The first quarter of 2026 will be remembered as one of the most consequential periods in recent futures market history. What began with cautious optimism — moderating inflation, a supportive earnings backdrop, and hopes for continued Federal Reserve easing — was upended by a single, defining event: the outbreak of direct military conflict between the United States and Iran. From that moment forward, the futures complex rewrote itself almost entirely.
A Promising Start That Didn’t Last
The first weeks of 2026 offered a deceptively calm start for investors. Equity markets rose on strong Q4 2025 earnings, enthusiasm for AI-driven productivity, and expectations of at least one Federal Reserve rate cut. Commodity futures were relatively muted, and interest rate futures priced in a benign environment for monetary policy. The consensus view entering the year held that the economy was on solid footing: the United States entered 2026 with one of the stronger forecasted economic growth rates of any country, and heading into the year, investors saw multiple reasons for optimism, including resilient economic growth, slowly moderating inflation, an optimistic corporate earnings outlook, and a Federal Reserve looking to continue along a path of monetary easing. Investing.comCerity Partners
That calm evaporated quickly.
The Geopolitical Catalyst
The defining event of the first quarter of 2026 was the joint US-Israeli military campaign against Iran, which began on February 28. The conflict upended what had been a cautiously optimistic start to the year, injecting extraordinary volatility into energy markets that spilled over into equities and fixed income. Cerity Partners
The consequences for futures markets were immediate and severe. The Strait of Hormuz — through which roughly 20% of the world’s daily oil supply flows — was effectively shut down. Tanker traffic was rerouted, and energy infrastructure became a repeated target. Brent crude surged to over $110 per barrel, an increase of more than 85% year-to-date, fueling global inflation fears and prompting central banks to reconsider rate cuts. J.P. Morgan Private Bank
Energy Futures: The Quarter’s Defining Trade
No corner of the futures market moved more dramatically than energy. After beginning the year at $61 per barrel, the front-month futures price of Brent crude oil finished the quarter at $118 per barrel. The price increase during the quarter was the largest on an inflation-adjusted basis in data going back to 1988. U.S. Energy Information Administration
The structure of the crude futures curve shifted sharply as well. The Brent price increased more sharply than the WTI price due to exposure to higher shipping costs and reduced oil flows between regions near the Strait of Hormuz, while strong U.S. inventories and plans to release crude oil from the Strategic Petroleum Reserve helped limit WTI price increases. After beginning the quarter around $4 per barrel, the Brent-WTI spread increased in March, peaking at $25 per barrel on March 31 and averaging $11 per barrel in the month — the highest in over five years. U.S. Energy Information Administration
The surge rippled downstream into petroleum product futures as well. Gasoline, distillate, and jet fuel spot prices increased rapidly in the first quarter after supply disruptions to Middle East exports of crude oil and petroleum products. For trend-following strategies focused on commodities, the quarter was exceptionally lucrative. Commodity-linked managed futures exposure contributed significantly to returns, with the broader managed futures index finishing the quarter up 8.3%, driven largely by commodity gains of 9.2%. U.S. Energy Information AdministrationKraneShares
Interest Rate Futures: Rate-Cut Hopes Crushed
Perhaps the most dramatic repricing of the quarter occurred in interest rate futures. At the start of Q1, most major central banks were expected to cut rates multiple times in 2026. By March, markets had sharply reversed, pricing in potential rate hikes, triggering notable losses across sovereign bonds. Investing.com
In the United States, the story was one of a sharp recalibration rather than outright panic. As of March 31, 2026, futures markets were pricing zero interest rate cuts from the Federal Reserve, a sharp change from the start of the year. The Federal Reserve itself held rates steady at its March meeting, and the March 2026 dot plot projected inflation to remain elevated, with PCE inflation expected to end 2026 at 2.7%, 30 basis points higher than the December 2025 projection. ConfluencefpBondsavvy
Treasury futures bore the consequences. Bond markets experienced a month of positive correlation to the stock market in March, with core bonds declining alongside equities. The Bloomberg Barclays Aggregate Bond Index fell 1.76% in March, leaving it essentially flat for Q1. Internationally, the picture was bleaker. UK Gilts fell 2.0%, the worst-performing major market, while European bonds declined 0.6% as the ECB hinted at a possible hiking bias. Japanese Government Bonds dropped 1.6% as well. ConfluencefpInvesting.com
The energy shock’s inflationary implications were the primary driver of this shift. Higher oil prices revived fears that central banks had prematurely signaled easing, and rate futures markets responded by erasing months of dovish pricing in a matter of weeks.
Equity Index Futures: Rotation Under Pressure
Equity index futures reflected a market in transition on two simultaneous fronts: a pre-existing rotation away from mega-cap technology, and a new geopolitical overlay that introduced broad market uncertainty.
