Q1 Multi-Asset Perspectives:

Julian Howard, GAM’s Chief Multi-Asset Investment Strategist, outlines his latest multi-asset views.

02 April 2026

Review

The first quarter of 2026 saw a slight decline of -2.5% in global equities as measured by the MSCI AC World Index in local currency terms. In a sense the result was extraordinary given the extreme geopolitical events of the review period. The quarter started with a manageable enough set of challenges. Artificial intelligence had led the US market up strongly in 2025 and investors had responded in the first two months of 2026 with a sector rotation away from technology and communication stocks into areas such as consumer staples (see Chart 1).

The re-focus from the so-called Magnificent Seven - Apple, Microsoft, Amazon, Alphabet, Meta Platforms, Nvidia and Tesla – towards more ‘boring’ stocks with predictable cashflows such as Coca-Cola and Walmart was encouraging. The S&P 500 actually managed to avoid sliding amid this shift, suggesting that fresh market leadership alone could sustain market momentum into the future. But then, at the end of February, the US and Israel began a concerted bombing campaign against Iran. The war quickly assumed asymmetric characteristics, meaning that while the US and Israel pursued a conventional military campaign with resonances of 1990s Gulf War I, Iran responded using lower-cost unconventional tools. These included drones as well as missiles to strike back at oil infrastructure across the Gulf, including shipping in the well-known choke point of the Strait of Hormuz.

At the end of the quarter, oil futures were well over the significant USD 100 point and US gasoline prices stood at USD 3.99, despite efforts from the Trump administration to protect the Strait and even restart offshore drilling using the Defense Production Act¹. At its 17-18 March meeting, the US Federal Reserve (Fed) noted that the war with Iran was pushing oil and gasoline prices higher, increasing inflation risks and creating major uncertainty for the US economic outlook, potentially complicating the future course of interest rates.

In an ironic twist, the S&P 500 has been the best performer of all the major stock markets since the war began, as investors sought relative safety. The US dollar also made gains for similar reasons, reinforced by the fact that oil is priced in dollars and was in higher demand. For sterling-based investors, the correspondingly weaker pound boosted their returns on overseas assets, partially offsetting the market volatility.

Chart 1: Other sectors are available - S&P 500 Information Technology takes a back seat in Q1:

S&P 500 sector performance, year-to-date (YTD) to 31 March 2026

Chart 2: The equity journey – it was never going to be linear:

MSCI AC World Index annual returns from 31 December 1987 (inception) to 31 March 2026

Outlook

It is inevitably challenging to provide a meaningful outlook when the world economy, markets and geopolitics have come to such a clear fork in the road. A continuation of the current conflict with escalation in the form of deliberate targeting of energy and other civilian infrastructure (including water) by both sides would likely pile on inflationary pressure and start to seriously hurt the world’s economic growth prospects. The International Monetary Fund’s (IMF) upcoming April World Economic Outlook will likely provide the most comprehensive assessment of the damage done so far and what the future impact might be.

Pending that report, it is hard to see how even relatively well-insulated US consumers could be immune from the global income shock that would follow from any deepening of the conflict. But herein lies a possible route through to a more optimistic outcome. Consumers in America have already been seriously inconvenienced by a partial government shutdown which, among other things, was creating huge queues at airports until additional funding was belatedly found. Expensive gasoline is only likely to add to the growing sense of frustration which the current administration is sensitive to given how during the 2024 campaign it successfully highlighted inflation as one of the shortcomings of the Biden era.

For this reason, President Trump’s version of an ‘off-ramp’ is likely to be quite different to that of most analysts who believe only a total conventional military victory now will be face-saving for the President. Instead, the end could come in the form of a simple overnight declaration of ‘mission accomplished’ given that sufficient damage has been wrought on Iran for the time being, not unlike the abrupt end to last summer’s bombing campaign against the regime’s nuclear installations.

In such a case, we believe a relief for markets could be relatively swift, with oil settling back down and equities regaining their footing and re-focusing on more prosaic matters such as corporate earnings and valuations. We will know soon enough which way things are heading, but a well-prepared multi-asset portfolio is in the privileged position of not needing to pre-position for either outcome since by definition it should have been constructed for many such dramas over the course of its investment horizon.

Julian Howard is Chief Multi-Asset Investment Strategist at GAM Investments. This article represents the views of GAM’s Multi-Asset team.