Market Outlook March 2026
Technology Sell-Off Meets Geopolitical Shock February was marked by sharp volatility in financial markets. Speculative …
Overview
Technology Sell-Off Meets Geopolitical Shock
February was marked by sharp volatility in financial markets. Speculative rumors about new AI capabilities — particularly around Anthropic’s Claude and potential industry‑specific applications — triggered broad risk aversion. What began as volatility in precious metals quickly expanded into a substantial sell‑off across software, financials, and transportation. Amplified by social media, these AI‑related narratives led to a multi‑day global market decline.
Additional pressure came from Big Tech companies, which jointly announced around USD 660 bn in capex for 2026. This fueled concerns about margins and intensifying AI competition, erasing roughly USD 900 bn in market capitalization. Toward the end of the month, sentiment stabilized somewhat after Anthropic announced new partnerships with Google Apps, DocuSign, and LegalZoom, though strong results from select software firms and Nvidia were not enough to ease overall risk aversion.
On February 28, geopolitical tensions escalated sharply: The U.S. and Israel launched extensive strikes on Iran, killing Supreme Leader Ali Khamenei. Iran retaliated with widespread missile and drone attacks on Israel and several Gulf states, causing severe infrastructure and energy‑related disruptions. A drone strike on a refinery in Bahrain injured several people and led to a force‑majeure declaration. As a result, Brent crude surged above USD 119.5 per barrel — the highest level since 2022 — further amplifying inflation concerns and weighing on global equity markets.
Looking ahead to March, market dynamics will depend heavily on how the Gulf conflict evolves, the likelihood of additional oil‑price shocks, and the resulting implications for the global economic outlook.
Our investment policy
The terms attractive / unattractive describe the return potential of the various asset classes. An asset class is considered attractive if its expected return is above the local cash rate. It is considered unattractive if the expected return is negative. Very attractive / very unattractive denote the highest conviction views of the BENDURA Investment Committee. The time horizon for these views is 3-6 months.
Global Economy
USA
The U.S. economy moved into February and early March facing a softening labor market alongside increasing inflation pressure, now exacerbated by a pronounced surge in global oil prices. The February jobs report showed the economy unexpectedly shed 92,000 jobs, pushing the unemployment rate to 4.4%, while downward revisions to December and January removed an additional 69,000 jobs from earlier estimates, signaling a softer labor backdrop than previously understood. Job losses were widespread across sectors – health care shrank by 28,000 positions due largely to strike activity, while manufacturing, information services, and public‑sector employment also declined. Yet despite the labor market’s weakness, wage growth remained firm, with average hourly earnings rising 0.4% month‑on‑month and 3.8% year‑on‑year, both exceeding expectations and pointing to ongoing price pressures.
These wage dynamics now collide with a renewed inflation shock as Brent crude prices have surged above $115 per barrel due to escalating conflict in the Gulf, prompting global concerns about rising fuel and production costs. Federal Reserve officials have already warned that inflation is printing above target while oil prices are rising, complicating the policy outlook at a time when the labor market is weakening. As a result, the U.S. inflation outlook has turned more uncertain: higher energy costs threaten to lift headline inflation in the coming months, while firm wage growth and weakening employment create a more challenging environment for policymakers trying to balance price stability with growing recession risks.
Europe
European economies entered February and early March with inflation re-accelerating and growth remaining subdued, as the eurozone’s annual inflation rate unexpectedly rose to 1.9% in February, up from 1.7% in January. It was driven by strong services inflation at 3.4% and core inflation climbing to 2.4%, indicating persistent underlying price pressures. Although energy prices were still lower than a year earlier, this disinflationary effect was already fading before the latest geopolitical escalation. The situation worsened as Iranian forces threatened and partially disrupted shipping through the Strait of Hormuz, which is a critical chokepoint for roughly 20% of global crude and natural gas flows. These disruptions triggered renewed inflation fears across Europe, with officials warning that a prolonged blockade risks lifting import and transportation costs and feeding directly into consumer inflation. While eurozone labor markets have remained relatively stable coming into 2026, policymakers note rising uncertainty and the possibility that hiring momentum could soften if inflation remains elevated and real incomes come under pressure. On the growth side, the eurozone economy expanded 1.5% in 2025, with 0.3% quarterly growth in Q4, reflecting modest but fragile momentum heading into the new year.
