MARKET INSIGHTS

Weekly market commentary

Mar 09, 2026

Gauging the Mideast supply shock

Weekly video_20260309
Natalie Gill
Senior Portfolio Strategist, BlackRock Investment Institute

Opening frame: What’s driving markets? Market take

Camera frame

The Middle East conflict is causing energy supply disruptions and price shocks with very different regional market effects. It adds to inflation risk and reinforces our long-held view that we are in a world shaped by supply. For now, we see energy supply disruptions lasting weeks – not months – and don’t currently see any reason to push back on current pricing.

Title slide: Gauging the Mideast supply shock

1: Upending market trends

The conflict is upending recent trends and well-established relationships in global markets. International equities had outperformed U.S. stocks this year – but that leadership has reversed abruptly.

Similarly, prices of liquified natural gas – or LNG – are rocketing upward in regions that rely heavily on imports such as Europe, but staying mostly put in the U.S. Long-term U.S. Treasuries declined, whereas they would often rally and cushion equity market selloffs in past geopolitical crises. This aligns with our view that we are at risk of an inflationary supply shock, rather than a classic demand-driven growth slowdown.

2: Sizing up the shock

This is a disruption at the heart of the global LNG infrastructure – very different from the Europe-centric, pipeline-driven energy crunch of 2022. Back then, LNG prices tightened through competitive bidding and stockpiling. Today, the strain on energy starts at export terminals and shipping posts. We think that Europe and parts of Asia will feel the most strain since they rely on imported LNG for industrial production.

3: A world shaped by supply

These developments fit a pattern we’ve long observed: geopolitical shocks creating supply constraints in a fragmenting world. Structurally sticky inflation remains the risk if the disruption endures. Against this backdrop, growth-inflation trade-offs become even more acute. That tension is already showing up in rising long-term bond yields and upward pressure on term premia, or the extra compensation investors demand to hold long-term bonds. Even without a prolonged closure of the Strait of Hormuz, we could see the shock upend the 'low inflation, lower interest rates' narrative that has powered markets until recently.

Outro: Here’s our Market take

The situation remains fluid, with real risks. For now, we believe the shock is likely to be short-lived. We see disruptions measured in weeks, rather than in months. We stay underweight long-term U.S. Treasuries and favor U.S. and Japanese stocks. In Europe, we like select sectors such as financials, pharma and infrastructure.

Supply chain shock

The Middle East conflict is causing a supply chain shock. Energy prices have spiked, and we don’t see a basis to disagree given what we know now.

Market backdrop

U.S. stocks ended the week lower, outperforming sharp equity declines elsewhere. U.S. 10-year Treasury yields climbed, defying their role as a haven.

Week ahead

U.S. inflation data this week could test whether energy-driven price pressures broaden, shaping the Fed’s policy flexibility amid rising inflation risk.

The Middle East conflict is causing an energy-led supply chain shock, with very different effects around the world. Market pricing suggests weeks of disruptions, not days or months. The episode adds to inflation risk in a world shaped by supply factors. That’s why long-term Treasury yields have edged up, defying their role as a haven. There’s a risk of a stagflationary shock but it’s not a given, as market pricing indicates. We stay underweight long-term Treasuries and favor U.S. stocks.

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Market commentary Asset class views
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A shock with disparate outcomes
U.S. equity performance vs the rest of the world, 2025-26

The chart shows how the conflict in the Mideast has abruptly reversed recent equity market trends. Until March, emerging markets were far outperforming the U.S.; now, their performance has plummeted while the U.S. has held mostly steady.

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results.
Source: BlackRock Investment Institute with data from LSEG Datastream, March 2026. Note: Price indices used as follows: MSCI Emerging Markets, MSCI All Country World Excluding United States and MSCI USA.

The conflict is upending recent trends and well-established relationships in global markets. International equities had walloped U.S. stocks until the U.S.-Israeli strikes on Iran, driven largely by AI-related disruption fears in industries the U.S. is exposed to. See the bars on the left side of the chart. That leadership has reversed abruptly: equity markets in regions most dependent on energy imports have sagged sharply whereas the MSCI U.S. has been steady (right set of bars). Prices of liquified natural gas (LNG) showed similar trends, rocketing upward in regions that rely heavily on imports such as Europe and staying mostly put in the U.S. Long-term U.S. Treasury yields jumped even as stocks pulled back, showing their supposed diversification properties can be a mirage. The yield increase aligns with our view that we are at risk of an inflationary supply shock, rather than a demand-driven growth slowdown.

