Markets – April 2026

What drove markets lower?

Australian equities recorded their largest monthly decline since mid 2022, with the ASX 200 falling 7.8% over the month. Global markets experienced similar volatility.

The dominant driver was a sudden ‘risk off’ shift in sentiment following concerns about energy supply disruptions through the Strait of Hormuz.

Oil prices surged, inflation risks resurfaced, and financial markets reassessed expectations around interest rates.

Importantly, this was not an earnings-driven sell-off.

Company profit forecasts held up reasonably well. Instead, markets adjusted by reducing share price valuation multiples — particularly for growth oriented and interest rate sensitive stocks.

Energy markets pressure inflation expectations

While the direct impact of higher oil prices fed immediately into higher inflation expectations, the more concerning issue for markets was the lagged effect on refined fuels.

Given average shipping times of several weeks, Asian refineries – which supply much of Australia’s fuel – only began facing supply pressure toward the end of March. As a result, markets increasingly priced in higher petrol, diesel and transport costs to persist well beyond the immediate conflict window.

Consequently, earlier optimism that inflation was coming under control faded.

Bond yields rose, particularly at longer maturities, reflecting concern that central banks may need to keep interest rates higher for longer, even as economic growth slows.

Sector rotation highlights the value of diversification

March also demonstrated the importance of diversification — both across asset classes and within equity portfolios.

Energy stocks were the clear outperformers, benefiting from the surge in oil prices. More defensive sectors, such as Consumer Staples (telecommunications, supermarkets) and Utilities, also provided some downside protection.

In contrast, Financials, Materials and Technology stocks underperformed. Notably, these same sectors had been among the strongest performers earlier in the year. Market leadership can change quickly in this environment.

This rapid reversal reinforces why we avoid concentrated exposure to single sectors or themes. Market leadership is often narrow and fleeting, particularly during periods of heightened uncertainty.

A broadly diversified portfolio is not designed to avoid volatility altogether — but it helps ensure that no single outcome or macro shock dominates long‑term results. In other words, good diversification smooths out returns and provides buffers against the herd mentality in current markets.

Economic data: slowing momentum meets rising costs

Economic data released during March painted a mixed picture. In the US, inflation remained broadly in line with expectations, but energy prices surged late in the month.

Labour market data suggested the US economy entered the conflict period with reasonable momentum, allowing the Federal Reserve to keep rates on hold, though expectations for rate cuts were pushed further into the future.

Europe appeared more vulnerable, given its greater exposure to global energy prices. While regulated household energy tariffs delayed immediate pass‑through, markets anticipated higher inflationary pressures building in the second half of the year.

In Australia, business surveys weakened during March.

PMIs (surveys that measure how businesses are performing) showed that business activity was slowing, while input costs surged at the fastest pace since the 2022 oil shock.

With inflation already above the Reserve Bank’s target range, markets began to price in a higher risk that monetary policy would remain restrictive, even as growth softened.

What this means for investors

Periods like March demonstrate when long‑term discipline is most valuable — and often most difficult.

Sharp market drawdowns tend to feel worse than they actually are in hindsight, particularly when driven by headlines and rapidly evolving geopolitical developments.

History shows that markets tend to recover well before uncertainty fully disappears.

Our focus remains on:

• Maintaining diversification across sectors, styles and asset classes
• Avoiding emotional decision‑making driven by short‑term market moves
• Staying invested through cycles, rather than attempting to time entries and exits
• Using valuation resets constructively, not reactively.

Volatility is not a flaw in markets — it is the price investors pay for long‑term returns. Trying to avoid every drawdown often comes at the cost of missing recoveries, which tend to be rapid and concentrated.

Looking ahead

As we move into the next quarter, markets will continue to respond to developments in energy markets, central bank policy and corporate guidance.

Short‑term volatility may persist, but market timing remains neither reliable nor necessary for achieving long‑term outcomes.

At Kauri Wealth, our investment philosophy is built for environments like this: grounded in diversification, informed by valuation, and focused on your long‑term objectives rather than monthly market noise.

We remain disciplined, patient, and focused on navigating uncertainty — not reacting to it.