What Happened Last Week
- Hormuz Remains Closed: The Strait of Hormuz remains closed to Western-aligned oil tankers.
- Capabilities Increase: Last week, the U.S. began to deploy additional military assets to the Persian Gulf.
- In-line Inflation: A benign inflation report added to the economic mosaic last week as investors assessed the risk landscape.
What We’re Watching This Week
- Oil Prices: The strategic release of oil reserves has not yet brought relief to oil prices, as the timing of the rollout is seen as key.
- Fed Response: The Fed and other global Central Banks will meet for the first time since the nascent conflict began.
- Global Diplomacy: President Trump is attempting to rally allies to reopen the Strait of Hormuz and restart oil flows from the region.
Investment Management Team’s Views
With the Strait of Hormuz effectively closed, oil prices have become the clearest gauge of whether the geopolitical shock will translate into sustained economic disruption. Strategic reserve releases coordinated by the International Energy Agency (IEA) attempted to stabilize markets, but investors largely viewed them as a temporary bridge rather than a solution if shipping routes remain constrained. The market response followed a familiar pattern. Equities drifted lower, Treasury yields rose on renewed inflation concerns, and the dollar strengthened as both a safe haven and a beneficiary of the U.S.’s net energy exporter status. Gold also struggled to gain traction as dollar strength offset traditional geopolitical demand. Until oil prices stabilize or shipping through the strait resumes, markets are likely to remain highly sensitive to developments in the conflict.
A softer economic backdrop and crowded positioning added to last week’s volatility. Recent labor data and downward revisions to growth suggest the economy entered this geopolitical shock from a slightly weaker starting point than previously assumed. Inflation readings have been more stable, but the surge in commodity prices complicates the policy outlook and raises the risk that inflation pressures could reaccelerate even as growth slows. Markets have nevertheless shown some nuance. Technology leadership has held up better than the broader market, and pockets of speculative risk-taking remain intact. Positioning dynamics also remain important, with investors selectively reducing cyclical exposures while maintaining conviction in areas tied to structural themes such as AI. The key question for investors is how policymakers balance softer growth against renewed inflation risks.
The week ahead will focus on policy signals and clarity around the energy response. Investors will look for greater detail on the timing and sequencing of the IEA’s coordinated reserve release as markets assess whether additional supply can meaningfully offset the disruption to shipping through the Strait of Hormuz. The Fed meeting will also be a focal point, less for the expected unchanged rate decision and more for how policymakers frame the growth-inflation trade-off in their updated projections and dot plot. A large number of global central banks are also scheduled to meet, including the Bank of Japan, European Central Bank, and Bank of England, adding another layer of policy signals for investors to interpret.