Market Commentary Q1 2026

The year started on a positive note with investors expecting both strong earnings growth in most sectors and regions, and further, modest interest rate cuts despite sticky inflation. The rotation out of the US equities and into other regions, notably Asia and Emerging markets which offered better valuation characteristics continued. Throughout January and February global indices made gains largely driven by good returns in Asia and Emerging Markets where Cavendish Ware portfolios were overweight.

Gold and Silver were notable for their volatility. Gold was, at its peak up over 25% and silver up 22% before falling sharply. Gold and other precious metals had in effect been turned into meme stocks.  A meme stock is a company whose share price rises sharply due to social media hype and online retail trading communities, rather than traditional business fundamentals or financial performance.

The escalating geopolitical tensions that we saw in January and February did not concern investors, effectively “discounting” the threats as negotiating bluster even though the oil price (Brent) appreciated by $10bbl (barrel) to $71bbl.

This all changed at the end of February when America and Israel attacked Iran leading to significant damage to energy infrastructure in many Gulf countries and the effective closure of the Strait of Hormuz to shipping.  This had led to a significant increase in the price of oil with Brent at one point trading at $120bbl. Although the price of oil has since declined following the ceasefire at the end of March it remains significantly higher than the start of 2026.

Our view has been that the longer the supply disruption persists the greater the economic impact and greater delays to restarting energy production and return to prewar “normality”. The disruption has now lasted for over 6 weeks and has manifested itself as a global price shock and a supply shock for many Asian countries. As we found out with the Russian invasion of Ukraine the disruption is not just confined to oil but other key materials. In this war the supply of fertilisers, sulphur and Helium have all been impacted. The latter is critical in the manufacture of computer chips. The post ceasefire rally therefore gave us an opportunity to trim exposure to Asian equities, which we felt was prudent.

We are already seeing the impact in inflation data released in April and the reduced likelihood of interest rate cuts. So far corporate earnings growth has been strong, but we suspect that reflects history rather than future profitability.

However, and it is a big however, the US is relatively insulated from this as they are largely self-sufficient in oil and natural gas and will not suffer supply constraints. The oil price is essentially set globally and the price of gasoline in the US has risen significantly, which should impact consumer confidence. However, natural gas which is largely used for heating and electricity generation has barely risen in the US. This makes sense as transport constraints mean that natural gas is not a global market. Since the ceasefire the US equity market has rallied and made new all-time highs. This demonstrates the power of US retail investors who have become conditioned to “buy the dip” irrespective of circumstance. One could say that the US equity market has become a meme stock!

It is impossible to guess how the war will be resolved but the issues that concerned us at the start of the year with regard to the US market (a potential AI bubble, valuations, stress in parts of the debt markets) have not gone away. We prefer to be cautiously positioned and potentially miss some upside. We remain underweight our equity benchmark and retain our underweight in US equities in all portfolios and remain alert to opportunities where we feel the potential return justifies adding risk.

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