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Oil shock from the Iran war drove big gains in energy & shipping ETFs but weighed on global markets.
Rising yields hit tech hard; S&P 500 mega-cap momentum weakened in Q1.
Clean energy & lithium ETFs gained as grid storage and EV demand strengthened.
The year 2026 began with strong optimism as the S&P 500 hit the level of 6,976, only to slide to 6,528 three months later. The index even hit a low of 6,316 in some of March. The sentiment has shifted sharply due to the Iran war. However, hopes of diplomacy offered some support to close out Q1.
Major indices ended the first quarter in the red. The Dow Jones Industrial Average fell 4.2%, the Nasdaq Composite dropped 7.1% and the S&P 500 declined 4.8%.
Geopolitical Shock Ruled Q1: The Iran Conflict
The biggest market-moving catalyst last quarter has been the war involving Iran. The United States and Israel launched coordinated strikes on Iran on Feb. 28, 2026, with President Donald Trump saying that the operation was aimed at destroying Iran’s nuclear program and weakening its current regime.
What was initially expected to be a short conflict has turned into a prolonged disruption, particularly hitting crucial global energy supply routes like the Strait of Hormuz. The resulting oil shock has rattled markets, fueled inflation concerns, and stoked fears of stagflation.
United States Brent Oil Fund LP (BNO - Free Report) has gained about 39.3% past month (as of March 31, 2026), although the fund fell 3.7% on March 31, 2026, on hopes of de-escalation. Notably, in late-March, there were talks that Donald Trump may end the Iran conflict even if the Strait of Hormuz stays largely closed, The Wall Street Journal reported, per Reuters, as quoted on Yahoo Finance.
Fed Uncertainty: Seesawing U.S. Treasury Yields
At the start of the year, the Federal Reserve paused rate cuts due to resilient consumer spending and a stable labor market. However, renewed inflationary fears amid geopolitical shocks have complicated the outlook. The benchmark U.S. treasury yield started the year at 4.19% while it hit as high as 4.44% on March 27.
There were fears of a hawkish Fed. The two-year U.S. treasury yield hit a high of 3.96% on March 26, although the same kicked off the year at 3.47%. Markets started preparing for a prolonged pause of rate cuts or even the possibility of rate hikes.
However, contrary to the month-long fear, the Fed indicated in late March that U.S. inflation is under control despite the oil price surge. The statement helped the benchmark treasury yield fall from 4.44% to 4.30% in just two days to close out March.
iShares 7-10 Year Treasury Bond ETF (IEF - Free Report) has lost about 1.7% over the past month, while it is off 0.7% this year. On the contrary, hopes of a hawkish Fed boosted the U.S. dollar. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) has gained about 2.5% this year and has added 1.7% past month.
U.S. Economic Growth Slows Sharply in Fourth Quarter
The U.S. economy expanded at a much weaker-than-expected pace in Q4 2025, growing at an annual rate of 0.7%. The figure marked a sharp slowdown from 4.4% growth in the third quarter and 3.8% in the second. Economists had expected the revision to show stronger growth instead of a downgrade, per AP, as quoted on Yahoo Finance.
AI Trade Loses Momentum
The once-dominant AI-driven rally has cooled significantly. Rising bond yields pressured high valuations, while profit-taking and downbeat sentiments toward growth sectors like technology reduced its role as a safe haven.
Uncertainty around AI payoffs, combined with concerns about heavy capital spending rising from global competition, has weighed on the “Magnificent Seven” stocks. Roundhill Magnificent Seven ETF (MAGS - Free Report) lost 11.3% in Q1 2026, while the fund has backtracked about 6% over the past month.
ETF Winners and Losers of Q1
Let’s find out the exchange-traded fund (ETF) winners and losers of the quarter.
