The first quarter of 2026 ended on a very different footing than when it began. What started as a market driven by economic momentum, earnings growth and a combination of fiscal and monetary stimulus, became a market dominated by the war in Iran and energy prices. Markets began the year supported by improving manufacturing activity, a stabilizing U.S. housing backdrop and inflation that remained relatively contained.

As the quarter progressed, the conflict involving Iran and the disruption around the Strait of Hormuz became the dominant macro variables, driving oil prices sharply higher and injecting volatility into global equity markets. Even with this shock, the broader backdrop remained more resilient than headlines suggested, and diversification once again proved valuable.

Global monetary policies were paused, as high oil prices dominated

Central banks largely shifted into wait-and-see mode. The Bank of Canada held its overnight rate at 2.25%, while acknowledging that the war had increased volatility in energy prices and financial markets. The U.S. Federal Reserve also remained on hold, as policymakers weighed the risk of supply-driven inflation against the possibility that higher energy costs could slow growth.

The key issue is whether elevated oil prices will become a sustained concern that will dent consumer and business confidence, or whether a credible path to de-escalation will allow energy prices to retreat and momentum to reassert itself.

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