What Happened Last Week
- Energy Ultimatum: President Trump issued a deadline last Thursday for Iran to reopen the Strait of Hormuz or face strikes against energy infrastructure.
- Troops Arrive: A Marine Expeditionary Force arrived in theater as the U.S. continues to gather forces and build pressure on Iran.
- Stocks Fall: Last week saw the worst price action since the war began as investors began to lose patience for further escalation.
What We’re Watching This Week
- Developing Talks: The Administration continues to indicate that it is negotiating with Tehran about a possible end to hostilities.
- Oil Flow: Oil passage through Hormuz remains the north star for market participants amid conflicting reports from the two sides.
- Long End Yields: We continue to look to the fixed income markets for signals on whether inflation fears or growth concerns are driving the narrative.
Investment Management Team’s Views
Markets are showing signs of fatigue as the Middle East conflict remains stuck in an escalation trap. Investor response to last week’s ceasefire headlines was muted, with attention shifting instead to the risk of further escalation and delays in key diplomatic engagement. As the conflict extends, actions have mattered more than rhetoric, and reluctance to take on risk amid weekend headline uncertainty drove the sharpest equity declines since the war began. Interest rates have continued to grind higher globally, with markets now reflecting a modest tightening bias from the Fed. Focus in the bond market is beginning to shift from near-term inflation pressures toward potential headwinds to global growth. The combination of lower equity valuations, higher yields, and a stronger dollar has tightened financial conditions meaningfully. We believe markets may be approaching a point where further tightening begins to weigh on long-end yields, creating a more favorable entry point for duration.
Balanced portfolios have struggled since the war began, but the environment calls for discipline rather than extreme reactions. March is on track to be the most challenging month for the global 60/40 portfolio since 2022, as equities and bonds have declined together. While the comparison is imperfect, the current energy shock has the potential to be more globally disruptive, and starting conditions are better on the inflation-fighting side and worse on the growth dynamics side. In our view, this is not a moment for significant portfolio changes, but rather an opportunity to apply disciplined risk management and selectively improve portfolio resilience to the range of possible outcomes.
The week ahead will bring a dense run of economic data, though its impact will be secondary to geopolitical developments. Manufacturing data, consumer confidence, retail sales, and Friday’s March jobs report will provide important signals on growth and labor market momentum. Under normal conditions, this would offer a clear read on the economic trajectory. In the current environment, however, markets are likely to interpret the data through the lens of the ongoing conflict and tightening financial conditions. The reaction function appears asymmetric, with downside surprises likely to amplify growth concerns, while stronger data may struggle to shift sentiment as long as energy markets remain the primary driver.