This is also a beneficiary of the Iran war.Rising fuel costs due to disrupted oil flows have renewed interest in clean energy and EVs. Higher gasoline prices are making electric alternatives more attractive. Invesco Solar ETF (TAN - Free Report) and First Trust Global Wind Energy ETF (FAN - Free Report) added about 8% and 15.5%, respectively, in Q1.
Global X Lithium & Battery Tech ETF (LIT - Free Report) also gained 12.2% as the Iran war has boosted battery demand, especially for grid storage systems. Lithium is a key component in batteries used for grid storage.
Shipping
Disruptions in various shipping routes have boosted shipping stocks this year. About 90% of the world’s goods are transported by sea, according to the FT. Due to all the disruptions, shipping rates have surged in recent months. The clear winners of Q1 were Breakwave Tanker Shipping ETFBWET (up 425.9%), SonicShares Global Shipping ETF (BOAT) (up 28.8%) and Breakwave Dry Bulk Shipping ETF (BDRY) (up 17.9%).
Wheat
Teucrium Wheat Fund (WEAT - Free Report) ETF has surged 17.9% this year due to geopolitical tensions and uncertain weather.
Biotech
ALPS Medical Breakthroughs ETF (SBIO - Free Report) added 4.4% in Q1 as developments in the biotech field have been robust despite the war.
Dividend
ETFs that offer higher current income and offer stability as well fared better in Q1. As a result,Global X SuperDividend ETF (SDIV - Free Report) , which yields as high as 9.31% annually, advanced more than 4% in Q1.
Jet fuel surge hit airlines, keeping US Global Jets ETF (JETS - Free Report) under pressure despite strong travel demand. JETS is off about 13% this year. Carriers cut capacity, raise fares to protect margins amid prolonged high oil outlook (read: Fuel Prices to Stay High for Long? Airlines ETFs in Focus).
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ETF Winners & Losers of Q1 2026
Key Takeaways
The year 2026 began with strong optimism as the S&P 500 hit the level of 6,976, only to slide to 6,528 three months later. The index even hit a low of 6,316 in some of March. The sentiment has shifted sharply due to the Iran war. However, hopes of diplomacy offered some support to close out Q1.
Major indices ended the first quarter in the red. The Dow Jones Industrial Average fell 4.2%, the Nasdaq Composite dropped 7.1% and the S&P 500 declined 4.8%.
Geopolitical Shock Ruled Q1: The Iran Conflict
The biggest market-moving catalyst last quarter has been the war involving Iran. The United States and Israel launched coordinated strikes on Iran on Feb. 28, 2026, with President Donald Trump saying that the operation was aimed at destroying Iran’s nuclear program and weakening its current regime.
What was initially expected to be a short conflict has turned into a prolonged disruption, particularly hitting crucial global energy supply routes like the Strait of Hormuz. The resulting oil shock has rattled markets, fueled inflation concerns, and stoked fears of stagflation.
United States Brent Oil Fund LP (BNO - Free Report) has gained about 39.3% past month (as of March 31, 2026), although the fund fell 3.7% on March 31, 2026, on hopes of de-escalation. Notably, in late-March, there were talks that Donald Trump may end the Iran conflict even if the Strait of Hormuz stays largely closed, The Wall Street Journal reported, per Reuters, as quoted on Yahoo Finance.
Fed Uncertainty: Seesawing U.S. Treasury Yields
At the start of the year, the Federal Reserve paused rate cuts due to resilient consumer spending and a stable labor market. However, renewed inflationary fears amid geopolitical shocks have complicated the outlook. The benchmark U.S. treasury yield started the year at 4.19% while it hit as high as 4.44% on March 27.
There were fears of a hawkish Fed. The two-year U.S. treasury yield hit a high of 3.96% on March 26, although the same kicked off the year at 3.47%. Markets started preparing for a prolonged pause of rate cuts or even the possibility of rate hikes.
