Economic Update - March 2026

Markets came into March on a reasonably solid footing, but with rising uncertainty. February saw Australian shares perform well, global markets move in different directions, and bonds quietly do their job as a stabiliser. Since then, escalating conflict in the Middle East has become the dominant new risk investors are watching closely.

Overall, markets are balancing three big forces:

• Sticky inflation and interest rates

• Slowing but still positive economic growth

• Heightened geopolitical risk, particularly around energy supply

What happened in February?

Australian markets held up well

Australian shares were one of the brighter spots. A strong local reporting season helped push the ASX higher, led by banks and resources. Investors rewarded companies that delivered reliable earnings and strong balance sheets, while more speculative growth stocks struggled.

Smaller companies pulled back during the month, but they remain strong over the past year — a reminder that markets don’t move in straight lines.

Global markets were mixed

Overseas, markets were less settled:

• The US market drifted lower, particularly technology stocks, as investors reassessed high expectations around AI‑driven growth.

• Europe and Japan performed better, helped by improving earnings and, in Japan’s case, optimism around government stimulus.

• Emerging markets outperformed, although China remains a concern due to weak manufacturing activity and ongoing property‑sector stress.

Bonds quietly improved

After a tough period, bonds delivered positive returns as global interest rates eased slightly. Investors are increasingly accepting that rate cuts will come later and more slowly than previously hoped — but the peak in rates may be close.

In Australia, this created an unusual situation: bond yields fell even after the RBA raised rates again in February, reflecting global influences and slower growth expectations.

Sector performance – what helped and what hurt

Financials

Helped by: solid earnings, higher interest margins, and investor preference for reliable income

Hurt by: concerns that further rate hikes could eventually slow credit growth

Materials

Helped by: strong gold prices and selective strength in critical minerals

Hurt by: weaker iron ore prices as China’s economic recovery remains uneven

Information Technology

Helped by: long‑term growth themes still intact

Hurt by: short‑term profit taking, valuation concerns, and global tech volatility

Health Care

Helped by: defensive appeal over the long term

Hurt by: disappointing earnings updates and reduced appetite for “expensive defensives”

Property (A‑REITs)

Helped by: falling global bond yields

Hurt by: higher Australian interest rates and refinancing concerns

The new issue: Middle East conflict

Since late February, military escalation involving Israel, Iran, and regional forces has sharply increased market uncertainty. Of particular concern to investors:

• Oil supply risks: Shipping disruptions around the Strait of Hormuz — which carries around 20% of global oil supply — have pushed oil prices sharply higher. At times, prices have surged toward levels not seen in several years.

• Inflation risk: Higher energy prices can flow through to transport, food, and utility costs, making it harder for central banks to cut rates. 

• Market volatility: Equity markets have become more headline‑driven, with sharp moves when tensions escalate and partial recoveries when de‑escalation is hinted. 

So far, markets are concerned but not panicked, largely because investors are hoping the conflict remains contained. However, a prolonged disruption would have broader economic consequences.

What markets are focused on now

Looking ahead, investors are watching:

1. Interest rates

   Central banks want clearer evidence that inflation is under control before cutting rates. Energy prices are now a major wildcard.

2. Economic growth

   Growth is slowing but not collapsing. The risk is not recession — it’s prolonged uncertainty.

3. Geopolitics and energy prices

   Oil, shipping routes, and supply chains will remain in focus as long as Middle East tensions persist.

4. Earnings quality

   Markets are rewarding companies that can deliver consistent profits and cash flow in a tougher environment.

What this means for investors

Periods like this reinforce some timeless principles:

• Diversification matters — different assets are responding differently.

• Short‑term volatility is normal during geopolitical shocks.

• Staying invested and disciplined has historically been more effective than reacting to headlines.

We continue to monitor developments closely and position portfolios with a focus on resilience, quality, and long‑term outcomes. If you would like to discuss your investments, please don't hesitate to contact us.

Thanks to our research partners at Lonsec for assisting with the preparation of this Economic Update.