Q1’s market highlights

The big picture 

US operation to capture Venezuelan President Nicolás Maduro 

In early January 2026, the United States executed a highly coordinated overnight military operation in Caracas that resulted in the capture of Venezuelan President Nicolás Maduro and his wife. The raid, involving US special forces, advanced surveillance, precision airstrikes, and naval support, caused significant casualties, with Venezuelan officials reporting more than 80 deaths and over 100 injuries. Maduro was transported to the US and is now held in a federal facility facing narcoticsrelated charges linked to longstanding allegations of statelinked drug trafficking. His removal has left Venezuela under interim leadership, deepening political uncertainty in a country suffering from economic collapse and social unrest.

The new Fed Chair has been nominated

Kevin Warsh is expected to become the next Chair of the US Federal Reserve, following his nomination by President Donald Trump. Trump publicly endorsed Warsh on 30 January 2026, before formally submitting the nomination to the Senate in early March. Warsh previously served as a Federal Reserve Governor from 2006 to 2011, playing a key role during the global financial crisis. Supporters argue that his background in markets, crisis management, and prior White House economic roles make him well suited to navigate today’s uncertain environment. However, his confirmation process has faced early political friction. Senator Thom Tillis has threatened to block the nomination unless an ongoing investigation into current Fed Chair Jerome Powell is dropped, leaving Warsh’s appointment highly likely, but not yet guaranteed.

The US threaten to annex Greenland

Throughout Q1 2026, the US intensified rhetoric and diplomatic pressure surrounding its renewed ambition to annex Greenland, an autonomous territory within the Kingdom of Denmark. The US framed the move as a national security priority, citing rising Chinese and Russian activity in the Arctic. The situation intensified as US officials openly referenced the possibility of "taking control" by force if diplomatic routes failed. Greenlandic politicians reaffirmed the island’s cultural and political independence, while Denmark and NATO allies condemned Washington’s stance, warning it could destabilise transatlantic relationships. The episode has heightened military alertness across the Arctic region.

US Supreme Court rules 2025 tariffs illegal

In February 2026, the US Supreme Court ruled that the broad tariff package implemented in 2025 under emergency presidential powers violated statutory authority. The Court determined that the International Emergency Economic Powers Act did not authorise the sweeping tariffs imposed on global imports. The ruling invalidates the tariffs and raises the prospect of substantial refund claims from affected importers. Nevertheless, the administration responded by imposing a temporary 10% global tariff under a different legal mechanism while exploring alternative tariff tools, signalling continued policy unpredictability.

The US/Israel vs Iran war begins

On 28 February 2026, the US and Israel launched large-scale strikes on Iran targeting military infrastructure, missile sites, and key government leadership. The opening attacks killed Supreme Leader Ali Khamenei and several top officials. Iran retaliated with missile and drone attacks across Israel, the Gulf states, and US regional assets. The Strait of Hormuz, through which around 20% of global oil transits, has been heavily disrupted, with Iran asserting control and imposing conditions on safe passage. The conflict has already resulted in thousands of casualties, significant displacement in Lebanon and Iran, and severe shipping congestion across the Middle East.

Asset allocation highlights

A strong start unsettled by geopolitics

January and February saw most asset classes perform well. Equities continued to “climb the wall of worry”, managing to rise despite challenging geopolitical environment. Meanwhile, the high inflationary environment that has persisted since the Covid pandemic seemed to be softening, allowing expectations of interest rate cuts to support fixed interest asset classes.   

However, the US and Israeli military attacks on Iran, and the subsequent war, proved to be a far greater shock than markets could absorb. Brent crude price spiked from roughly $60 at the start of the year to circa $104 by quarter end, up more than 72%. Businesses are factoring in increased cost into their operations, while central banks, which only months ago were preparing for a rate-cutting cycle, are instead signalling the need to resume tightening.

Equity markets: Divergence driven by energy

Equity market performance has been highly volatile, with regions that are net importers of oil tending to be impacted the worst. Europe ex UK, Asia ex Japan, and Japan suffered as the disruption to both oil and gas supply hit expectations for economic activity. The US equity market, which had not performed particularly well over the opening months of the year, has held up better (relatively) in March. This resilience reflects both the broader risk-off environment and the fact the US is a net exporter of hydrocarbons, providing it with a partial buffer that other regions lack.

Fixed income: A difficult quarter across the curve

Fixed interest, particularly government bonds, performed poorly in March, leading to negative returns across most fixed income categories for the quarter. UK Gilts were hit especially hard. Investors have grown increasingly concerned that upcoming government support for elevated energy costs will require additional gilt issuance. These supply concerns have combined with unease surrounding the potential outcomes of the May local elections, which could shift Labour Party leadership towards figures perceived to be further to the left.

UK investment grade bonds have fared slightly better due to their lower interest rate sensitivity, though spreads still widened modestly over the quarter. Global investment grade corporate bonds lagged global government bonds, and global high yield debt also underperformed as wider spreads created significant headwinds. Emerging market debt, both hard & local currency, suffered in this risk-off environment, with widening spreads and a stronger US dollar weighing on returns.

Currency markets: A diversifier for Sterling investors

In periods of heightened uncertainty currencies such as the US dollar have tended to act as safe havens, and this has proved again to be the case for Sterling investors.   

Alternatives: A rare bright spot

Alternative assets held up well during the quarter, with global infrastructure being a key diversifier. Exposure to the US supported performance, while the inflation-linked nature of a large share of underlying cash flows provided an additional boost. In an environment dominated by volatility and geopolitical uncertainty, these features made infrastructure one of the few areas delivering consistency. 

Market outlook 

Government bonds: High yields and a shifting policy path

Government bonds yields have shifted notably higher over the first quarter, better reflecting an inflation environment that is higher than would have been expected at the start of the year. If the war in the Middle East were to conclude relatively quickly, and oil price were to fall towards levels seen at the start of the year, the possibility of rate cuts in the US and UK could re-emerge. This could prove to be a notable driver of performance.

Global Credit: Supportive fundamentals

Credit spreads remain tight, however there are still few signs of any significant pick up in the credit default cycle. Unless economic growth slows materially, we do not expect a sharp shift in credit conditions over the medium term. Against this backdrop, the additional yield from owning global credit relative to government bonds remains attractive.

Global Equities: Corrections creating selective opportunities

Equity markets have fallen back from the highs witnessed in February, with some regions, such as Asia ex Japan, Japan & Emerging Markets, falling more than 10%, entering what is broadly defined as a technical correction. Rising energy prices and geopolitical uncertainty have weighed on sentiment, and valuations in several major markets remain elevated. However, there are opportunities within some specific areas of the market, such as UK small caps.

Alternatives: Infrastructure remains a valuable diversifier

Global infrastructure assets continue to benefit from structural shifts, including long-term investment demand, energy transition initiatives, and the inflation-linked nature of many underlying cash flows. Importantly, valuations remain attractive relative to other asset classes. Infrastructure also provide diversification from more traditional asset classes and continue to be useful from a portfolio construction perspective.

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