How big will the shock be? It comes down to supply chain disruptions, in particular for energy. Months of disruptions could push up inflation and materially hurt growth. Oil futures pricing indicates disruptions could last for weeks, not months. This is reasonable because economic and political pressures will likely provide strong incentives to contain the conflict. And disruptions could ease in the meantime if U.S. naval escorts and shipping insurance prove effective in preventing a prolonged closure of the world’s energy aorta – the Strait of Hormuz. The net result of all this: a short-term supply squeeze with disparate regional effects.

Energy infrastructure in focus

The conflict is a disruption at the heart of LNG infrastructure, very different from the Europe-centric, pipeline-driven energy crunch in 2022. Back then, LNG prices tightened through competitive bidding and stockpiling. Today, the strain on energy starts at export terminals and shipping posts. We see Europe and parts of Asia as most vulnerable given their reliance on imported LNG for power and industrial production. These markets have underperformed the more shielded U.S. as a result, and we see no reason to push back on that. The performance divergence reflects an asymmetrical energy market structure: oil can be rerouted globally, but LNG infrastructure, shipping and pricing are very regional.

The episode fits a pattern of geopolitical shocks creating supply constraints in a fragmenting world. Structurally sticky inflation remains the risk if the disruption endures. This makes growth-inflation trade-offs more acute than in the pre-fragmentation era – and reinforces our long-held view of a world shaped by supply. Markets are reflecting this in rising bond yields and upward pressure on term premia, or the extra compensation investors demand to hold long-term bonds. Even absent a prolonged closure of the Strait of Hormuz, we could see the shock upend the “low inflation, lower interest rates” narrative that has powered markets until recently. This reinforces our view that inflation could surprise to the upside.

Our bottom line

The situation is fluid, and the risks are real. For now, we believe the shock is likely to be short-lived. We see disruptions measured in weeks, rather than in months or days. We stay underweight long-term U.S. Treasuries and favor U.S. and Japanese stocks. In Europe, we like the financial, pharma and infrastructure sectors.

Market backdrop

The Middle East conflict had disparate market effects last week, with energy-importing markets hit hardest. European natural gas spiked nearly 70% in stark contrast to the 8% gain in U.S. gas prices. The S&P 500 fell 2%, holding up better than international peers: Europe’s Stoxx 600 shed 6%, alongside Japan’s Topix. South Korea’s Kospi fell 11%. Yields on the U.S. 10-year Treasury climbed to 4.11% on inflation fears, defying its role as a haven in geopolitical conflicts.

We focus this week on U.S. inflation data, with CPI and PCE likely to reinforce the persistence of underlying price pressures on sticky services inflation and solid wage growth. In China, CPI and PPI data are expected to remain subdued, underscoring weak domestic demand and lingering deflationary pressures.

Week ahead

The chart shows that gold is the best performing asset year-to-date among a selected group of assets, while bitcoin is the worst.

Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and do not account for fees. It is not possible to invest directly in an index. Sources: BlackRock Investment Institute, with data from LSEG Datastream as of March 6, 2026. Notes: The two ends of the bars show the lowest and highest returns at any point year to date, and the dots represent current year-to-date returns. Emerging market (EM), high yield and global corporate investment grade (IG) returns are denominated in U.S. dollars, and the rest in local currencies. Indexes or prices used are: spot Brent crude, ICE U.S. Dollar Index (DXY), spot gold, spot bitcoin, MSCI Emerging Markets Index, MSCI Europe Index, LSEG Datastream 10-year benchmark government bond index (U.S., Germany and Italy), Bloomberg Global High Yield Index, J.P. Morgan EMBI Index, Bloomberg Global Corporate Index and MSCI USA Index.

March 8

Japan trade balance; China CPI, PPI

March 11

U.S CPI

March 12

U.S. trade balance

March 13

U.S. PCE; University of Michigan consumer sentiment survey; UK GDP

Read our past weekly market commentaries here.

