Market Commentary - March 2026

March 2026

Markets Shift from Broadening February Strength to March Volatility

Financial markets experienced a notable shift in tone between February and early March, underscoring the importance of diversification as leadership broadened beyond large U.S. technology stocks before geopolitical developments introduced renewed volatility.

February Recap
During February, U.S. equities delivered mixed results, though encouraging signs of broader market participation began to emerge. Mid-cap stocks led performance for the month, with the S&P MidCap 400 advancing solidly. Small-cap stocks also posted modest gains as the Russell 2000 continued its gradual recovery following a challenging period in 2025. The improved performance of these segments suggested a healthy expansion of market leadership beyond the mega-cap technology companies that have driven much of the market’s gains in recent years.

Large-cap stocks were more subdued. The Dow Jones Industrial Average reached a historic milestone early in February, briefly closing above the 50,000 level for the first time. At the same time, increased volatility among artificial intelligence and software companies weighed on growth-oriented equities. As a result, the Nasdaq Composite declined during the month, while the broader S&P 500 posted a modest decline but remained slightly positive for the year.

International equities continued their strong start to 2026 and outperformed U.S. markets during February. Both the MSCI Emerging Markets Index and the MSCI EAFE Index posted solid gains, reflecting improving global participation and stronger performance across many overseas markets.

Fixed income markets also delivered positive returns during the month as interest rates declined. The yield on the benchmark U.S. 10-Year Treasury Note moved closer to the 4% level, supporting returns across diversified bond portfolios and providing some relief following a period of elevated rate volatility.

March Update

Market sentiment shifted abruptly at the beginning of March following military strikes by the United States and Israel against Iran, escalating tensions across the Middle East and raising concerns about the potential for a broader regional conflict. Energy markets reacted quickly, with oil prices rising sharply amid disruptions to shipping through the Strait of Hormuz—one of the world’s most important oil transit routes.

The geopolitical shock introduced renewed uncertainty into global markets and triggered a sharp increase in volatility. Equity markets, which had entered the year with strong momentum, have since surrendered much of their earlier gains as investors assess the potential economic and inflation implications of higher energy prices and continued geopolitical instability.

Interest rate expectations have also shifted in response to these developments. Earlier in the year, markets had anticipated several interest rate cuts from the Federal Reserve in 2026. However, stronger inflation readings combined with geopolitical uncertainty have pushed those expectations further into the year with just one Fed rate cut now firmly being forecast.   Treasury yields have moved higher across the curve, with the U.S. 10-Year Treasury Note rising back above 4% to 4.23%. The Fed's next FOMC meeting is March 17-18, and expectations are for no change in policy rates; however, the statement and comments by Fed Chair Powell will be closely evaluated.

Looking ahead, several factors will likely influence the investment landscape in the months ahead. Investors are closely monitoring the path of inflation and how it may shape future Federal Reserve policy decisions. Energy prices remain an important variable, as sustained increases in oil could place renewed pressure on inflation and consumer spending. At the same time, global economic growth trends and the approaching U.S. midterm election cycle may contribute to elevated market volatility.

While geopolitical conflicts can create meaningful short-term disruptions for financial markets, history suggests that markets typically stabilize and recover as the broader economic implications become clearer. Regional conflicts have often proven to be temporary shocks rather than long-term drivers of market performance.

Investor Perspectives

From a portfolio perspective, maintaining diversified exposure across asset classes remains essential in environments like this. Equity allocations continue to emphasize broad diversification across U.S. and international markets, including exposure to mid- and small-cap companies that have recently shown improving leadership. International equities remain an important component of portfolios as global markets continue to participate in the economic expansion.

Within fixed income, maintaining exposure to high-quality bonds provides income and diversification benefits while helping balance portfolio risk during periods of heightened equity volatility. While short-term market movements can be unpredictable, disciplined asset allocation and maintaining portfolios aligned with long-term investment objectives remain the foundation of successful investment strategies.

Going Forward

At this stage, we continue to maintain a modestly positive outlook for 2026, though market volatility remains in the forecast. Periods like the one we are experiencing serve as a reminder that markets rarely move in a straight line. Geopolitical events, interest rate shifts, and changing economic expectations can create temporary volatility, but they have historically had limited impact on long-term investment outcomes. Maintaining discipline and focusing on long-term goals remains the most effective way to navigate market cycles.

Call your Nelson Advisor today at 800-345-7593 to discuss your portfolio and any concerns.

~ Your Nelson Securities Team

*Past Performance is No Guarantee for Future Results; This article is for informational purposes only and does not constitute investment advice.