U.S. stocks had a bleak finish to the first quarter. Which asset class is the most resilient?

Ask AI · How does the Israel-Iran conflict affect the future three-month trend of U.S. stocks?

The three major U.S. stock indices underperformed in March and the first quarter overall. Based on current market trends, there is still “room for decline” in U.S. stocks. According to analysts, the U.S. dollar index and crude oil are the two most resilient assets under the current technical landscape, while most traditional asset classes face downside risks.

March 31, Eastern Time marks the 22nd trading day since the outbreak of the Israel-Iran conflict. On that day, the three major U.S. stock indices surged significantly, with the Dow rising over 1,100 points, up 2.49%; the Nasdaq up 3.83%; and the S&P 500 up 2.91%, all hitting their largest single-day gains since May last year.

Despite the sharp rebound, the three major U.S. stock indices still posted losses for March and the first quarter overall. Analysts warn that in the next three months, stocks, bonds, and gold will face considerable pressure.

Still “room for decline”

On the news front, on the evening of March 31, U.S. President Trump stated that the U.S. would end military operations in Iran within “two to three weeks,” possibly reaching an agreement with Iran beforehand. Iranian President Raisi also said on the same day that Iran is willing to end the war, but only if its demands are met, especially guarantees against further aggression.

However, the market remains cautious. Bloomberg macro strategist Brendan Fagan pointed out that Iran’s definition of “basic guarantees,” especially if tied to previously proposed ceasefire conditions, could be a high threshold difficult for the Trump administration to accept.

Previously, many professional investors bet that the Iran conflict would be short-lived. Their reasoning was mainly based on historical precedents: when the stock market declines due to geopolitical shocks, it usually recovers within weeks or even days. Deutsche Bank’s research shows that in the past, after geopolitical shocks, the S&P 500 took an average of 16 days to bottom out and about 109 days to fully recover.

Looking at the current market trend, analysts believe there is still “room for decline” in U.S. stocks. The impact of energy volatility on the market is long-lasting. After the 1973 Arab oil embargo, the S&P 500 took five and a half years to recover.

Despite a large rebound on the last trading day of March, the overall performance of the three major indices for March and the first quarter remains negative. The S&P 500 fell 5.1% in March, marking its worst monthly performance since 2022; the Dow declined 5.4% in March, ending a 10-month winning streak; the Nasdaq dropped 4.8%. For the first quarter, the Nasdaq led with a decline of over 7%, the S&P 500 fell 4.6%, and the Dow dropped 3.6%.

The Chicago Board Options Exchange Volatility Index (VIX), also known as the “fear gauge,” ranged from 13.38 to 60.13 over the past 52 weeks. Its current level remains relatively high, indicating ongoing market uncertainty after volatility.

Overall, the performance of U.S. stocks in the first quarter of this year is very different from the previous quarter: in December last year, the Federal Reserve was expected to cut interest rates, and investors entered 2026 with confidence. But rising oil prices due to geopolitical tensions and increasing inflation expectations have overturned market bets that the Fed would cut rates this year. Before the conflict erupted, traders widely expected nearly an 80% chance of two rate cuts by the Fed before the end of 2026. Now, that probability has dropped to less than 2%.

JPMorgan Asset Management Chief Market Strategist David Kelly said, “If the conflict means we can no longer obtain oil from the Gulf region for the long term, the global economy will definitely fall into recession.”

BlackRock CEO Larry Fink also warned that if Iran re-enters the global trade system after the conflict, global energy prices will stabilize. Conversely, if oil prices remain above $100 per barrel for years, it would mean a “severe recession.”

The dollar and crude oil are expected to remain strong

As stocks accelerated their decline in the second half of March, investors’ portfolio and hedging strategies failed. U.S. Treasuries experienced the most severe sell-off since last April’s “tariff war,” and traditional 60% stocks and 40% bonds portfolios performed almost as poorly as holding only stocks.

The worst performers were the “Big Seven” U.S. tech giants. In recent years, this stock group performed strongly, rising 76% in 2023, 47.5% in 2024, and 19.3% in 2025, outperforming the market. Despite a slight decline last year, they still contributed 42% to the total return of the S&P 500.

However, in the first quarter of this year, these tech giants significantly underperformed the remaining 493 components of the S&P 500.

Looking ahead to Q2, Bank of America analyst Paul Ciana explicitly warned that in the next three months, stocks, bonds, and gold will face significant pressure. Meanwhile, the dollar and oil are among the few assets expected to remain strong.

Ciana noted that recent market performance closely matches Bank of America’s previous expectations: rising U.S. Treasury yields, a strengthening dollar, and rising oil prices.

“The dollar index (DXY) and crude oil are the two most resilient assets under the current technical landscape, while most traditional asset classes face downside risks. As for the S&P 500, there are no signs of capitulation selling yet, meaning a bottom has not formed.”

U.S. long-term Treasury yields are a focus. Ciana expects the 30-year yield to rise to around 5.4% in the coming months. The dollar is seen as one of the most confident assets currently. Bank of America reiterated in its report: “Since June 2025, we have been inclined to be long the dollar, especially against commodity-importing currencies.”

Conversely, gold is viewed as a weak asset, expected to enter a sustained correction phase in Q2 and Q3. The report projects gold prices could fall to $4,000 per ounce, possibly even to $3,700, with any rebounds likely unsustainable.

Regarding crude oil, prices are expected to fluctuate within the $90–$100 per barrel range. The strong rally since the start of the year has laid a high-price foundation, and if supply concerns persist, oil prices could rise further. This level would sustain inflationary pressures, making it difficult for the Fed to shift to easing monetary policy.

The report also highlights macro factors that could trigger sharp market reversals: easing of the Iran conflict leading to a significant drop in oil prices; inflation data cooling more than expected, reigniting expectations of Fed rate cuts; and clear policy intervention signals.

However, before these macro changes occur, the market is expected to continue its current pattern—high interest rates, a strong dollar, and limited support from traditional safe-haven assets.

Reporter: Zhou Zimo

Text Editor: Wang Zhexi