Global equity markets began 2026 with strong momentum. That strength reversed abruptly in March as the outbreak of war involving Iran caused a sharp deterioration in investor sentiment. For the quarter, the MSCI World ex USA Index declined -0.94%, underperforming the MSCI World ex USA Small Cap Index, which fell -0.37%. The magnitude of the market shift is best illustrated by small caps: an -11.18% decline in March erased gains of 6.10% in January and 5.72% in February. Over the same period, the US dollar strengthened modestly, ending the quarter approximately 1.7% higher.
If not for the war the focus this quarter would likely have been on precious metal strength (now weakness), sell-off in AI ‘losers’ (still ongoing), notably software and some business services, and private credit concerns (getting worse, although much less of a risk outside the US). These issues have not gone away but are currently overshadowed by the war and its impact on the petrochemical industry.
It has not gone unnoticed that the EU and Asia, neither region directly involved in the war, will see a greater impact than North America. Asia is likely to see the brunt of the damage as the region sources a large portion of their oil and petrochemical needs from the Persian Gulf. While oil is a concern, the real risk is a potential shortage of refined products such as naphtha, diesel, and jet fuel. Asia also sources much of its natural gas from the region which will likely be replaced by coal, as it was in 2022. Using the 2022 disruption in energy markets as a guide tells us that increasing feedstock prices will have a short-term negative impact on company profits in the coming quarters, at least until contract pass-through mechanisms take effect. However, unlike 2022, the risk of shortages, regardless of price, is higher and will have unpredictable but clearly negative repercussions for the global economy.
Europe faces similar challenges, though with some mitigation. While alternative natural gas sources exist, they are likely to be secured only at higher prices, further straining an already under pressure chemical sector. Ultimately, the duration of the Strait of Hormuz disruption will be the key determinant of economic impact. A reopening within weeks would likely result in manageable, albeit visible, damage. A prolonged closure would raise the risk of widespread shortages cascading across global supply chains. In such a scenario, developed markets would likely see renewed inflationary pressures. North America, while relatively insulated from direct supply effects, would not be immune to the indirect consequences of global shortages over time.
Against this backdrop, higher interest rates and renewed inflation risk have reentered the market conversation. Even prior to the conflict, yields had begun moving higher in Australia and Japan. These dynamics may also help explain recent weakness in precious metal prices. Meanwhile, sentiment around AI remains broadly constructive, though investors continue to debate the durability and ultimate profitability of the current investment cycle. From
our perspective AI capabilities have advanced meaningfully over the past six months, driving rapidly rising adoption and spending across industries. At the same time, current pricing structures appear heavily subsidized, raising important questions about eventual return economics and long-term competitive winners.
So much change, so fast, usually means significant opportunity. However, higher energy prices are an absolute negative for many companies and product shortages are even worse. As in past periods of market stress, our high-quality bias and focus on companies with strong balance sheets should position us well in the current environment. Prior to the war the markets were very strong, and we would expect that strength to return when traffic in the Strait normalizes. In the meantime, we have been active in adjusting the portfolio’s positioning to emphasize our highest conviction investments, selling out of businesses we see at risk, and adding new positions that meet our, recently elevated, criteria.
This represents the views and opinions of GW&K Investment Management and does not constitute investment advice, nor should it be considered predictive of any future market performance. Data is from what we believe to be reliable sources, but it cannot be guaranteed. Opinions expressed are subject to change. Past performance is not indicative of future results.
Indexes are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index. Index data has been obtained from third-party data providers that GW&K believes to be reliable, but GW&K does not guarantee its accuracy, completeness or timeliness. Third-party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data. The third-party data may not be further redistributed or used without the relevant third-party’s consent. Sources for index data include: Bloomberg, FactSet, ICE, FTSE Russell, MSCI and Standard & Poor’s.
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Global Equity Market Commentary – 4Q 2025
Global Equity | Insight
Global equities rose in 2025, with non‑US markets outperforming as shifts in trade, currency, and valuations created compelling international opportunities.
Despite starting the quarter with a tariff shock and enduring a thankfully short Iranian conflict, global markets (ex-USA) put up stellar returns for 2Q25.