Asia
In China, attention centered on the opening of the Two Sessions on 4 March, where Beijing signaled softer economic momentum by cutting its 2026 GDP growth target to 4.5–5%, while manufacturing data reflected weakness with the official PMI slipping to a four-month low amid uncertainty around export demand. Consumption remained soft, and a large share of listed Chinese firms reported losses in the prior year, underscoring lingering pressure on domestic demand.
In Japan, inflation showed signs of cooling even as growth improved modestly, leaving the Bank of Japan in no hurry to tighten policy; this reflects a continuation of Japan’s gradual shift away from decades of deflation without yet achieving sustainably strong wage price dynamics. Meanwhile, South Korea experienced stronger economic momentum, driven by a surge in semiconductor exports. With 20-day data showing a 134% jump in chip shipments and expectations of 25% year on year export growth in February, the consumer inflation was projected to rise to 2.2%, also partly due to higher gasoline prices. Market volatility also prompted Seoul to activate a 100 trillion won market stabilization fund in early March as equity markets swung sharply amid global tensions.
U.S. equity markets have lost the steam in February. The S&P 500 slipped for the second time in three months, while Nasdaq suffered its weakest month since March 2025. This reflected persistent pressure on major technology names, driven by mounting anxiety over AI‑related disruption and a broad investor shift toward cyclical sectors. In contrast, the equal‑weight S&P 500 gained 3.5%, marking its fourth straight month of outperforming the cap‑weighted index as market leadership continued to broaden. Beneath the relatively modest headline decline for the S&P 500, the month was defined by pronounced internal volatility. Software stocks were hit particularly hard, as ongoing worries about AI’s potential to upend white‑collar industries prompted steady waves of selling. Headlines highlighting rapid advances in AI capabilities appeared almost daily, reinforcing the sense of uncertainty around long‑term business models across the sector – iShares Expanded Tech-Software tracker has lost 22.82% since the start of the year. At the same time, February’s trading pattern represented more of a rotation than a retreat from risk. Capital moved out of megacap tech and into cyclicals, mirroring the continued strength of the equal‑weight index. This shift was supported by a combination of improving economic sentiment and the market’s willingness to embrace a “run‑it‑hot” environment, while lingering questions around the eventual returns on massive AI‑related capital expenditure contributed to investor caution toward the largest technology firms.
European equities extended their advance in February, with the Stoxx 600 reaching new all‑time highs and marking its eighth straight monthly gain, the longest winning streak since 2013. Major markets across the UK, France, Italy, Spain, and Switzerland also set fresh records. Under the surface, AI‑driven disruption narratives triggered notable rotations, particularly out of tech‑sensitive sectors such as financials and media. Yet Europe proved resilient, supported by strong buyback activity, solid earnings delivery, and a favorable shift in investor positioning. Improving macroeconomic indicators in both the euro area and the UK further strengthened confidence in a gradual recovery, helped by central banks maintaining a steady policy stance.
Global investors continued to funnel unprecedented sums into European equities as they sought to reduce their exposure to the U.S. and its increasingly volatile technology sector. February flows appear set to become the region’s highest monthly inflows on record, following two consecutive weeks of roughly $10 billion each. This surge reflects growing optimism around Europe’s economic prospects and a broader rotation away from AI‑centric megacaps toward more traditional “old‑economy” sectors. Europe’s market composition is heavy in banks, industrials, and natural resources and it has been a key beneficiary of this shift. The renewed appeal of physical‑asset‑linked companies has helped propel the UK’s FTSE 100 nearly 7% higher year‑to‑date, with names like Weir Group and Antofagasta climbing more than 20%.
Asian equity markets delivered broad-based strength, with gains concentrated in technology‑driven segments and markets tied to election optimism. The MSCI Asia Pacific ex‑Japan Index surged 8%, supported by double‑digit advances in South Korea’s Kospi and Taiwan’s Taipex, an extension of momentum tied to the global AI buildout benefiting semiconductor‑heavy markets. Hong Kong also outperformed, lifted by strong energy names and recovering property stocks, while Australia saw notable upside in tech and mining, reflecting supportive commodity dynamics and sector rotation. Singapore’s market continued its steady climb, with major bank stocks once again pushing the STI to repeated record highs, underscoring the city‑state’s resilient financial sector.
