No Brick House: What 2026 Taught us About Safe Havens

Table of Contents

TL;DR

• Shares fell, but defensive stocks offered only partial protection. The S&P 500 lost 7.41% in the first month of the Iran war, while US utilities rose 7.5% over the first quarter as a whole.
• Gold failed to provide its usual refuge. After reaching a record $5,595 an ounce during trading in January, gold fell 13.75% in the first month of the conflict and continued to slide.
• Bonds offered little protection either. US government bonds fell alongside shares and the 10-year Treasury yield rose above 5%, a sign that inflation, not recession, was the worry.
• History shows that the type of shock matters. Government bonds helped cushion losses in the growth-led crises of 2008 and 2020 (apart from a brief dash for cash in March 2020), but struggled in the inflationary periods of the 1970s, 2022 and 2026.
• There is no single house of bricks. No asset class held up against every kind of shock, and the bricks may be all three shelters together, in a well-diversified portfolio.

The wolf of geopolitical instability

We are probably all familiar with the tale of the Three Little Pigs, in which each pig, sensing danger, runs to the house he has built for himself. One is made of straw, one of sticks, and one of bricks. When the wolf arrives and huffs and puffs, the first two houses fall. Only the brick house stands.

In markets, investors have long done something similar. Confronted by a sudden shock, they tend to flee into one of three shelters that have, at different times, been treated as places of safety: defensive equities, gold, and longer-dated government bonds. The question this year has been which, if any, of those houses was actually made of bricks.

When US and Israeli strikes on Iran began on Saturday, the 28th of February 2026, shares fell fast. From the last close before the strikes, on Friday the 27th of February, to the close on the 27th of March (the first month of the conflict), the S&P 500 fell 7.4%¹ and the Europe’s STOXX 600 (measured from the start of the strikes to the 24th of March) was down 9%.² Such shocks usually make investors look to three so-called safe havens:

• Defensive shares, whose profits tend to hold up across most economic conditions and whose prices tend to be less volatile,
• Gold, and
• Longer-dated government bonds, whose prices rise when interest rates fall.

The equity figures below mix price changes and total-return measures. The MSCI ACWI Minimum Volatility Index, which tracks global shares chosen for lower price swings, fell 6.2% (on the first month of the conflict)³ although less than the S&P 500. US utilities did better, rising 7.5% Q1 on electricity demand from AI-related large technology companies.⁴ Outside the usual defensive group, energy rose over the same period: the S&P 500 Energy Sector rose 12.6%.⁵

Gold arrived at the shock near a record. On the 29th of January it reached $5,595 a troy ounce during trading, 104% higher than a year earlier.⁶ On the first month of the conflict, gold fell 13.75%;⁷ Suki Cooper, Global Head of Commodities Research at Standard Chartered, put the fall at about 12% by the 1st of April since the start of the conflict.⁸ By the 11th of June, gold was 22% below its 27th of February price.⁷ It dropped as low as $3,943 during trading on the 30th of June, in its worst quarter in more than a decade.⁹ Tom Price, analyst at Panmure Liberum, said “The dominant drag for gold is the market realisation that the Fed’s new head is concerned about inflation, […] as a result, gold is pulling back.”⁹

Bonds fared no better. The European Central Bank (ECB) summed up the spring in May: gold fell after the war began, and bonds and shares fell together. It warned: “Bonds could provide less effective diversification, increasing the likelihood of simultaneous losses.”¹⁰ On the 13th of July, as US-Iran tensions escalated, the S&P 500 fell 0.8% and the two-year Treasury yield rose to 4.3%, its highest in over a year, so shares and bonds fell together.¹¹

This did not look like a recession scare. In September 2026, the correlation between WTI crude oil and the 10-year Treasury yield (the bond’s market interest rate) reached 65%, very close to the record of 66% during the first Gulf war in 1990, according to Cboe data going back to 1985.¹² Later that month, the 10-year Treasury yield passed the 5% mark, closing at 5.31% on the 5th of October.¹ German Bunds behaved differently: in the week to the 2nd of October, their 10-year yield fell 0.17% while US yields rose 0.07%.¹³ Ales Koutny of Vanguard said “Core Europe is emerging as the safe-haven allocation.”¹³

