What Happened Last Week
- De Facto Hormuz Closure: Global oil supply was severely curtailed by increasing military action in the region.
- Escalating Combat: Last week, the U.S. and Israel steadily increased the pace and intensity of kinetic strikes.
- Labor Weakness: A weak payroll data print last week further dampened already poor sentiment.
What We’re Watching This Week
- Oil Prices: Oil prices remain the key metric for global investors, as markets continue to assess the developing situation.
- Credit Markets: We’re watching for signs of further deterioration in credit sentiment, economic sensitivity, and performance.
- Price Action: Positioning continues to influence investor behavior, with rotation into laggard sectors.
Investment Management Team’s Views
The de facto closure of the Strait of Hormuz put oil firmly at the center of last week’s market moves. West Texas Intermediate (WTI) crude oil surged more than 35%, its largest weekly gain on record. However, longer-dated futures indicate that prices may normalize in the medium term. Echoing the start of the Ukraine War in 2022, equities declined last week, with international markets and cyclical sectors such as materials leading the decline, while bond yields rose amid renewed inflation concerns. The dollar also strengthened sharply, behaving increasingly like a petrocurrency given the U.S.’s status as a net energy exporter. If oil prices remain elevated, investors may need to reassess expectations for stronger global growth in 2026. That said, parallels to 2022 may be limited: the broader global implications of this conflict could increase pressure for a quicker resolution.
Private credit concerns, a surprisingly weak nonfarm payrolls report, and stretched investor positioning all weighed on sentiment and added to last week’s volatility. While the jobs report contained known distortions, the headline softness still dents the growth narrative at the margin. Banks held up better than expected despite persistent headlines around private market valuations, perhaps reflecting the sector’s earlier rerating lower during earnings season. Positioning dynamics were also evident across markets. International equities and small-caps declined more than the higher-quality mega-cap U.S. technology complex. The Nasdaq 100 outperformed the average S&P 500 stock by the widest margin since October 2025. Meanwhile, software stocks and bitcoin, two themes under heavy pressure this year, staged rebounds, while gold declined as investors harvested gains to fund other positions.
Developments in the Middle East will remain the dominant driver of markets in the week ahead. Investors will be watching closely for any changes in shipping through the Strait of Hormuz and the broader trajectory of the conflict, as sustained disruption to energy flows would carry clear implications for inflation and growth expectations. The economic calendar, including the February CPI report, will take a back seat to geopolitical developments. Corporate news will still matter at the margin, with Oracle’s earnings offering a useful readthrough on enterprise software demand and, indirectly, the private credit concerns that captivated investors before the strikes against Iran began.