Despite the geopolitical volatility of recent years, financial markets have demonstrated remarkable durability. The current conflict involving Iran is the latest test of this strength. Many analysts expect the war to be relatively short-lived, citing the substantial military advantage of the United States over Iran. Furthermore, the Trump administration faces domestic pressure to avoid a prolonged conflict, particularly as voter concerns over affordability mount.
In a decisive move, the 32-member International Energy Agency (IEA) announced a historic 400-million-barrel release from its emergency oil reserves – the largest since its inception in 1974. This release, intended to counter the near-total closure of the Strait of Hormuz, is more than double the size of the 2022 release following Russia’s invasion of Ukraine. Given that approximately 20 million barrels of oil and oil products flow through the Strait daily, the IEA’s action provides roughly 20 days of critical supply relief.
Before this conflict, inflation in many economies had cooled significantly from post-pandemic peaks. Heading into 2026, lower interest rates, fiscal stimulus and an artificial intelligence driven capital spending cycle served as strong tailwinds for economic growth. After a prolonged period of contraction, manufacturing activity in the United States recently turned positive, signaling a recovery in the industrial sector.
S&P 500 companies are projected to deliver 16 per cent earnings growth this year. While the current oil shock has revived concerns of stagflation - stagnant growth coupled with high inflation, especially in oil-importing nations - the underlying corporate fundamentals remain broadly supportive. How much higher energy prices ultimately affect this profit outlook will shape the direction of financial markets.
Our approach remains disciplined and long-term focused, avoiding reactive decision-making. We invest in well-capitalized, financially sound businesses that provide goods and services that are in demand and are trading at reasonable valuations.