When the wolf came calling before

The 1970s are the classic inflation-led case. They include the end of Bretton Woods, the OPEC oil embargo and the Iranian Revolution. Neville et al. at Man Institute¹⁴ studied eight US inflation regimes between 1926 and 2020, periods when annual inflation rose to 5% or more. During the three 1970s regimes, equities did poorly, with total real returns of −7%, −46% and −14%, respectively. The 10-year Treasuries had performances of −13%, −12% and −31%, respectively. Commodities (aggregate), on the other hand, did very well, with total real returns of 26%, 85% and 38%, respectively. An Equity Low Volatility Factor portfolio had mixed results, with 28%, −13% and 9%, respectively. Gold rose 166% over 1972–74 as a whole.¹⁴ Pim van Vliet, Chief Quant Strategist at Robeco, finds that bond drawdowns in the 1970s and early 1980s reached real bond losses approaching 50%.¹⁵

The 2008 global financial crisis (GFC) was a growth-led shock: a recession, not an inflation scare. Here, government bonds were the house that stood. By the end of December 2008, an index of US Treasuries had made a real return of 14.5% for the year, the best since 1995 according to Barclays Capital, while the S&P 500 had fallen 39.3%, its worst run since a 47.1% drop in 1931, the Financial Times reported.¹⁶ As bond prices rose, the 10-year Treasury yield fell from 3.91% on the 2nd of January to 2.25% on the 31st of December, with a low of 2.08% on the 18th of December.¹

Gold was a partial shelter. Suki Cooper notes that gold “tends to rise 15 per cent on average during recessions”, but liquidity needs may weigh on gold for fairly long periods of time. During the GFC, it took gold more than four months to recover its losses.⁸ It fell 28.75% from March to October, yet still ended 2008 up 4.32%.⁷ For developed market shares over the full calendar year, the MSCI World index fell 42.08%.³

March 2020 (COVID-19 pandemic) was a scramble for cash. The 10-year Treasury yield fell from 1.56% on the 19th of February to 0.54% on the 9th of March as bond prices rallied, then jumped briefly to 1.18% on the 18th of March as investors sold even government bonds for cash.¹ On the 16th of March gold fell 2.6% to $1,490 after diving more than 5% during the day.¹⁷ Markets recovered quickly, and bonds kept rallying: the 10-year yield hit 0.52% on the 4th of August.¹ The S&P 500 rose 51.5% from its low on the 23rd of March to its first record close on the 18th of August,¹ and gold reached a record $2,067.15 on the 6th of August.⁷

The year 2022 (Russian invasion of Ukraine) was inflation-led again. A 60/40 portfolio of the S&P 500 and US bonds lost 12.4% to the 21st of December, its worst year since 2008,¹⁸ with the S&P 500 alone falling 19.4% over the calendar year.¹ Weidner et al. at Man Institute place 2022 in a regime where inflation is above 4% and has risen by more than half a percentage point over three months. Since 1900, 10-year Treasuries have averaged −11.7% a year after inflation in that regime.¹⁹ Gold was close to flat, ending the year 0.44%.⁷

So, which house is made of bricks?

History adds a pattern. When the shock was about growth, as in 2008 and 2020, government bonds did most of the defending, apart from the brief dash for cash in March 2020.¹⁶¹ When it was about inflation, as in the 1970s, 2022 and now 2026, bonds fell alongside shares.¹⁴¹⁸¹⁰

Amundi’s researchers argue that the old shelters have not held, they wrote²⁰ that “asset class behaviour in the short term depends on which factor dominates the macro environment” and that “conventional portfolio construction assumptions no longer hold”. Gold fell from a record, US bond yields climbed, defensive sectors split.⁹¹⁴ 2026 suggests there may be no asset class that holds up through both inflation and recession. The conclusion is that our house of bricks may be, after all, all of them in the form of a well-diversified portfolio.

The reason an investor diversifies a portfolio is that no one knows what is going to happen next. Maybe the AI boom will last for a couple of years, or we are heading straight into a recession in the near future. There is no way to know and, if we found a way, there wouldn’t be a need to diversify. Diversification typically works through an asset allocation tailored to an investor’s risk profile, time horizon and financial circumstances, with the portfolio rebalanced regularly as those circumstances change. We also don’t know when rebalancing your portfolio will pay off, but it will at some point. That’s what prudent risk management looks like.

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