The first quarter of 2026 was a tale of two halves. January and February saw a continuation of the market broadening that characterised late 2025, with value stocks outperforming growth, the US underperforming and emerging markets building on last year’s strong gains. This positive momentum was abruptly interrupted at the start of March when the US and Israel launched military strikes on Iran.
The subsequent closure of the Strait of Hormuz – a key waterway through which approximately 20% of global oil flows – sent Brent crude surging from around $73 per barrel in late February to over $112 by the end of the quarter, its highest level since 2022 and its strongest start to a calendar year on record. Described by the International Energy Agency[1] as “the largest supply disruption in the history of the global oil market”, the energy shock cast a large shadow over the global economic outlook. Government bonds sold off as higher energy prices fuelled inflation concerns, with markets shifting from pricing rate cuts to contemplating rate hikes.
Funds navigate market stress
Global equities ended the first quarter down around 3% (MSCI All Country World Index in local currency). US stocks were 5% lower as the geopolitical shock was compounded by investor concerns over hyperscalers’ growing capital expenditure and the threat of AI on software companies. The VIX, aka the equity market’s fear index, remained above 20 – typically an indicator of heightened market stress – for the entire month of March.
Emerging markets proved more resilient, with the MSCI EM Index up around 2% for the quarter, helped by strong momentum in Korea, Taiwan and China at the start of the year. European equities, which had been rallying strongly, gave back gains to finish the quarter slightly lower, while Norway benefitted strongly from the rising oil price to close March 27% higher at a new all-time-high[2].
Positively for SKAGEN, value stocks globally have outperformed growth by around 9 percentage points year-to-date, adding further momentum to the rotation that began last year[3]. Our funds navigated the first quarter volatility well, with the shift away from US mega-cap dominance providing a favourable backdrop for our active, value-based investment approach. The majority entered April ahead of their respective benchmarks – you can read more about the individual funds in the first quarter reports on our website.
Uncertainty creates opportunity
Despite the March sell-off, equity valuations generally remain elevated with developed markets in particular still priced above long-term average earnings multiples and at the top end of historic ranges. In the US, where the Mag 7 lost around 12% in the first quarter[4], the top 10 stocks (24x forward P/E) now trade at a far slimmer premium to the rest of the market (19x forward P/E) but continue to account for over a third (37%) of the index weight – a concentration level that, while lower than its peak, still exceeds anything seen outside of the dot-com era[5].
Outside the US, valuations tell a different story with earnings multiples in Europe (15x) a smidgen above their long-term average and at a sizeable discount to the US across almost every sector. Emerging markets also offer decent value, with P/E multiples (12x) broadly in line with historic averages and several major markets – including China at 11x – trading below their long-run levels. Consensus earnings expectations for 2026 remain positive with double-digit growth expected across all regions.
While the Iran conflict injects uncertainty into the near-term outlook – particularly for energy-sensitive sectors and Asian economies – the two-week ceasefire announced this week offers optimism that an end to the conflict may be within sight. This could provide a positive market catalyst, particularly in areas where reasonable valuations provide downside protection.
History tells us that geopolitical shocks, however painful in the short-term, rarely derail equity markets over the longer-term. Even prolonged conflicts tend to have limited long-run consequences and those that were short-lived often proved to be significant buying opportunities.
Economic data prior to the conflict was broadly supportive – global GDP growth and confidence indicators were solid, inflation largely under control and European fiscal stimulus, notably from Germany’s new infrastructure and defence spending plans, offered a catalyst for the sluggish eurozone economy. Hopefully, the two sides can now reach an agreement that extends the fragile truce into longer-lasting peace, and the economy can get back on track. Futures markets are predicting oil prices to return to historic average levels in the next few months, which will be important for achieving this.
In the short-term, markets are likely to remain volatile as negotiations continue. This also could provide attractive buying opportunities for patient and value-oriented investors like SKAGEN. The current environment of heightened uncertainty, sound company fundamentals and attractive valuations is precisely when stock-picking ability can deliver the greatest rewards.
-----
NB: All info as at 31/03/2026 unless stated.
[1] Source: IEA Oil Market Report – March 2026.
[2] Source: MSCI. MSCI Indices in local currency as at 31/03/2026.
[3] Source: MSCI: MSCI ACWI Growth vs. MSCI ACWI Value in local currency.
[4] Source: Bloomberg. Bloomberg Magnificent 7 Total Return Index.
[5] Source: JP Morgan Guide to the Markets, as at 31/03/2026. US market based on S&P 500 index.