusually extended losing streak — with dramatic intraday swings becoming commonplace as investors oscillated between hopes for a quick diplomatic resolution and fears of a prolonged conflict. The surge in oil prices, with Brent exceeding $100 per barrel for the first time since 2022, revived inflation fears that markets had hoped were largely behind them. US gasoline prices, which had been below $3 per gallon as recently as late February, topped $4 per gallon by late March. The national diesel average rose to approximately $5.45 per gallon. The reflationary shock caused traders to dramatically reprice Federal Reserve expectations: markets moved from pricing in multiple rate cuts for 2026 to pricing in a very slim probability of even a single reduction for the year.