First Quarter 2026 Global Equity and International Review
Summary:
Global equity markets experienced a volatile Q1 2026, marked by strong early momentum that reversed sharply following U.S.-Israel airstrikes on Iran on February 28th. The MSCI World Index declined 3.5% including dividends, while the S&P 500 fell 4.4%. However, Canada and Japan bucked the trend, posting positive returns of 4.0% and 3.6% respectively, driven by energy sector strength and pro-growth corporate governance reforms.
The primary catalyst for market weakness was disruption in the Strait of Hormuz, a critical energy chokepoint handling 21 million barrels of oil daily—20% of global petroleum consumption. Daily tanker traffic plummeted from 130-140 vessels to just 5-10, sending crude prices above $100/barrel. However, a 2-week ceasefire announced April 7th, with Iran agreeing to reopen the Strait, sparked immediate market recovery.
Despite geopolitical headwinds, underlying economic fundamentals remained constructive. The U.S. ISM Composite Index surged above 50 after three years of contraction, signaling manufacturing expansion. Eurozone business activity accelerated to 51.9 in February, marking 14 consecutive months of growth. Japan’s Tankan survey hit its highest level since Q4 2021, reflecting strong business optimism. Corporate earnings revisions turned positive across most regions, and stock market breadth expanded dramatically—over 50% of S&P 500 stocks outperformed the index by March 31st, reversing three years of narrow market leadership.
Historically, geopolitical selloffs prove short-lived, with average recovery times of 112 trading days and median recovery of just 16 days. Following such events, annualized returns typically range 9.0-10.5% over 1, 3, 5, and 10-year periods. We raised cash during Q1 uncertainty but plan to redeploy into high-quality stocks as clarity emerges. The outlook remains cautiously optimistic if Strait disruption resolves quickly, though extended closure could trigger stagflation and further downside.
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