Meanwhile, India lagged sharply, with both the Nifty and Sensex dropping more than 5% as global investors withdrew capital amid slower growth signals and the absence of a trade agreement with the U.S. Overall, the region’s performance highlighted diverging national narratives: strong tech‑led enthusiasm in North Asia versus macro‑policy‑driven caution in India.
Bonds
Federal Reserve is firmly in pause mode, as policymakers held the federal funds rate at 3.50%–3.75% at the January meeting. It marks the first pause since July 2025 after three consecutive cuts late last year. Fed minutes and public remarks revealed a committee increasingly divided: while some members supported the idea of eventual rate cuts, several officials warned that further rate hikes could still be necessary if “sticky” inflation failed to move closer to target. With headline inflation lingering around 2.4–2.6% and the labor market still resilient, markets priced in a 95–97% probability that the Fed would hold rates steady again at the upcoming March 17–18 FOMC meeting. This prolonged wait and see stance placed U.S. Treasuries in a narrow trading range through February, with investors cautious about positioning ahead of the March decision. Corporate bond markets reacted similarly: credit spreads remained relatively well anchored, supported by steady economic activity and still healthy corporate fundamentals, but issuance conditions were uneven as companies weighed higher borrowing costs against the uncertainty surrounding the Fed’s next move.
For now, the European central bank appears comfortable maintaining its cautious, data‑dependent approach. However, an important swing factor is the euro: a sharp appreciation potentially triggered by lower U.S. interest rates could give the ECB room to cut rates modestly, perhaps by one or two 25‑bp reductions, easing financial conditions further. In such an alternative scenario, 10‑year German Bund yields, now around 2.8%, could drift toward 2.35% before rebounding once U.S. rate pressures reassert themselves. In the base case, though, European credit markets should prepare for the opposite trajectory.
With U.S. rates expected to remain higher for longer and global fixed‑income markets still adjusting to persistent inflation risk, we anticipate that German 10‑year yields are unlikely to fall much below 2.65% and instead are poised to rise well above 3% over the coming quarters. Against this backdrop, European credit spreads held firm through February as improving macro data in the euro area and the UK supported sentiment. But the overall tone remains cautious: investors are navigating a market where the ECB is steady, U.S. yields exert upward pressure, and currency dynamics could become a key pivot point for the region’s rate outlook.
Commodities & Currencies
Although the long‑term outlook for gold remains decisively positive, we do not view the short‑term setup as compelling enough to warrant increasing exposure at this stage. In the near term, gold may continue to draw support from geopolitical tensions surrounding Iran and from any downward pressure on U.S. interest rates and the dollar. The medium‑ to long‑term outlook is also constructive. Gold has delivered strong performance in recent years, and its low correlation to equities makes it an increasingly attractive portfolio diversifier. Moreover, central banks are expected to remain significant gold buyers as they continue reducing the share of their reserves held in U.S. dollars, partly to limit the sanctions‑related risks of dollar‑denominated assets. Structural concerns around sovereign debt sustainability are also likely to intensify, raising the probability that authorities eventually resort to more inflationary policy settings to stabilize real debt burdens. Gold remains one of the most effective hedges in such a scenario.
Across the wider commodities complex, we continue to see firm underlying demand, both as an inflation hedge and as a strategic alternative to traditional currency reserves. If U.S. productivity gains materialize only gradually while economic growth remains robust, the Federal Reserve may ultimately have to tighten policy again later this year. Such an outcome would normally pose a short‑term headwind for most inflation‑hedging assets. Even so, we still anticipate gradual price appreciation rather than sharp declines, largely because government deficits remain structurally high and are increasingly perceived as latent inflation risk. Additionally, a growing number of countries view holding physical commodity inventories as a complement or even an alternative to currency reserves, providing a steady source of demand that helps limit downside volatility in raw‑material prices. Oil prices have surged sharply following the escalation of the Iran conflict, with Brent crude rising above $115 per barrel, its highest level since 2022, as markets react to supply disruptions and heightened geopolitical risk in the Gulf. In the near term, the outlook remains firmly upward‑biased, as ongoing threats to shipping through the Strait of Hormuz continue to elevate risk premiums. Although prices may experience short‑term volatility, the broader trend suggests continued tightness driven by the conflict’s uncertain duration, potential further supply interruptions, and investor demand for real‑asset hedges.
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