The Bigger Picture April 2026

Buckle up. Markets are undergoing a structural shift. The era of easy gains driven by liquidity and exposure to US big tech appears to be fading. In its place is emerging a more selective environment defined by rising geopolitical risk, elevated inflationary pressures, and widening dispersion between companies, sectors, and asset classes.

In short, the global macro narrative is shifting with direct implications for most investors’ portfolio construction.

Global markets have been weaker during the first quarter of 2026, albeit without a crash to speak of. The MSCI World Index is down 6% year-to-date, although that drop masks significant divergences beneath the surface. In particular, energy, materials, and defence equities have strongly outperformed, whilst most high-growth technology and speculative stocks have significantly de-rated.

This widening dispersion of returns is a clear signal that markets are repricing risk in response to the shifting macro sands: higher geopolitical instability, energy supply constraints, a weakening US dollar, higher inflation expectations, and more hawkish central bankers.

In other words, a transition is underway from a market driven by liquidity to one driven by fundamentals.

Most investors are not prepared for what is unfolding.

The escalation of tensions involving Iran and the resulting oil supply disruptions have reintroduced the type of geopolitical risk and energy shock investors haven’t had to contend with over the past decade.

But it’s happening, and it’s not necessarily as short-term a challenge as Trump’s rhetoric would have you believe. With 20% of global oil supply passing through the now largely dysfunctional Strait of Hormuz, markets are pricing in a higher probability of sustained disruption, rather than treating this as a short-term shock.

This has two critical implications for markets: a) structurally higher energy prices, and b) a persistently higher geopolitical risk premium across all asset classes.

Higher energy prices act as a tax on the global economy. They also feed directly into inflation, particularly through transport, manufacturing, and food costs.

Local context matters here. Even before this oil price spike, Australian inflation was running at 3.7% in the year to February 2026, well above the RBA’s 2-3% target range. Whilst higher interest rates in Australia will not address the closure of the Strait of Hormuz, dramatically higher oil prices are unlikely to make the RBA less hawkish than it already is. This suggests rates are likely to remain elevated.

In the US, the Fed faces a similar dilemma. Even if growth slows, they are unlikely to ease aggressively whilst inflation expectations remain so elevated.

So the macro narrative is shifting towards slowing global growth, and persistently higher inflation and interest rates.

In this new era, outperformance is unlikely to be driven by the same stocks and assets that led markets over the past decade. For example, this environment is likely to be challenging for long-duration assets and fixed income portfolios with interest rate sensitivity. Conversely, it’s likely to be supportive for cash-generative businesses with pricing power.

The global tech sector illustrates this shift. The sector’s long period of dominance has given way to a widening dispersion of returns. Whilst major themes such as AI remain intact, investors are now differentiating between companies with durable earnings potential and those reliant on distant projections. In other words, this is a more mature phase of the cycle; one where stock selection matters more than broader thematic exposure.

At the same time, energy and materials are reasserting themselves as dominant themes that too many investors have ignored for too long. Oil prices moving toward US$100 per barrel reflect deeper geopolitical and supply-side constraints than the specific risks posed by the Iran war. Hence, more investors are realising that whilst oil will remain volatile, energy assets hold immense strategic value that markets were under-pricing prior to the war.

Similarly, real assets like infrastructure and gold are likely to be revalued for their strategic importance.

Emerging markets may also benefit. In particular, commodity exporters such as Brazil and parts of Latin America appear well-placed to thrive due to the falling US dollar and rising oil price.

If this roadmap holds, diversification needs to become more intentional. Most portfolios remain heavily skewed towards US technology via global funds and ETFs, leaving gaps in their real assets, commodities, and defence exposure. It’s arguably time to address these gaps.

Currency is also likely to play a larger role looking forward. For Australian investors, a weaker US dollar strengthens the case for currency-hedged exposure to select US assets.

Whilst uncomfortable, this is a time of opportunity. Market environments characterised by high dispersion have tended to reward future-ready investors who focus on fundamentals, valuation, and genuine diversification.

Simon Turner, Editor, InvestmentMarkets

Disclaimer: This article is prepared by Sara Allen. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.