Global markets — Q1 2026 snapshot
By Sarah Finance
Quick take
Markets opened 2026 under the shadow of tighter policy expectations. Stocks and bonds diverged: developed‑market equities eked out small gains while global bonds suffered as policy‑sensitive yields climbed. Volatility ticked up, investor focus stayed glued to central‑bank cues and fresh inflation readings, and returns became increasingly concentrated — semiconductor exporters in select emerging markets emerged as some of the quarter’s clearest winners. What follows is a concise read on the key numbers, the forces that moved markets, and the near‑term datapoints worth watching. This is for information only, not investment advice.
Top-line numbers
– S&P 500 total return (Q1): +2.6%; annualized volatility: 18.5% – MSCI World ex‑US (Q1): -1.4%; annualized volatility: 20.1% – MSCI Emerging Markets (Q1): +4.1%; gains concentrated in semiconductor exporters – Bloomberg Global Aggregate (Q1): -3.2% (mark‑to‑market losses as yields rose)
Volatility, dispersion and correlation
Option‑implied volatility averaged 16.8% in Q1, up from 14.2% in Q4 2025 — a noticeable rise in risk premia. Sector dispersion widened: technology outpaced staples by roughly six percentage points. During bouts of stress, cross‑asset correlations climbed, which amplified losses in duration‑sensitive bonds and in specific equity pockets.
Macro and policy backdrop
Central banks drove the narrative. Persistent inflation prints nudged markets toward a tighter policy path across advanced economies. The fed funds rate clustered near a 5.25% median (range 5.00–5.50%), and the ECB deposit rate hovered around 4.50%. U.S. core CPI eased a touch to about +3.4% y/y in February (from 3.8% late 2025), but real yields rose and term premia widened. The 10‑year Treasury yield moved from roughly 4.10% to 4.40% over the quarter (+30 bps).
What moved returns
Several forces worked together:
– Central‑bank guidance and policy expectations shifted incrementally tighter, lifting yields. – Inflation prints surprised on the upside in a few economies, keeping hawkish messaging alive. – Earnings were uneven: pockets of tech showed margin resilience while cyclicals and some consumer goods felt pressure. – A firmer dollar weighed on ex‑U.S. returns and increased rollover costs for dollar‑borrowers in emerging markets.
Winners, losers and credit effects
– Clear winners: technology and semiconductors (especially among export‑oriented EMs), plus select cyclicals with resilient earnings. – Clear laggards: rate‑sensitive sectors such as utilities and real estate, and long‑duration growth names that saw valuation compression. – Credit: investment‑grade benchmarks posted negative total returns as duration losses swamped coupons; high‑yield spreads widened more sharply (IG spreads about +12 bps, HY about +35 bps). Term premia across core markets appear to have widened roughly 10–25 bps, adding to mark‑to‑market pressure on long bonds.
Earnings and breadth
Profit growth remained heavily concentrated. The top 10 companies accounted for roughly 55% of index EPS growth. Aggregate S&P 500 EPS rose about +4.0% y/y, yet median operating margins for non‑financials slid roughly 40 basis points and forward P/E multiples contracted from ~18.2x to ~17.1x — a sign that gains were narrow and valuation risk persisted.
Flows and currencies
Global equity mutual funds recorded net inflows of ~ $34bn in Q1: U.S. funds drew about +$48bn, offset by outflows in Europe (-$6bn) and EMs (-$8bn). The trade‑weighted dollar (DXY) gained roughly 2.3% q/q; EUR/USD traded between 1.06 and 1.11. A firmer dollar pushed up external funding costs for many EM borrowers and helped lift sovereign yields in stressed markets by roughly 25–75 bps.
Growth, labor and EM vulnerabilities
U.S. growth cooled — an advance estimate showed annualized GDP at 1.8% in Q1, down from 2.4% in Q4 2025. The unemployment rate inched up to about 4.1% in February. Global PMI medians sat near neutral (~50.6). For emerging markets, higher short‑term rates and a stronger dollar tightened rollover and fiscal pressures; countries with thinner external buffers faced noticeably larger risk premia.
Quantitative sensitivities to watch
Historical relationships imply that relatively small moves can have outsized market effects:
– A 0.2–0.5 percentage‑point swing in year‑over‑year core CPI has historically shifted expected terminal policy rates by roughly 25–50 bps. – A ±20 bps move in 10‑year real yields has tended to re‑rate long‑duration tech by about ±4–6% through discount‑rate effects. – A +10 percentage‑point swing in earnings revision ratios typically sees cyclicals outperform defensives by ~3–6% over three months. – A further ~3% rise in the DXY has often trimmed EM equities by approximately 2–5% net.
Top-line numbers
– S&P 500 total return (Q1): +2.6%; annualized volatility: 18.5% – MSCI World ex‑US (Q1): -1.4%; annualized volatility: 20.1% – MSCI Emerging Markets (Q1): +4.1%; gains concentrated in semiconductor exporters – Bloomberg Global Aggregate (Q1): -3.2% (mark‑to‑market losses as yields rose)0