Geopolitical Shockwaves and AI Disruption Dominate March Trading
At a glance: Equity markets worldwide have declined sharply following the recent attack on Iran, with oil and gas prices surging and pressuring growth expectations, while the US dollar strengthened amid heightened uncertainty. Global equities as measured by the MSCI World index in local currency terms had risen nearly 1% in February, marking ten consecutive months of gains prior to the incident, but the conflict has led to downward revisions in earnings forecasts and a shift to neutral weighting from overweight. Brent crude oil gained nearly 4% last week on escalating Middle East tensions, exacerbating inflation concerns before weekend developments further rattled sentiment. The S&P 500 experienced its largest monthly drop since March 2025, reflecting broad risk-off positioning as investors retreated to defensive assets like US Treasuries, where the 10-year yield dipped below 4.00% for the first time since November. Corporate fundamentals remain solid despite fourth-quarter real GDP slowing from prior quarters, with consumer confidence showing slight February improvement and January employment exceeding expectations, yet volatility persists around trade policies and AI impacts.
Technology advance: Software and services companies face significant headwinds from the launch of new artificial intelligence products, contributing to negative market impacts alongside broader AI disruption concerns that failed to be alleviated by Nvidia’s recent earnings beat. Major US stock indexes declined amid ongoing worries about AI’s disruptive potential across sectors, with investors fretting over higher-than-expected wholesale inflation data reinforcing sticky price pressures. This has led to a risk-off tone in technology-heavy benchmarks, as positioning adjusts to uncertainties from rapid AI advancements weighing on traditional software valuations and prompting diversification away from US tech dominance.
Partnerships: The Trump administration has assured UK investors it will uphold the trade deal struck in May 2025, following the US Supreme Court’s ruling that last year’s tariffs were unlawful, providing reassurance amid renewed tariff uncertainty and encouraging market stability in European trading. This commitment came as pan-European STOXX Europe 600 Index touched a new high with a 0.52% weekly gain in local currency terms, driven by robust corporate earnings and diversification from US markets despite geopolitical tensions. Bank of England Monetary Policy Committee member Alan Taylor suggested three additional interest rate cuts in 2026 as inflation nears the 2.0% target, bolstering sentiment around transatlantic economic alignment.
Acquisitions/expansions: Emerging market equities continued their outperformance versus developed markets into February, with South Korea’s stocks up 56% year-to-date in local currency terms and Taiwan posting strong gains, maintaining an overweight allocation despite potential Strait of Hormuz closure risks to China’s oil imports from Iran. Japan’s Nikkei 225 Index surged 3.56% and TOPIX rose 3.42% over the week, hitting record highs on optimism for Prime Minister Sanae Takaichi’s policy outlook, as Bank of Japan Governor Kazuo Ueda downplayed US 15% global tariff impacts matching existing levies. China’s oil inventories offer short-term buffers, supporting sustained emerging market expansion momentum.
Regulatory/policy: The US Supreme Court ruled that tariffs introduced by Trump last year were unlawful, prompting the administration to pursue alternative measures to sustain tariff pressure, while President Trump indicated the Iran conflict might last up to four weeks, heightening uncertainty over global growth and inflation. People’s Bank of China cut the risk reserve requirement ratio for foreign exchange forward trading to zero from 20% effective March 2, aiming to curb rapid renminbi appreciation after it hit a nearly three-year high against the US dollar on Thursday, signaling efforts to maintain exchange rate stability at reasonable levels. In Colombia, President Gustavo Petro’s policies including a 23% minimum wage increase gained political traction with a poll showing jumped approval ratings, potentially sparking near-term market reactions as noted by T. Rowe Price Sovereign Analyst Chris Mejia.
Finance/business: US Treasuries advanced with the 10-year note yield dropping below 4% amid equity weakness, supporting positive returns as bond prices rose inversely, while the average 30-year fixed mortgage rate fell to 5.98%—a 3.5-year low below 6% per Freddie Mac—for the first time since September 2022, down from 6.76% a year ago and tied to declining Treasury yields. Global government bonds via JPM GBI rose nearly 2% in February with broad-based yield declines across regions despite solid macro data before the Iran attack, though oil price rises have reversed some moves, leading to underweight duration positioning. Credit spreads per Barclays Global Credit Index widened in February back to November levels amid declining risk appetite from escalation fears and AI uncertainties, yet maintaining overweight in credit and corporate bonds overall.
Sources: storebrandam.com, troweprice.com, ajg.com, blackrock.com, commonwealth.com
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