​​  Investors bid farewell to Q1 – what comes next?

Q1 ends with huge gains for oil

At the end of 2025, oil prices, which had been in decline for most of the year, stood at around $60 for Brent and $56 for WTI. Prices had risen through January and February, but Trump’s war in Iran unleashed a huge surge in oil prices that has seen Brent nearly double and WTI up 80%.

This represents a dramatic upending of forecasts for the year. Perhaps the surprising thing is that oil prices are not higher than their current levels. A closure of the Straits of Hormuz is set to throw the global economy into disorder, as the impact of the closure ripples through markets and economies.

So long as the Straits remain closed, then the outlook for economies remains grim. There are alternatives that can replace some of the lost oil flow, but not entirely, at least  not for months or even years. Reports that president Trump may simply declare victory and walk away, leaving Iran in control of the straits, suggest the US president is tiring of the war. But such a situation would be unsustainable, and leave Iran with the ability to hold the global economy hostage.

Stocks down, but further to go?

Equity markets have fallen from the highs seen in February, but have yet to really enter a full correction, or a much broader bear market. The Nasdaq 100 is down around 9%, the Dow has fallen 5% and the small cap Russell 2000 is only down 2%. Elsewhere, the Nikkei 225 is down 1.5%, the Dax has lost 7% and the FTSE 100 is up 2.5%.

This is not yet a market selloff to match April 2025, or the extended pullback we saw in 2022. It could easily turn into one however, if rates continue to rise, oil prices keep surging and economic growth weakens or begins to contract.

The next US earnings season begins in two week’s time. But just as last year, this will only cover part of the impact of the latest global disruption. Trading in March will provide some clues, though since the US is less affected in the short-term by higher oil and gas prices, the initial impact will be limited.

Stock markets are at the mercy of oil prices. What happens in the Straits of Hormuz and to the price of oil and gas will be a key determinant of whether equity markets can find a low, or will continue to selloff.

Dollar still the safe haven

As mentioned above, the US economy has yet to feel the full impact of higher oil prices. Economies in Asia were hit first, followed up by Europe from April onwards. It should take longer for the US to be really affected. Higher oil prices will push inflation up around the globe, but while all central banks are now pausing planned rate cuts, it is the US that will have the desired combination of higher rates plus a safe haven status as the world’s reserve currency.

Flows to the US dollar will likely continue for the time being, propping up the currency, while the future path depends on how the new Fed chairman shapes policy along with the rest of the committee in a world of rising inflation.

Gold faces mixed picture

The dollar’s rise and a need to realise gains led to a major selloff in gold during March, reversing the gains of January and February. The price has now found a low around $4400, and may recover from here as investors seek diversification away from equities.

But a rising dollar may impede the gains, and a broader wish to maintain higher cash levels. 2022 was a year of higher inflation and rising rates, and it proved to be a difficult one for gold prices. That year, gold bottomed with equities in October, having dropped around 20% from March until October.

Bitcoin and other cryptocurrencies

It may be a similar story for bitcoin, though the cryptocurrency and others have already endured a heavy selloff from October of 2025. 2022 is also a guide for the asset class – if investors want to hold cash and remain risk averse, cryptocurrencies may struggle.

Bitcoin remains aligned to risk-on assets such as stocks, and so like gold it may struggle to find traction in the near-term until a equities find their footing.

Can things change in Q2?

Investors face fresh challenges that had not been on the cards three months’ ago. There is little sign of the Iran war ending, or of the disruptions in the oil market being resolved.

The US economy and stock market, still the engine of the world, has avoided a recession in recent years despite Covid, Ukraine, tariffs and other shocks. Can it manage to avoid a shrinking of economic growth this time, or has its luck run out? The answer will determine the path of asset prices for months to come.