March was defined by a sharp geopolitical escalation that quickly spilled into global markets. The Iran conflict and resulting disruption to energy supply triggered a surge in oil prices, forcing investors to rapidly reassess inflation, interest rates, and global growth expectations.
Unlike prior months driven by economic data or earnings, March was a reminder that external shocks can still dominate market behavior.
Market Moves
Equities declined broadly across regions and capitalizations. U.S. large caps fell -4.98%, while mid- and small-cap stocks declined -5.39% and -4.07%, respectively.
International markets experienced more severe drawdowns, with foreign developed down -10.19% and emerging markets falling -13.03%. The global equity index dropped -7.13% for the month.
Style trends remained intact despite the selloff. Growth stocks continued to lag, down -5.21% in March and -9.54% year-to-date, while value declined less and remains positive for the year. Mid- and small-cap stocks, despite March weakness, are still holding onto gains year-to-date, suggesting some underlying rotation remains in place.
The Oil Shock
The defining catalyst was a rapid rise in energy prices. Disruptions to shipping and production—particularly around the Strait of Hormuz—tightened global supply and pushed oil prices sharply higher.
This type of supply shock impacts markets through multiple channels: higher energy costs feed into inflation, rising inflation pressures interest rates, and both act as a drag on economic growth. March reflected all three forces simultaneously, resulting in a broad and synchronized selloff.
International markets were hit hardest, in part due to their greater reliance on imported energy. This dynamic helps explain the outsized declines in foreign developed and emerging markets relative to the U.S.
Historical Context
While geopolitical events can feel destabilizing, market reactions to them have historically been sharp but temporary. These drawdowns are often driven more by uncertainty than by lasting changes to economic fundamentals.
What ultimately matters is not the event itself, but whether it leads to sustained disruptions in growth, inflation, or policy.
Looking Ahead
March was less about a breakdown in fundamentals and more about a rapid repricing of risk.
Encouragingly, in the first several trading days following month-end, markets have shown signs of stabilization. As updates around a potential ceasefire emerged, equities rebounded across regions, recovering a meaningful portion of March’s losses. This type of response is consistent with past geopolitical shocks, where markets recover as uncertainty begins to ease.
That said, the situation remains fluid. While tensions may de-escalate, risks to energy supply and global trade persist, and markets remain highly sensitive to headlines. As a result, recent gains likely reflect reduced near-term uncertainty rather than a full resolution.
If energy markets stabilize, the March pullback may prove temporary. However, a prolonged disruption could continue to pressure inflation and growth. As always, diversification remains critical in navigating periods of elevated uncertainty.