Big calls

Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, March 2026

  Reasons
Tactical  
Still favor AI We see the AI theme supported by strong earnings, resilient profit margins and healthy balance sheets at large listed tech companies. Continued Fed easing into 2026 and reduced policy uncertainty underpin our overweight to U.S. equities.
Select international exposures We like Japanese equities on strong nominal growth and corporate governance reforms. We stay selective in European equities, favoring financials, utilities and healthcare. In fixed income, we prefer EM due to improved economic resilience and disciplined fiscal and monetary policy.
Evolving diversifiers We suggest looking for a “plan B” portfolio hedge as long-dated U.S. Treasuries no longer provide portfolio ballast – and to mind potential sentiment shifts. We like gold as a tactical play with idiosyncratic drivers but don’t see it as a long-term portfolio hedge.
Strategic  
Portfolio construction We favor a scenario-based approach as AI winners and losers emerge. We lean on private markets and hedge funds for idiosyncratic return and to anchor portfolios in mega forces.
Infrastructure equity and private credit We find infrastructure equity valuations attractive and mega forces underpinning structural demand. We still like private credit but see dispersion ahead – highlighting the importance of manager selection.
Beyond market-cap benchmarks We get granular in public markets. We favor DM government bonds outside the U.S. Within equities, we favor EM over DM yet get selective in both. In EM, we like India which sits at the intersection of mega forces. In DM, we like Japan as mild inflation and corporate reforms brighten the outlook.

Note: Views are from a U.S. dollar perspective, March 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any particular funds, strategy or security.

Tactical granular views

Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2026

Legend Granular

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Asset   Tactical view Commentary
Equities      
United States   United States: tactical Overweight +1 We are overweight. Strong corporate earnings, driven in part by the AI theme, are supported by a favorable macro backdrop: continued Federal Reserve easing, broad economic optimism and less policy uncertainty, particularly on the trade front.
Europe   Europe: tactical Neutral 0 We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare.
UK   UK: tactical Neutral We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift.
Japan   Japan: tactical Overweight +1 We are overweight. Strong nominal GDP, healthy corporate capex and governance reforms – such as the decline of cross-shareholdings – all support equities.
Emerging markets (EM)   Emerging markets: tactical Neutral We are neutral. Economic resilience has improved, yet selectivity is key. We see opportunities across EM linked to AI and the energy transition and see the rewiring of supply chains benefiting countries like Mexico, Brazil and Vietnam.
China   China: tactical Neutral We are neutral. Trade relations with the U.S. have steadied, but property stress and an aging population still constrain the macro outlook. Relatively resilient activity limits near-term policy urgency. We like sectors like AI, automation and power generation. We still favor China tech within our neutral view.
Fixed income      
Short U.S. Treasuries   Short U.S. Treasuries: tactical Neutral We are neutral. We see other assets offering more compelling returns as short-end yields have fallen alongside the U.S. policy rate.
Long U.S. Treasuries   Long U.S. Treasuries: tactical Neutral We are underweight. We see high debt servicing costs and price-sensitive domestic buyers pushing up on term premium. Yet we see risks to this view: lower inflation and better tax revenues could push down yields near term.
Global inflation-linked bonds   Global inflation-linked bonds: tactical Neutral We are neutral. We think inflation will settle above pre-pandemic levels, but markets may not price this in the near-term as growth cools.
Euro area government bonds   Euro area government bonds: tactical Neutral We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany.
UK gilts   UK gilts: tactical Neutral We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility.
Japanese government bonds   Japanese government bonds: tactical Underweight -1 We are underweight. Rate hikes, higher global term premium and heavy bond issuance will likely drive yields up further.
China government bonds   China government bonds: tactical Neutral We are neutral. China bonds offer stability and diversification but developed market yields are higher and investor sentiment shifting towards equities limits upside.
U.S. agency MBS   U.S. agency MBS: tactical Overweight +1 We are overweight. Agency MBS offer higher income than Treasuries with similar risk, and may offer more diversification amid fiscal and inflationary pressures.
Short-term IG credit   Global investment grade: tacticalOverweight +1 We are neutral. Corporate strength means spreads are low, but they could widen if issuance increases and investors rotate into U.S. Treasuries as the Fed cuts.
Long-term IG credit   Global investment grade: tactical Underweight -1 We are underweight. We prefer short-term bonds less exposed to interest rate risk over long-term bonds.
Global high yield   Global high yield: tactical Neutral We are neutral. High yield offers more attractive carry in an environment where growth is holding up – but we think dispersion between higher and weaker issuers will increase.
Asia credit   Asia credit: tactical Neutral We are neutral. Overall yields are attractive and fundamentals are solid, but spreads are tight.
Emerging hard currency   Emerging market-hard currency: tactical Underweight We are overweight. A weaker U.S. dollar, lower U.S. rates and effective EM fiscal and monetary policy have improved economic resilience. We prefer high yield bonds.
Emerging local currency   Emerging market-local currency: tactical Neutral We are neutral. A weaker U.S. dollar has boosted local currency EM debt, but it’s unclear if this weakening will persist.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a U.S. dollar perspective. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, March 2026