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Global Equity Market Commentary – 1Q 2026
Global equity markets began 2026 with strong momentum. That strength reversed abruptly in March as the outbreak of war involving Iran caused a sharp deterioration in investor sentiment. For the quarter, the MSCI World ex USA Index declined -0.94%, underperforming the MSCI World ex USA Small Cap Index, which fell -0.37%. The magnitude of the market shift is best illustrated by small caps: an -11.18% decline in March erased gains of 6.10% in January and 5.72% in February. Over the same period, the US dollar strengthened modestly, ending the quarter approximately 1.7% higher.
If not for the war the focus this quarter would likely have been on precious metal strength (now weakness), sell-off in AI ‘losers’ (still ongoing), notably software and some business services, and private credit concerns (getting worse, although much less of a risk outside the US). These issues have not gone away but are currently overshadowed by the war and its impact on the petrochemical industry.
It has not gone unnoticed that the EU and Asia, neither region directly involved in the war, will see a greater impact than North America. Asia is likely to see the brunt of the damage as the region sources a large portion of their oil and petrochemical needs from the Persian Gulf. While oil is a concern, the real risk is a potential shortage of refined products such as naphtha, diesel, and jet fuel. Asia also sources much of its natural gas from the region which will likely be replaced by coal, as it was in 2022. Using the 2022 disruption in energy markets as a guide tells us that increasing feedstock prices will have a short-term negative impact on company profits in the coming quarters, at least until contract pass-through mechanisms take effect. However, unlike 2022, the risk of shortages, regardless of price, is higher and will have unpredictable but clearly negative repercussions for the global economy.
Europe faces similar challenges, though with some mitigation. While alternative natural gas sources exist, they are likely to be secured only at higher prices, further straining an already under pressure chemical sector. Ultimately, the duration of the Strait of Hormuz disruption will be the key determinant of economic impact. A reopening within weeks would likely result in manageable, albeit visible, damage. A prolonged closure would raise the risk of widespread shortages cascading across global supply chains. In such a scenario, developed markets would likely see renewed inflationary pressures. North America, while relatively insulated from direct supply effects, would not be immune to the indirect consequences of global shortages over time.
Against this backdrop, higher interest rates and renewed inflation risk have reentered the market conversation. Even prior to the conflict, yields had begun moving higher in Australia and Japan. These dynamics may also help explain recent weakness in precious metal prices. Meanwhile, sentiment around AI remains broadly constructive, though investors continue to debate the durability and ultimate profitability of the current investment cycle. From
our perspective AI capabilities have advanced meaningfully over the past six months, driving rapidly rising adoption and spending across industries. At the same time, current pricing structures appear heavily subsidized, raising important questions about eventual return economics and long-term competitive winners.
So much change, so fast, usually means significant opportunity. However, higher energy prices are an absolute negative for many companies and product shortages are even worse. As in past periods of market stress, our high-quality bias and focus on companies with strong balance sheets should position us well in the current environment. Prior to the war the markets were very strong, and we would expect that strength to return when traffic in the Strait normalizes. In the meantime, we have been active in adjusting the portfolio’s positioning to emphasize our highest conviction investments, selling out of businesses we see at risk, and adding new positions that meet our, recently elevated, criteria.
Disclosures
This represents the views and opinions of GW&K Investment Management and does not constitute investment advice, nor should it be considered predictive of any future market performance. Data is from what we believe to be reliable sources, but it cannot be guaranteed. Opinions expressed are subject to change. Past performance is not indicative of future results.
Indexes are not subject to fees and expenses typically associated with managed accounts or investment funds. Investments cannot be made directly in an index. Index data has been obtained from third-party data providers that GW&K believes to be reliable, but GW&K does not guarantee its accuracy, completeness or timeliness. Third-party data providers make no warranties or representations relating to the accuracy, completeness or timeliness of the data they provide and are not liable for any damages relating to this data. The third-party data may not be further redistributed or used without the relevant third-party’s consent. Sources for index data include: Bloomberg, FactSet, ICE, FTSE Russell, MSCI and Standard & Poor’s.