March 2026 Market Update: Stocks Fall as Interest Rates Rise and Middle East Tensions Increase

Presented by Rick Gurz

Markets declined in March as rising interest rates, higher energy prices, and escalating conflict in the Middle East increased uncertainty for investors. Both stocks and bonds faced pressure, despite stronger than expected corporate earnings.

For those approaching or in retirement, environments like this tend to raise more practical questions, particularly around income stability, tax exposure, and how portfolios are structured to support withdrawals over time.

1. What Happened in Markets in March 2026
2. Why Rising Interest Rates Hurt Stocks and Bonds
3. How the Iran Conflict Is Affecting Markets and Inflation
4. What Investors Could Expect Next

What Happened in Markets in March 2026

The S&P 500 fell 4.98 percent in March, which led to a 4.33 percent decline for the quarter. The story was similar for the Dow Jones Industrial Average, which dropped 5.20 percent in March and 3.19 percent for the quarter. Technology stocks were hit especially hard during the quarter, as rising concerns about the disruptive nature of AI weighed on technology companies to start the year. The Nasdaq Composite fell 4.68 percent in March and 6.96 percent for the quarter.

These disappointing returns came despite improving fundamentals. Fourth-quarter earnings season recently wrapped up, and the results were impressive. As of March 20, with 100 percent of companies having reported actual earnings, the average earnings growth rate for the S&P 500 was 13.2 percent. This is well above analyst estimates for an 8.4 percent growth rate at the start of earnings season. The better-than-expected results were widespread, as all 11 sectors saw earnings growth beat expectations for the quarter. Over the long run, fundamental factors drive market performance, so these solid results were good news for investors.

In the short term, however, market behavior is often driven more by sentiment and external events than fundamentals. This distinction tends to matter more for those nearing retirement, where the sequence and timing of returns can have a greater impact than long-term averages.

International stocks underperformed in March, with the MSCI EAFE Index down 10.29 percent for the month while the MSCI Emerging Markets Index lost 13.03 percent. International stocks performed well in January and February compared to domestic stocks; however, the large sell-off in March brought both indices into the red for the year. The MSCI EAFE Index lost 1.24 percent for the quarter while the MSCI Emerging Markets Index was down 0.10 percent.

While these types of events often dominate headlines, they tend to have a more specific impact for those approaching or in retirement. This is often most evident during the Retirement Red Zone, the period where financial decisions become more interconnected and highly impactful.

Why Rising Interest Rates Created Headwinds for Bonds

Even bonds were down in March, due to rising interest rates and inflation concerns. Rising interest rates reduce the value of existing bonds, as newer bonds are issued at higher yields. At the same time, higher rates can put pressure on stock valuations and increase borrowing costs across the economy, making interest rates a key driver of both equity and fixed income performance. For those relying on portfolios to generate income, this relationship between interest rates and asset values becomes particularly important when structuring a retirement income plan.

The 10-year Treasury yield rose from 3.97 percent at the end of February to 4.30 percent by the end of March. Short-term rates also rose notably for the month and quarter. The Bloomberg Aggregate Bond Index lost 1.76 percent in March and 0.05 percent for the quarter. The Bloomberg U.S. Corporate High Yield Index fell 1.18 percent for the month and 0.50 percent in the quarter.

The rising interest rate environment in March was primarily driven by the ongoing war in Iran and concerns about the impact of hostilities on global trade and inflation. Energy prices rose notably in March and could remain high for the foreseeable future, which in turn could lead to further inflationary pressure. Short-term interest rates rose during the month as traders pared back expectations for interest rate cuts from the Federal Reserve.

At the conclusion of the March Federal Open Market Committee meeting, Fed chair Jerome Powell indicated the Fed will remain data dependent when setting monetary policy at upcoming meetings. He also mentioned it is far too early to say how the war will impact prices and the Fed’s decision-making going forward.

The Takeaway
· Rising interest rates were a headwind for bonds to end the quarter.
· Traders pared back expectations for interest rate cuts due to rising energy prices.

How the Iran Conflict Is Affecting Markets and Inflation

The continued war in Iran was the primary news story throughout the month, and rapidly developing headlines grabbed investor attention and led to choppy returns.

Energy prices remained high and volatile throughout March, with rising crude oil prices in the spotlight. As seen in Figure 1, domestic oil prices rose to over $100 a barrel toward the end of the month, which is the highest we’ve seen since 2022 following the Russian invasion of Ukraine. If higher energy prices persist, this would likely serve as a headwind for future economic growth and lead to rising inflationary pressure.

