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Dollar Strength: What Does It Mean for Markets?

March 17, 2026

Time to Read: 2 minutes

Geopolitical tensions have lifted oil prices, sent stocks lower and driven flows into the safety of the U.S. dollar, which has strengthened versus peers. While a weaker dollar previously supported international equity outperformance, dollar stabilization now suggests that tailwind is fading, underscoring the importance of diversification across regions and asset classes.

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The conflict in the Middle East has seen oil prices rise, equities fall and investors flock to safe haven assets. In times of turmoil, investors often seek the stability of the U.S. dollar (USD) because of its reserve currency status and liquidity, as well as the perceived credit strength of the U.S. This episode of geopolitical uncertainty is proving to be no different with the USD gaining strength relative to global peers.

Historically, the performance gap between U.S. equities and the rest of the world has hinged on the relative strength of the USD. While a weaker USD makes U.S. exports more competitive, this has often coincided with the outperformance of major non-U.S. indices on a relative basis. That pattern has been evident over the last year, with international equity benchmarks outperforming the S&P 500.

In our view, signs of USD stabilization suggest the tailwind from dollar weakness to non‑U.S. outperformance has likely peaked. The USD is near its highest level since May 2025, and the combination of sticky inflation, U.S. energy independence and resilient growth could limit further dollar softness and challenge the recent leadership of international markets. Diversifying across geographies and asset classes remains prudent to capture potential upside amid today’s varied global conditions.

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Returns after Oil Spikes

The Strait of Hormuz, which moves about 20% of global oil, has seen many ships that normally travel through it curtail their activity. Consequently, WTI oil was up over 36% in the five days after the oil supply shock began. Yet equities barely budged, signaling a temporary supply shock, not a larger crisis. Historically, after similar price spikes equities tend to move higher while oil prices decline — further evidence for avoiding emotion-driven investing.

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Impact of Geopolitics over Time?

Tensions between the U.S./Israel and Iran have recently boiled over into a military conflict, which has given many investors the jitters. However, our research shows that equity market pullbacks resulting from geopolitical events are often short lived with the S&P 500 typically higher in the months following these events.

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Behind the Numbers: Q4 GDP

Gross domestic product undershot expectations last quarter, but the shortfall appears driven more by the temporary government shutdown than broad-based weakness. Consumer demand remains resilient, and with supportive fiscal policy, easing financial conditions and a steady labor market, the outlook points to a modest acceleration in economic activity this year.

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Narrow Drawdown?

Equity volatility is rising, but all is not what it seems. The technology sector is weighing on the S&P 500 while value and cyclical stocks lead. A market rotation is underway as many investors begin to favor companies beyond tech.

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