March Quarter 2026: Oil crisis triggers a “measured” market decline

• Share markets shifted lower in response to military action in the Middle East and associated oil supply disruption.

• Software stocks sold down due to concerns over the impact of Artificial Intelligence.

• Bond yields moved higher due to expected inflationary impact of higher energy prices.

• The RBA lifted the cash rate twice, which provided support for the $A.

International Equities

After edging higher over January and February, share markets declined in March upon the commencement of air strikes against Iran by the U.S. and Israel, which then led to retaliatory action by Iran.

This saw the Strait of Hormuz closed, directly impacting the transportation of around 20% of the globe’s oil supply. Crude oil prices escalated 76.6% over the 3-month period.

Global equities averaged a return of negative 3.3% for the quarter, with the U.S. underperforming this average by 1.0%. Much of the U.S. underperformance can be attributed to the technology sector, where concerns over the impact of Artificial Intelligence on software businesses was a dominant theme.

The “Magnificent 7” top technology stocks all recorded drawdowns, with Microsoft experiencing the largest decline of 23.3%. Losses in the technology sector were partially offset by gains in the more defensively positioned sectors, such as consumer staples, where prices rose by an average of 9.7%.

In contrast, the United Kingdom market performed well, with the sizeable energy sector there contributing to a 4.1% gain. Also posting a positive result was the Japanese market, where the Nikkei 225 Index rose 2.0% for quarter, despite falling 12.8% in the month of March.

The landslide victory of Prime Minister Sanae Takaichi’s government in early February was viewed positively by share markets, with a belief that the result will support increased fiscal spending and a pro economic growth agendas. A weaker Japanese Yen also contributed to strength in export orientated Japanese companies over the quarter.

With a strong reliance on oil imported from the Middle East, China’s share market was sold down heavily over the quarter, declining by 8.5%. Other emerging markets also declined in March due high oil dependency.

However, the continuation of very strong support for chip and semi-conductor manufacturing companies in Taiwan and South Korea earlier in the quarter, meant that the decline in the MSCI Emerging Market Index was limited to 2.8%.

Consistent with the strong support for more defensively positioned sectors over the quarter was a sharp increase in global listed infrastructure stocks, which posted a gain of 8.4%. There was also solid support for global listed property, which rose 1.0% over the quarter, despite weakening in March.

Australian Equities

The Australian share market outperformed the global average over the March quarter, with the decline in the S&P ASX 200 Index restricted to just 1.6%. In response to the jump in oil and gas prices, energy (up 37.7%) was the strongest performer.

Resource stocks were also well supported, despite flat iron ore prices. Gold mining stocks were included in this resource rally early in the quarter; however, the gold price declined sharply following the commencement of hostilities in the Middle East - but still finished 4.1% higher for the quarter.

Outside of the resources and energy sectors, it was also a relatively strong quarter for defensive sectors, with utilities, consumer staples and financial stocks all finishing in positive territory.

Results from the profit reporting season for the period ending December were generally better than expected, with stock price reactions to both earnings beats and misses being particularly large.

The healthcare sector had a poor profit reporting season, with CSL (down 17.4%) once again disappointing the market with its results. Further weakness was experienced in the technology sector (down 28.0%), which reflected the broader global concerns for software businesses.

However, the increase in Australian cash interest rates saw a large reduction in the local listed property sector, which fell 16.4% over the quarter.

Fixed Interest & Currencies

The RBA lifted cash rates here by 0.25% in both February and March, to bring the cash interest rate to 4.1%. This tightening in policy was in response to recent higher inflation readings. The combination of the policy tightening, and the inflationary concerns arising from the spike in oil prices, pushed longer term bond yields higher as well.

The Australian 10-year Government bond yield lifted from 4.74% to 4.90%. Inflationary fears also triggered an increase in global yields, with the U.S. 10-year Treasury Bond yield rising from 4.18% to 4.30%.

The Australian currency was well supported over the March quarter, with the higher interest rates available here contributing to a jump in the $A from US 66.9 cents to US 68.5 cents. The $A was also stronger relative to the Euro (up 4.6%) and the Japanese Yen (up 4.2%).

The appreciation in the $A acted to reduce the value of overseas investments held on an unhedged currency basis, thereby magnifying the negative global equity returns recorded over the quarter.

Important Information

The following indexes are used to report asset class performance: ASX S&P 200 Index, MSCI World Index ex Australia net AUD TR, MSCI World ex Australia NR Hdg AUD, FTSE EPRA/NAREIT Developed REITs Index Net TRI AUD Hedged, Bloomberg AusBond Composite 0 Yr Index, Barclays Global Aggregate ($A Hedged), Bloomberg AusBond Bank Bill Index, S&P ASX 300 A-REIT (Sector) TR Index AUD, S&P Global Infrastructure NR Index (AUD Hedged), MSCI China (Composite) in CN, Deutsche Borse DAX 30 Performance TR in EU. Hang Seng TR in HKD, MSCI United Kingdom TR in GBP, Nikkei 225 in JPY, S&P 500 TR in USD.

General Advice Disclaimer

This document has been prepared by Sage Advisers. Sage Advisers is a Corporate Authorised Representative of Sage Advisers Pty Ltd (AFSL 238039). Any advice provided is of a general nature and does not take into account personal circumstances. Any decision to invest in products mentioned in this document should only be made after reviewing the relevant Product Disclosure Statements. Past performance is not a reliable indicator of future performance.