Markets delivered a dramatic and volatile week, with Thursday's sharp rally standing as one of the most significant single-day moves of 2026, driven by a partial de-escalation in the Iran conflict and a temporary ceasefire agreement that briefly reopened commercial shipping through the Strait of Hormuz. Despite Thursday's relief rally, the week ended mixed across asset classes, with equities logging moderate gains but longer-duration bonds and growth-heavy segments remaining under pressure year-to-date.

Then the weekend arrived — and with it, a significant reversal. Peace talks in Islamabad broke down on Sunday over Iran's nuclear program, and President Trump announced an immediate naval blockade of the Strait of Hormuz. Markets open Monday in a materially more dangerous geopolitical environment than Friday's close priced in.

Fixed income was broadly positive on the week, reflecting a flight to safety that began before Thursday's ceasefire news and held through Friday's close. Short-duration fixed income continues to hold its ground in a period of elevated uncertainty. Long-duration Treasuries remain under pressure, with the ICE 20+ Year Index down -0.3% year-to-date in 2026, reflecting ongoing concern about the fiscal trajectory and inflation risk reignited by the Hormuz disruption.

TIPS posted a modest positive week, reflecting the inflation hedge premium investors are attaching to the energy disruption.

Why Is the Bloomberg Global Aggregate Down -1.1% YTD? Yields have risen across key international markets, pressuring bond prices globally. The Bank of Japan's continued tightening has lifted Japanese government bond yields meaningfully, while German Bund yields climbed on the back of Germany's significant fiscal stimulus package and fading expectations for further ECB rate cuts. Rising yields abroad mean falling prices, and this has been a persistent headwind for the index year-to-date.

The Value vs. Growth Divide Sharpens: The most notable trend in 2026 continues to be the dramatic reversal of growth leadership that characterized 2024–2025. Growth stocks, which soared to historic valuations during the AI-driven bull run, have been the primary casualties of the rate rethink, geopolitical risk premium, and potential earnings revision risk from tariff uncertainty. Russell 1000 Growth is now down nearly 10% year-to-date, while Russell 1000 Value is up over 2%. This is a significant rotation that warrants attention for investors still heavily tilted toward mega-cap technology.

International Outperformance: Both developed international (MSCI EAFE, +4.4% last week) and emerging markets (MSCI EM, +7.4% last week) meaningfully outperformed U.S. equities on the week. Thursday's ceasefire announcement was the primary catalyst, particularly for energy-importing economies in Asia and Europe that had been disproportionately pressured by elevated oil prices and supply chain uncertainty during the Hormuz closure. With Sunday's collapse of peace talks and Trump's blockade announcement, much of that relief rally thesis is now in question. International markets may face renewed pressure at Monday's open as re-escalation risk reasserts itself.

Small Caps Showing Relative Resilience: The Russell 2000 is now nearly flat on the year at +0.9%, driven by strength in small-cap value (+5.0% YTD). Smaller domestic businesses have somewhat less exposure to geopolitical supply chain disruption and benefit from a steeper yield curve.

Gold Continues to Shine: Gold remains one of the standout performers of 2026, up 8.6% year-to-date and +49% over the trailing 12 months. The asset class is benefiting from multiple simultaneous tailwinds: geopolitical risk, central bank buying (particularly from China and the Middle East), and growing concern about U.S. fiscal sustainability. The Hormuz conflict accelerated institutional demand for hard assets, and gold's rally through Thursday's ceasefire news suggests the market is not yet convinced the geopolitical premium should fully unwind.

Bitcoin's Continued Reversal: After a historic +119% gain in 2025, Bitcoin has given back nearly 25% year-to-date in 2026. The digital asset appears to be experiencing a classic "hangover" from an extreme run, compounded by risk-off sentiment during the Iran conflict and reduced appetite for speculative assets as interest rates remain elevated.

Real Estate Stabilizing: Listed real estate (REITs) gained 3.1% last week and is now up 2.1% on the year, a modest but notable improvement from the deeply negative returns of 2022–2023. Stabilizing longer-term rates have helped, though the asset class still faces headwinds from elevated financing costs and commercial real estate uncertainty.

Growth Uncertainty Mounting: U.S. real GDP grew at an annualized rate of +0.5% in Q4 2025, a sharp deceleration from +4.4% in Q3, with the full year 2025 coming in at +2.1% year over year. The Q4 slowdown was driven in part by a federal government shutdown that the BEA estimates subtracted approximately 1 percentage point from growth. However, leading indicators have softened meaningfully in Q1 2026, with the combination of tariff-related supply chain disruptions, elevated energy costs, and geopolitical uncertainty weighing on business investment and consumer sentiment. Consensus estimates for Q1 2026 GDP have been revised lower.

Federal Reserve in a Difficult Position: The Fed faces a genuinely difficult stagflationary challenge. Core inflation had been on a gradual downward path entering 2026, but the energy price spike from the Hormuz disruption threatens to reverse those gains. At the same time, the growth outlook is deteriorating. The Fed has remained on hold, and markets have largely priced out rate cuts that were anticipated earlier in the year. Fed Chair Powell's language in recent public statements has emphasized patience and data dependence.

Labor Market Holding: One bright spot is the U.S. labor market, which remains relatively firm despite the uncertainty. Initial jobless claims came in at 219,000 for the week ending April 4, up 16,000 from the prior week's 203,000 but still well below the averages seen in the second half of 2025. The March employment report offered further encouragement, with nonfarm payrolls adding 178,000 jobs, a sharp rebound from the revised decline of 133,000 in February, and well above the consensus estimate of 59,000. The unemployment rate held at 4.3%. Health care led job creation with 76,000 additions. However, real average hourly earnings declined 0.6% in March as a 0.9% CPI surge outpaced the 0.2% gain in nominal wages, a reminder that the energy-driven inflation shock is already beginning to erode purchasing power.

The weekend's collapse of negotiations and Trump's blockade announcement represent a significant escalation that was not priced into Friday's close. Monday morning is likely to see meaningful moves in energy prices, equity futures, and haven assets such as gold and short-duration Treasuries as markets process the implications. The ceasefire's legal status is now uncertain, and the risk of renewed military conflict is a live concern.

Investors should watch closely for Iran's formal response to the blockade announcement, any indications that back-channel diplomacy continues, and oil price action as the primary real-time signal of how markets are assessing re-escalation risk. Vance left Islamabad stating that a deal remains on the table and that it is now up to Iran to accept, leaving open the possibility of a rapid reversal if Tehran makes concessions on the nuclear issue.

Earnings season kicks into higher gear, with major financial institutions reporting. Banks will be closely watched for any commentary on credit quality, commercial real estate exposure, and loan demand trends, all of which offer important signals about the health of the economy beneath the surface-level volatility.