Legend Granular

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Asset Tactical view Commentary
Equities    
 Europe ex UK Europe ex UK: tactical Neutral We are neutral. We would need to see more business-friendly policy and deeper capital markets for recent outperformance to continue and to justify a broad overweight. We stay selective, favoring financials, utilities and healthcare.
Germany Germany: tactical Neutral We are neutral. Increased spending on defense and infrastructure could boost the corporate sector. But valuations rose significantly in 2025 and 2026 earnings revisions for other countries are outpacing Germany.
France France: tactical Neutral We are neutral. Political uncertainty could continue to drag corporate earnings behind peer markets. Yet some major French firms are shielded from domestic weakness, as foreign activity accounts for most of their revenues and operations.
Italy Italy: tactical Neutral We are neutral. Valuations are supportive relative to peers. Yet we think the growth and earnings outperformance that characterized 2022-2023 is unlikely to persist as fiscal consolidation continues and the impact of prior stimulus peters out.
Spain Spain: tactical owerweight +1 We are overweight. Valuations and earnings growth are supportive relative to peers. Financials, utilities and infrastructure stocks stand to gain from a strong economic backdrop and advancements in AI. High exposure to fast-growing areas like emerging markets is also supportive.
Netherlands Netherlands: tactical neutral We are neutral. Technology and semiconductors feature heavily in the Dutch stock market, but that’s offset by other sectors seeing less favorable valuations and a weaker earnings outlook than European peers.
Switzerland Switzerland: tactical Neutral We are neutral. Valuations have improved, but the earnings outlook is weaker than other European markets. If global risk appetite stays strong, the index’s tilt to stable, less volatile sectors may weigh on performance.
UK UK: tactical neutral We are neutral. Valuations remain attractive relative to the U.S., but we see few near-term catalysts to trigger a shift.
     
Fixed income    
Euro area government bonds Euro area government bonds: tactical Neutral We are neutral. We agree with market forecasts of ECB policy and think current prices largely reflect increased German bond issuance to finance its fiscal stimulus package. We prefer government bonds outside Germany.
German bunds German bunds tactical Underweight -1 We are neutral. Markets have largely priced in fiscal stimulus and bond issuance, and expectations for policy rates align with our view.
French OATs French OATss: tactical Underweight -1 We are neutral. Political uncertainty, high budget deficits and slow structural reforms could stoke volatility, but current spreads incorporate these risks and we don’t expect a worsening from here.
Italian BTPs Italian BTPss: tactical Neutral We are neutral. Demand from Italian households is strong at current yield levels. Spreads tightened in line with its sovereign credit upgrade, but a persistently high debt-to-GDP levels means they likely won’t tighten further.
UK gilts UK gilts: tactical neutral We are neutral. The recent budget aims to shore up market confidence through fiscal consolidation. But deferred borrowing cuts could bring back gilt market volatility.
Swiss government bonds Swiss government bonds: tactical tactical Neutral We are neutral. We don’t think the Swiss National Bank will slash policy rates to below zero, as markets expect.
European inflation-protected securities European inflation-protected securities: tactical Neutral We are neutral. Our medium-term inflation expectations align with those implied in current market pricing.
European investment grade European investment grade: tactical Neutral We are neutral. We favor short- to medium-term debt and Europe over the U.S. An intense re-leveraging cycle to support the AI buildout could put upward pressure on U.S. spreads, making Europe relatively more attractive.
European high yield European high yield: tactical owerweight +1 We are overweight. Spreads hover near historic lows, but credit losses have been limited in this cycle and better economic growth in 2026 could reduce them further.

Past performance is not a reliable indicator of current or future results. It is not possible to invest directly in an index. Note: Views are from a euro perspective, March 2026. This material represents an assessment of the market environment at a specific time and is not intended to be a forecast or guarantee of future results. This information should not be relied upon as investment advice regarding any particular fund, strategy or security.

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Meet the authors
Jean Boivin

Jean Boivin

Head – BlackRock Investment Institute
Wei Li

Wei Li

Global Chief Investment Strategist – BlackRock Investment Institute
Mark Hume

Mark Hume

Portfolio Manager Thematics and Sectors Team of BlackRock Fundamental Equities
Natalie Gill

Natalie Gill

Senior Portfolio Strategist – BlackRock Investment Institute
Ehsan Khoman

Ehsan Khoman

Economist — BlackRock Investment Institute