However, contrary to the month-long fear, the Fed indicated in late March that U.S. inflation is under control despite the oil price surge. The statement helped the benchmark treasury yield fall from 4.44% to 4.30% in just two days to close out March.
iShares 7-10 Year Treasury Bond ETF (IEF - Free Report) has lost about 1.7% over the past month, while it is off 0.7% this year. On the contrary, hopes of a hawkish Fed boosted the U.S. dollar. Invesco DB US Dollar Index Bullish Fund (UUP - Free Report) has gained about 2.5% this year and has added 1.7% past month.
U.S. Economic Growth Slows Sharply in Fourth Quarter
The U.S. economy expanded at a much weaker-than-expected pace in Q4 2025, growing at an annual rate of 0.7%. The figure marked a sharp slowdown from 4.4% growth in the third quarter and 3.8% in the second. Economists had expected the revision to show stronger growth instead of a downgrade, per AP, as quoted on Yahoo Finance.
AI Trade Loses Momentum
The once-dominant AI-driven rally has cooled significantly. Rising bond yields pressured high valuations, while profit-taking and downbeat sentiments toward growth sectors like technology reduced its role as a safe haven.
Uncertainty around AI payoffs, combined with concerns about heavy capital spending rising from global competition, has weighed on the “Magnificent Seven” stocks. Roundhill Magnificent Seven ETF (MAGS - Free Report) lost 11.3% in Q1 2026, while the fund has backtracked about 6% over the past month.
ETF Winners and Losers of Q1
Let’s find out the exchange-traded fund (ETF) winners and losers of the quarter.
Q1 Winners
Oil & Energy
Energy markets surged amid supply disruptions. Oil prices jumped roughly 77% from $57 per barrel. BNO ETF skyrocketed about 84% in Q1 (read: Oil Could Surge to $200 if Conflict Continues: Energy ETFs in Focus).
Clean Energy
This is also a beneficiary of the Iran war.Rising fuel costs due to disrupted oil flows have renewed interest in clean energy and EVs. Higher gasoline prices are making electric alternatives more attractive. Invesco Solar ETF (TAN - Free Report) and First Trust Global Wind Energy ETF (FAN - Free Report) added about 8% and 15.5%, respectively, in Q1.
Global X Lithium & Battery Tech ETF (LIT - Free Report) also gained 12.2% as the Iran war has boosted battery demand, especially for grid storage systems. Lithium is a key component in batteries used for grid storage.
Shipping
Disruptions in various shipping routes have boosted shipping stocks this year. About 90% of the world’s goods are transported by sea, according to the FT. Due to all the disruptions, shipping rates have surged in recent months. The clear winners of Q1 were Breakwave Tanker Shipping ETF BWET (up 425.9%), SonicShares Global Shipping ETF (BOAT) (up 28.8%) and Breakwave Dry Bulk Shipping ETF (BDRY) (up 17.9%).
Wheat
Teucrium Wheat Fund (WEAT - Free Report) ETF has surged 17.9% this year due to geopolitical tensions and uncertain weather.
Biotech
ALPS Medical Breakthroughs ETF (SBIO - Free Report) added 4.4% in Q1 as developments in the biotech field have been robust despite the war.
Dividend
ETFs that offer higher current income and offer stability as well fared better in Q1. As a result,Global X SuperDividend ETF (SDIV - Free Report) , which yields as high as 9.31% annually, advanced more than 4% in Q1.
Q1 Losers
Software
State Street SPDR S&P Software & Services ETF (XSW - Free Report) has lost 22.6% this year. AI’s rapid advancement has hurt software stocks, raising concerns that automation could replace traditional business models (read: AI Disruption Hit Multiple Sector ETFs: Is the Fear Overblown?).
Airlines
Jet fuel surge hit airlines, keeping US Global Jets ETF (JETS - Free Report) under pressure despite strong travel demand. JETS is off about 13% this year. Carriers cut capacity, raise fares to protect margins amid prolonged high oil outlook (read: Fuel Prices to Stay High for Long? Airlines ETFs in Focus).