The S&P 500 declined 4.3% in Q1, while the Russell 2000 and equal-weight S&P 500 each gained nearly 1%, outperforming the index. The Nasdaq 100 returned -5.8% for the full quarter. The divergence revealed a market in which smaller and more value-oriented names were proving more resilient. Large-cap value stocks gained 2.1%, while large-cap growth fell 9.78%. FinsynConfluencefp
The technology sector faced particular pressure from two directions simultaneously. The rotation accelerated in February as concerns about AI disruption spread across the market, particularly among software companies. AI was increasingly being priced as a potential replacement for entire categories of professional services, not merely a productivity tool. US software stocks dropped approximately 30% for the full quarter, bringing valuations back to 2021 levels. FinsynInvesting.com
Then came the oil shock, which compounded the selloff and affected virtually all major indices. During the quarter, almost all major stock markets fell between 8% and 10% from their 2026 high levels, due in large part to the rise in energy prices and lower likelihood of interest rate cuts. Confluencefp
Currency Futures: Dollar Strength, Shifting Flows
Currency futures saw significant moves as markets re-priced the relative impact of the energy shock across economies. The United States, as a net energy exporter, was comparatively insulated from the oil price spike, lending support to the dollar against many major peers. U.S. markets held up best in the aftermath of the conflict, supported by the country’s relative energy independence, while Asia — and to a lesser extent, Europe — bore more of the brunt. J.P. Morgan Private Bank
International equity markets, which had begun 2026 on a strong note, were hit by both rising energy costs and dollar strength. The MSCI ACWI Ex-USA index finished the quarter down 0.71%, reflecting the combined pressure of a strengthening dollar and higher energy prices. In managed futures strategies, currency positions swung dramatically: currency exposures shifted from net long 60% at the start of the quarter to net short 12% by quarter-end, reflecting the rapid repositioning required by the geopolitical upheaval. ConfluencefpKraneShares
Managed Futures and Trend-Following: A Standout Quarter
For systematic trend-following strategies, Q1 2026 delivered the kind of sustained, directional price movement they are designed to capture. The commodity surge — particularly in energy — provided clear trends in crude, gasoline, and distillate futures. Meanwhile, the collapse in fixed income prices also provided profitable short positions in sovereign bond futures across multiple markets.
The quarter drew comparisons to 2022, when commodity and rate trends similarly rewarded managed futures strategies during a period of broader market stress. Commodity exposures within managed futures shifted from net short 1% at the start of the quarter to net long 51% by the end, a dramatic repositioning that aligned strategies with the energy shock as it unfolded. Fixed income futures positions moved to net short 75% by quarter close, capturing the repricing of sovereign debt as rate-cut expectations evaporated. KraneShares
The Broader Economic Backdrop
The futures market action both reflected and reinforced a deteriorating economic outlook through the quarter’s final weeks. Estimates of first-quarter 2026 GDP growth fell from 3.0% at the beginning of the year to 2.0% as the quarter was ending, with higher energy prices adding as an additional headwind. The labor market showed further cooling, with February 2026 payrolls falling by 92,000 while the unemployment rate rose slightly to 4.4%. Cerity PartnersCerity Partners
Corporate earnings expectations, however, held up more robustly than many anticipated. First-quarter earnings for S&P 500 companies were expected to grow by 13% year over year — the fifth consecutive quarter of double-digit earnings growth — with the information technology sector accounting for much of that growth. The resilience of earnings estimates was a notable feature of the quarter, and a key reason that equity futures did not suffer more severely despite the macro headwinds. Cerity Partners
Looking Forward
Q1 2026 ended with few clean resolutions. Energy futures remained elevated and volatile, the Strait of Hormuz was still severely disrupted, and rate futures had fully abandoned any expectation of near-term easing. The EIA forecast Brent crude to peak in Q2 2026 before easing as production disruptions slowly abated, projecting prices would fall below $90 per barrel in Q4 2026. U.S. Energy Information Administration
Credit markets remained relatively stable, and spreads had not widened significantly — a reassuring signal of underlying market health. But the range of possible outcomes had widened considerably. Q1 results underscored how unpredictable near-term outcomes can be: energy stocks and some commodities led, while cash outperformed stocks and bonds — an outcome that diverged sharply from established trends. J.P. Morgan Private BankMeritfinancialadvisors
The quarter served as a forceful reminder that geopolitical risk, however well-telegraphed, can reshape futures markets faster than almost any other force. For investors and traders across energy, rates, equities, and currencies, Q1 2026 was a test of both positioning and resolve — one that rewarded diversification, trend-following discipline, and exposure to the real economy over speculative growth.
This article is intended for informational purposes only and does not constitute investment advice.