Rising energy prices have already started to have an impact on other areas of the economy. Consumer sentiment fell to a three-month low in March due in part to rising short-term inflation expectations. The survey showed that consumers expect prices to rise by 3.8 percent over the next year, up from 3.4 percent in February. Gas prices were up by roughly $1 on average during the month, and pain at the pump could start to negatively impact discretionary consumer spending in the months ahead.

For households nearing or in retirement, rising inflation expectations can directly impact planning decisions, particularly around how much income is needed, how portfolios are structured, and how withdrawals are managed over time. This is especially relevant when coordinating investment decisions with tax planning, where changes in income and withdrawals can affect overall tax exposure.

The Takeaway
· The ongoing conflict in the Middle East captured investor attention during the month.
· The economic impacts from the war are starting to be felt across various sectors of the economy.

What Investors Could Expect Next

March was a month of shifting risks for investors, which led to rising uncertainty and market volatility. Looking forward, geopolitical risks are expected to remain front and center; however, we may see additional risks to markets materialize as well.

Domestically, we continue to face numerous political risks, as shown by the continued partial government shutdown and the TSA funding impasse during the month. Political uncertainty is expected to ramp up further as we approach the midterm elections in November.

The fundamentals, however, remain relatively solid for now. Companies have shown impressive resilience over the past few years, and continued earnings growth is expected throughout 2026. While headlines can impact markets in the short term, over the long run, fundamentals ultimately drive performance. As long as companies continue to grow, further market appreciation is the most likely path forward.

While these risks can shift quickly, they tend to reinforce the importance of how a portfolio is structured rather than reacting to individual headlines. This is often where withdrawal strategy and sequence of returns risk become more relevant than short-term market direction.

For many of the families we work with, the focus is not on reacting to headlines, but on ensuring their plan already accounts for environments like this, particularly in how income is generated, how taxes are managed, and how portfolios are positioned to support long-term stability. These types of considerations are typically addressed as part of a broader retirement planning process that integrates investment management with tax planning.

For those approaching retirement, periods like this often raise similar questions around income and portfolio structure. You can read more about how these decisions are typically approached in the retirement red zone.

Common Questions

Why did the market drop in March 2026?

Markets declined due to rising interest rates, increased energy prices, and geopolitical uncertainty related to conflict in the Middle East.

How do interest rates affect investments?

Higher interest rates reduce bond prices, can pressure stock valuations, and increase borrowing costs across the economy.

How does market volatility affect retirement planning?

Market volatility can have a greater impact during retirement, as portfolios are often being used to generate income rather than accumulate assets.

Should investors make changes during periods of volatility?

Short-term market movements are often driven by headlines, while long-term outcomes are typically driven by fundamentals. For many investors, maintaining a structured, long-term approach is more effective than reacting to short-term changes.

Disclosure: This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.

Certain sections of this commentary contain forward-looking statements based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not indicative of future results. Diversification does not assure a profit or protect against loss in declining markets. All indices are unmanaged and investors cannot invest directly into an index. The Dow Jones Industrial Average is a price-weighted average of 30 actively traded blue-chip stocks. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. The Nasdaq Composite Index measures the performance of all issues listed in the Nasdaq Stock Market, except for rights, warrants, units, and convertible debentures. The MSCI EAFE Index is a float-adjusted market capitalization index designed to measure developed market equity performance, excluding the U.S. and Canada. The MSCI Emerging Markets Index is a market capitalization-weighted index composed of companies representative of the market structure of 26 emerging market countries in Europe, Latin America, and the Pacific Basin. It excludes closed markets and those shares in otherwise free markets that are not purchasable by foreigners. The Bloomberg Aggregate Bond Index is an unmanaged market value-weighted index representing securities that are SEC-registered, taxable, and dollar-denominated. It covers the U.S. investment-grade fixed-rate bond market, with index components for a combination of the Bloomberg government and corporate securities, mortgage-backed pass-through securities, and asset-backed securities. The Bloomberg U.S. Corporate High Yield Index covers the USD-denominated, non-investment-grade, fixed-rate, taxable corporate bond market. Securities are classified as high-yield if the middle rating of Moody’s, Fitch, and S&P is Ba1/BB+/BB+ or below. One basis point (bp) is equal to 1/100th of 1 percent, or 0.01 percent. 

Quantis Wealth Management is located at 7900 Westpark Drive, Suite T260, Mclean VA 22102 and can be reached at 703 462-9643. Advisory services offered through Commonwealth Financial Network®, a Registered Investment Adviser. 

Authored by Chris Fasciano, chief market strategist, and Sam Millette, director, fixed income, at Commonwealth Financial Network®.

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