Monthly Market Commentary

March Market Update: When Geopolitics Takes the Lead

By Abbey Henderson, CFP®, RLP®, CAP®, AEP®

March was a reminder that markets do not operate in a vacuum. While economic data, earnings, and interest rates always matter, there are moments when something else takes the lead. In March, that driver was clearly geopolitics.

U.S. equities experienced a volatile month as rising energy prices, increased uncertainty, and escalating tensions in the Middle East weighed on sentiment. The S&P 500 declined approximately 4.4 percent for the month, the NASDAQ fell about 7.0 percent, and the Dow Jones Industrial Average dropped 3.2 percent. Small caps were more resilient, with the Russell 2000 still modestly positive year to date.

The pattern throughout the month was consistent. Markets reacted quickly to headlines, particularly those tied to the conflict involving the United States, Israel, and Iran, and the potential implications for global energy supply. Oil prices moved higher, volatility increased, and investor positioning became more defensive.

At the same time, the economic backdrop did not deteriorate in a meaningful way. Consumer confidence improved modestly, and corporate earnings remained generally supportive. What changed was not the foundation of the economy, but the level of uncertainty surrounding it.

U.S. Markets: Volatility Returns

U.S. equity markets were choppy throughout March, with several sharp down days and multiple weeks of declines. The S&P 500 experienced its largest monthly drawdown in more than three years, driven largely by rising oil prices and geopolitical concerns.

Importantly, the market entered March from a position of strength. Even after the pullback, the S&P 500 remained well above year-ago levels, reflecting the strong gains of 2025 and early 2026.

Volatility moved meaningfully higher during the month, with the VIX rising above 30 at points. This reflects a market that is not necessarily breaking down, but is recalibrating expectations in real time.

Major Index Performance – March 2026

Sources: S&P Dow Jones Indices; NYSE; NASDAQ; Dow Jones; Federal Reserve Bank of St. Louis (FRED). Data as of NYSE close, March 31, 2026. Past performance is not indicative of future results.

Global Markets, Energy, and the War

March reinforced a dynamic we began to see earlier this year. Markets are increasingly sensitive to developments outside the United States.

Global equities showed mixed performance, with some resilience in emerging markets earlier in the quarter giving way to broader declines by month-end. Rising oil prices became a central pressure point, influencing inflation expectations, equity valuations, and investor sentiment across regions.

At the center of this shift is the conflict in the Middle East. The risk is not just the conflict itself, but what it could mean for energy supply. The region remains critical to global oil production and transportation, and even the possibility of disruption can move markets quickly.

We saw that play out in real time. Energy stocks were one of the strongest-performing sectors in March, rising roughly 10 percent for the month and more than 30 percent year to date. At the same time, higher energy costs created pressure across other sectors by increasing input costs and raising concerns about inflation.

Gold also benefited, continuing its role as a store of value during periods of uncertainty.

This is consistent with how markets have historically responded to geopolitical events. The initial reaction tends to be sharp but focused. Oil rises, volatility increases, and capital shifts toward defensive assets. The longer-term outcome depends less on the headlines themselves and more on whether the event meaningfully impacts economic growth, inflation, or financial conditions.

International Equity Performance – March 2026

Sources: MSCI Inc.; MSCI index returns are approximate and reflect net return methodology where applicable. All data as of March 31, 2026 (estimated). Past performance is not indicative of future results.

The Economy: Still Expanding, but Facing Headwinds

Economic data in March painted a familiar picture. Growth is continuing, but it is becoming more uneven.

Consumer confidence edged higher, reflecting improved views of current economic conditions. At the same time, expectations for the future softened, suggesting that households are becoming more cautious about what comes next.

Higher energy prices are an important part of that story. When oil prices rise, they act like a tax on consumers and businesses. Households spend more on fuel, leaving less for discretionary purchases. Businesses face higher input costs, which can pressure margins.

Inflation remains a key variable. While prior data showed progress, rising commodity prices have the potential to slow that progress or even reverse it in certain areas. Markets are now focused on whether energy-driven inflation will influence Federal Reserve policy in the months ahead.

Earnings, Consumers, and Business Activity

Corporate earnings have remained relatively stable, though the pace of growth varies across sectors. Some industries continue to show resilience, while others are beginning to reflect the impact of higher costs and a more uncertain environment.

Valuations remain elevated relative to historical averages, which means markets are more sensitive to changes in expectations. When valuations are high, the margin for error becomes smaller.

Consumer behavior continues to be a stabilizing force. Spending remains intact, though more uneven across categories. Higher-income households continue to drive much of the activity, while lower- and middle-income consumers are more affected by rising costs, particularly in energy and housing.

Manufacturing data remains mixed, with some regions showing modest expansion and others indicating flat or slightly contracting activity. The overall picture is not one of contraction, but of an economy adjusting to a more complex set of conditions.

What Matters Now: Markets in a Geopolitical Phase

March marked a shift in what is driving markets.

For much of the past year, the focus was on inflation, interest rates, and earnings. Those factors are still important, but they are no longer the only story. Right now, markets are in a geopolitical phase.

When that happens, the playbook changes slightly.

In the short term, markets tend to react quickly to headlines. Volatility rises, correlations increase, and price movements can feel more abrupt. That is what we saw throughout March.

Over longer periods, however, markets tend to refocus on fundamentals. The key question becomes whether the geopolitical event creates a lasting economic impact. Does it disrupt supply chains, push inflation higher, slow growth, or alter monetary policy?

That is the question investors are now asking about the current conflict.

If energy markets stabilize and supply remains intact, history suggests markets may eventually move through this period of uncertainty. If not, the effects could be more persistent, particularly through inflation and growth.

Final Thoughts

March was a more challenging month, but not an unexpected one.

After a strong 2025 and a constructive start to 2026, some volatility and recalibration are a normal part of the cycle. What stands out about this moment is not just the market movement, but what is driving it.

The environment has shifted from one dominated by economic data to one where geopolitical developments are playing a larger role.

That can feel uncomfortable, but it is not unusual.

For long-term investors, the approach remains the same. Stay diversified, stay disciplined, and stay focused on your broader plan. Periods like this can test conviction, but they are also where thoughtful positioning and perspective matter most.

Markets will continue to respond to the headlines in the near term. Over time, they will continue to be driven by earnings, growth, and the underlying strength of the economy.

The key is not to react to every movement, but to understand what is changing and what is not.