How markets traded the Iran war

Stocks, bonds, currencies and commodities have all been plagued by volatility over the past month, with many assets experiencing wild swings and big losses as the war between the US and Iran drags on.

Although there were some outliers, bearish sentiment caused assets to decline significantly throughout the month.

The five-week war between the US and Iran has sent stocks around the world into severe declines. On Wall Street, all three major averages are expected to end the month in negative territory.

But the decline has had a deeper impact on many markets outside New York, and the outperformance achieved by some international indexes last year has now been reversed.

Concerns about the impact of the Iran war on energy and inflation are weighing on sentiment toward markets in Europe and Asia, which are far more dependent on oil and gas imports than the United States. For example, South Korea Kospi Thanks to the country’s sensitivity to energy shocks, the index, the best-performing stock market in 2025, fell by almost 20% in March.

Goldman Sachs strategists said in a note Monday that the stock market’s “risk balance has worsened,” increasing the likelihood of stagflation.

“Stagflation has historically been a poor environment for stocks, characterized by lower real performance and higher volatility: real median quarterly Stocks 600 “Returns during non-stagflation periods are lower, around -1% compared to +3%,” they said, adding, “We do not believe the market has fully priced in stagflation.” Under stagflation, further declines in stock prices and weaker real returns are expected. ”

In a note earlier this month, Dan Coatsworth, head of markets at AJ Bell, shared three tips for trading in down markets: diversify, stick to your investment plan, and don’t overtrade.

“Continuous buying and selling incurs costs and puts pressure on profits,” he says. “The market has experienced wild swings[since the war began]and this volatility may have encouraged investors to bet that a particular stock or fund would move in one direction or the other. The market quickly changed directions many times, leaving some people deeply disappointed. When it comes to investing, sometimes less is more than picking a stock or fund and selling out hours or days later. Investing is about taking a long-term view.”

Outside of stocks, government borrowing costs are rising as government bonds in developed countries are sold off sharply.

Bond yields (which move inversely to bond prices) have been rising steadily throughout March as investors race to gauge the likelihood of central banks raising interest rates. Expectations for interest rate cuts from central banks such as the U.S. Federal Reserve and the Bank of England have waned, replaced in many cases by expectations for hawkish monetary policy, and yields on some European government bonds have climbed to multi-decade highs.

“The US and European break-even curves have sharpened as markets reassessed inflation expectations and the likelihood of central bank rate cuts,” Amundi strategists said on Tuesday. “Countries, including the UK, have also seen a significant rise in nominal yields, particularly short-term interest rates. At this stage, some of this reaction looks excessive to us. We think the length of time energy prices remain high will determine the secondary inflationary effect.”

Foreign exchange markets have also been shaken, with the dollar regaining ground lost following President Donald Trump’s “Emancipation Day” tariff announcements last April.

In March, dollar index The measure, which measures the dollar’s performance against a basket of major rivals, is on track to rise about 3%.

“Energy-driven stagflation risks are supporting the USD in the short term,” OCBC strategists said in a note Monday. “A fall in oil prices in the second half of 2026 could lead to a weakening of the USD, but solid US growth will limit the extent of USD weakness.”

Meanwhile, HSBC analysts said in a note that March’s nearing end serves as a “solemn reminder of how much has changed since the end of February.”

“We are still looking back at the beginning of the Russo-Ukrainian war and its impact in the form of soaring commodity prices and currency effects,” they said. “As then, the US dollar dominates, with Asian and European currencies struggling amid rising prices for oil, natural gas, fertilizers and petrochemicals, making Latin American exchanges a favored region among emerging markets.”

The metal market is also unstable. gold Typically seen as a safe-haven asset that benefits from widespread turmoil, it has been dragged down and is heading for its worst monthly performance since 2008. Although a strong dollar and the prospect of higher interest rates are weighing on gold prices, many market watchers remain bullish on the yellow metal.

“Our view is that the decline in gold is likely to be relatively short-lived,” Mark Hefele, chief investment officer of Global Wealth Management at UBS, said in a note on Monday. “Although it is difficult to pinpoint the timing, we expect gold to recover, with the precious metal expected to rise to $6,200/oz by the end of June and narrow from around $4,500/oz currently to $5,900/oz in early 2027.”

Iranian attacks on aluminum producers across the Gulf region have heightened concerns about global supply shortages, and aluminum prices have also been volatile. copper Meanwhile, the market is affected by economic pessimism.

At the heart of all market disruption is the energy market. The Iran war and subsequent blockade of the Strait of Hormuz, a key oil shipping route, severely disrupted oil and gas markets and caused prices to soar.

European data released on Tuesday showed that inflation in the euro zone reached 2.5% in March, well above the European Central Bank’s 2% target. Officials said they expect energy inflation to reach 4.9% in March, up from a negative 3.1% in the previous month.

“The rapid rise in oil prices poses a significant risk that consumers could face sharp increases in the cost of living,” AJ Bell’s Coatsworth said. “This could lead to lower consumption and more selective purchases until consumers better understand whether rising prices are a short-term problem or a permanent change.”