April 2026
Market Update Special
Middle East: Looking Through the Current Crisis
(3 min read)
17th April 2026
Further reading: our March 2026 Iran Special article published 18/3/26 “Iran Conflict: Bulls vs Bears”
It is, of course, impossible to predict the outcome of the current crisis in the Middle East. The conclusion is binary:
Either a deal is made and, after a period of readjustment of energy supplies, normality returns following a short period of stagflation, slow growth and higher inflation, or
The situation escalates leading into a global recession.
The markets are discounting the first scenario as the S&P 500 hits an all-time high even though bond markets have moved from pricing interest rate cuts to rises. The second scenario, however, is equally as plausible and would be problematic for asset prices.
With this background investors can only focus on the long-term drivers and fundamentals for markets. As we have outlined before in previous newsletters our strategy for client portfolios is diversification across quality assets as the rotation of market drivers captures performance in different sectors, and in turn to reduce the noise and volatility. In our equity component we have targeted stocks across large, mid and small cap companies in sectors that are deemed to be growth and value. These varying characteristics allow the portfolios to have stocks that will perform under different market circumstances. Large cap value stocks tend to outperform in higher interest rate environments as companies with strong balance sheets and little leverage trade at a premium. Meanwhile small cap growth stocks will usually come into their own when interest rates are low and falling as those businesses gear into economic growth due to monetary stimulus.
Prior to the crisis small cap stocks were performing well with the prospect of interest rate cuts in sight. Since then, with markets now pricing for rate rises large value sectors have taken the lead. This demonstrates the importance of diversifying away from concentrated portfolios.
The chart below, produced by Montanaro Asset Management, demonstrates how a mix of investments in different size companies - large and small market capitalisations - can produce varying risk and return profiles. Over 40 years in the UK stock market, although the principle is the same globally, the optimal mix has been 30% small cap and 70% large cap.
Within the equity portion of our client portfolios, this is how we are currently positioned.
Peter Geikie-Cobb | Head of Investment Research
Montgomery Associates
Chart: The impact on Returns and Volatility on a portfolio of Large Cap and Small Cap companies.
Source: Montanaro Asset Management, 31/12/25.
Further Reading
Our March 2026 ‘Iran Special’ article published 18/3/26 “Iran Conflict: Bulls vs Bears”
Learn More
View our latest Factsheets and performance results for our Montgomery Portfolio Service on our Investor Information page.
Glossary
Succinct definitions of financial terms on our Glossary page.
Risk warning
This article and other articles on www.MontgomeryAssociates.co.uk does not constitute an offer or invitation in respect of investments described, nor should it be interpreted as advice or a recommendation. You should contact your financial adviser or accountant for advice relating to your circumstances. The opinions and information in this article have been prepared from sources believed to be reliable at the time and are given in good faith. The information and opinions expressed in this document represent our views at the time of preparation and may be subject to change. The value of an investment and any income from it can fall as well as rise and you may not get back the amount you originally invested.
Past performance is not a guide to future performance.
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