Amid the uncertainty swirling from the Middle East crisis, multiple forces are pushing and pulling on stock markets. Investors should expect bouts of volatility, but we believe portfolios should remain committed to equities up to but not beyond their long-term targeted exposure. 

As we move into April, financial markets are grappling with two major crosscurrents: tentative signals of Middle East de-escalation mixed against a reversal in central bank policy expectations. The result is a market caught between competing narratives, creating the kind of volatility that tests investor discipline. Here's what's happening and why staying the course remains our conviction.

Central Banks Pivot: A Reversal in Rate Expectations 

One month ago, markets had largely priced a tranquil backdrop where most global central banks were expected to keep rates steady or continue cutting. Today, that narrative has flipped. Markets are now bracing for the potential of multiple rate hikes from multiple central banks.

The magnitude of this shift cannot be overstated:

• The UK's 2-year Gilt yield surged over 100 basis points in March: a move unseen in a single month outside the 2022 "mini-budget" crisis.
• The U.S. 10-year Treasury climbed 38 basis points in March alone to 4.32%, the highest level since July 2025.
• Markets now price rate hikes for the U.S., Canada, UK, Eurozone, and Japan by year-end, a reversal from expectations just weeks ago.

Why this matters: Rising Treasury yields, and higher policy rate expectations create headwinds for equity valuations and borrowing costs. This is not a minor market repricing; it's a structural shift in how central banks view the inflation risk posed by elevated energy prices. For your portfolio, this means valuations face genuine pressure, which is why we expect the volatility you're seeing and likely more ahead.

A Path Forward on Iran while Supply Risks Linger

U.S. officials have signaled that military operations in Iran could conclude within two to three weeks, with core objectives viewed as substantially achieved. Markets responded positively: Asian equities rebounded, and oil prices stabilized after climbing roughly 60% since the conflict began.

But here's where the "forces pushing and pulling" become evident. Even with a potential ceasefire, the Strait of Hormuz, through which 20% of global seaborne oil transits, remains a focal point of uncertainty. The U.S. has signaled it may step back from securing the waterway, leaving control of this critical chokepoint unresolved. Damage to port infrastructure could extend the normalization timeline significantly.

Futures markets price a gradual oil decline through 2027, finishing roughly $10 above February levels. This suggests markets expect a prolonged period of elevated energy costs, not a sharp snap-back to normal. That sustained pressure is what's keeping central banks vigilant on inflation and what's driving the rate hike expectations outlined above.

Manufacturing Under Pressure: The Real Economy Reflects Supply Stress

Beyond headline risk, the conflict is creating tangible economic headwinds. Manufacturing activity across Asia remained in expansion in March, but momentum weakened noticeably. ASEAN's PMI fell to 51.8 from 53.8 in February, its lowest since September. 

Countries including Vietnam, Indonesia, Taiwan, and Japan experienced softer activity as energy disruptions and supply chain pressures weighed on production. Firms are increasingly passing costs to consumers through price increases. A dynamic that, if sustained, erodes purchasing power and complicates the inflation picture.

This is real pressure, not just sentiment, which validates why central banks are signaling readiness to act on inflation.

Expect Volatility while Staying Committed to Your Long-Term Allocation

Let's be direct: you should expect bouts of volatility ahead. The combination of geopolitical uncertainty, energy supply risks, and a dramatic repricing of rate expectations creates an environment where sharp daily or weekly swings are likely, even normal.

Here's our conviction: Maintain your equity allocation up to but not beyond your long-term target.

Why?

• History shows pullbacks are temporary. Market recoveries from major geopolitical events average 28 days. Even severe pullbacks (10%+) occur in more than half of all years. They're features of long-term investing, not permanent damage.
• Volatility creates opportunity for disciplined investors. Pulling out to "wait it out" locks in losses and causes investors to miss recovery days. Research shows missing just the 10 best market days can significantly diminish long-term returns.
• Your portfolio was designed with this in mind. 2026 is a midterm election year. Historically, these years deliver higher-than-average volatility. Roughly 20% corrections from peak to trough. Your allocation reflects this reality.
• Quality companies outperform during stress. Your portfolio holds businesses with strong balance sheets and durable competitive advantages. These tend to weather uncertainty better than the broader market.
• Fundamentals remain sound. Despite the headline noise, corporate profits remain strong, growing at a double-digit pace for five quarters in a row. The economy is steady. Businesses are doing well.

Where We are Actively Managing

While we maintain your long-term allocation, we are actively managing specific areas given elevated uncertainty:

• Technology sector: Investor expectations are very high and sensitivity to disappointments is acute. Stock-picking matters significantly here.
• Energy sector: Elevated oil prices create tailwinds for producers, but sustainability depends on conflict duration and infrastructure damage.
• Fixed income positioning: Rising rates create both risks (valuation pressure on bonds) and opportunities (higher yields). We're being tactical with duration and credit quality.

The Bottom Line

Multiple forces are genuinely pushing and pulling on markets right now. Central banks have pivoted from accommodative to hawkish. Energy supply remains uncertain. Volatility is likely to persist.

But this is precisely the environment where long-term discipline pays off. Maintain your strategic equity allocation. Focus on fundamentals. Resist the temptation to abandon your plan based on short-term headlines. 

If geopolitical developments or market moves are creating anxiety, or if you'd like to review your allocation and risk tolerance, please reach out. We're here to help you stay the course with confidence.

Take care,

Your Hayes Vickers Private Wealth Team