The recent escalation in the US-Israel-Iran conflict, which began in late February 2026, has brought notable volatility to financial markets. Disruptions in the Strait of Hormuz—a vital waterway handling roughly 20-25% of the world’s seaborne oil and liquefied natural gas—have caused sharp fluctuations in energy prices. Brent crude surged dramatically in early March, briefly approaching or exceeding $100-120 per barrel amid supply concerns and infrastructure attacks, but it has since retreated significantly, aided by emerging signals of potential de-escalation and efforts to restore stable flows.
This geopolitical energy shock coincides with signs of a softening US labor market, as evidenced by the February 2026 jobs report released in early March. Nonfarm payrolls declined and prior months saw downward revisions. The unemployment rate climbed to 4.4%, with indicators pointing to a steady, linear cooling trend: labor market slack is building gradually, wage growth is normalizing, employers hold greater leverage, and households no longer have excess savings to provide a cushion.
While the labor market is cooling rather than collapsing, the absence of consumer buffers leaves the economy more exposed to this supply shock than in previous periods—unlike the post-pandemic resilience of 2022 or the high energy intensity of the 1970s. US energy intensity, which measures how much energy the economy uses to generate each unit of economic output, has declined sharply over decades, helping to limit durable inflation pressures. Instead, higher energy costs are more likely to translate into growth drag, particularly through reduced consumer spending. Stagflation concerns appear overstated, with risks to growth far outweighing those to sustained inflation. There is a new scenario emerging (and I do love an acronym) involving de-escalation—often referred to in markets as the “TACO” outcome, or “Trump Always Chickens Out”—rendering the shock transitory and manageable. However, tail risks have widened considerably, including prolonged disruptions, Fed hesitation on interest rate cuts, or nonlinear economic downside due to firms and individuals being overly conservative in their reactions.
Shipping disruptions through the Strait of Hormuz remain the true primary driver of oil prices and broader market movements, far more than daily headlines. Tanker traffic has paused meaningfully already, pushing up freight and insurance costs. We anticipate ongoing friction in the Strait, which supports a more defensive investment stance. If the Strait turns into a major chokepoint, we would call for even greater caution and defensiveness, while rapid de-escalation could spark a swift rally, particularly in growth-oriented stocks. Historically, geopolitical shocks of this nature have frequently led to quick and robust equity recoveries, though not in every instance.
This environment resembles a classic “geopolitical dip,” which has often presented attractive buying opportunities for long-term equity investors. US recession risks appear contained, and the current oil price shock impacts Americans less severely than in past eras, thanks to the country’s status as a net energy exporter and historically low household energy spending.
That said, the recent pullback has inflicted some technical damage on stock markets. Weakness in the financial and consumer discretionary sectors stands out as a particular concern, and broader market uptrends may require improvement in these areas before resuming. Valuations have moderated, but fundamentals have deteriorated as well—most notably with the latest GDP release. The advance estimate for fourth-quarter 2025 showed real GDP growing at just 1.4% annualized, well below consensus expectations around 2.8-3.0%. Revisions are common and could adjust this figure, but we’ll be watching closely for signs of strengthening before anticipating significant upside in major stock indices.
Of course, your investments likely extend well beyond the S&P 500. While large-cap US stocks have been essentially flat since October, small-cap and foreign equities have shown strength. Combined with bonds and select alternatives, these asset classes help mitigate volatility and offer potential to enhance returns over time.
Overall, we see the current landscape as one that demands vigilance—especially around the timing of any de-escalation—rather than outright panic. Across expert analyses, base cases point to transitory, manageable effects if the conflict remains contained, though elevated tail risks justify continued caution. Our portfolios stay diversified, emphasizing quality and resilient sectors while prioritizing fundamentals over short-term headlines. All-in-all, I’d say be on the lookout for stocks or sectors that you want to own, as there are opportunities currently, and possibly even more will present themselves over the next few months.
Please feel free to reach out if you’d like to discuss this further, whether through personalized talking points, scenario-based allocation adjustments for conservative or growth-oriented approaches, or deeper comparisons of these perspectives. We’re committed to helping you remain focused on your long-term objectives. In the meantime, enjoy the longer days and warmer weather!
