Below is our current market perspective in light of recent escalation in geopolitical tensions involving Iran, and what it means for both your near-term portfolio outlook and longer-term investment horizon.
Current Market Reaction and Near-Term Risks
Global markets have responded sharply to conflict developments. Equity indices in the U.S., Europe and Asia experienced notable declines this week amid rising geopolitical risk, with oil prices surging on fears of disruptions to energy supplies.
Key risk channels include:
- Energy price shocks: Oil benchmarks have climbed materially as markets price the possibility of supply disruptions through critical transit routes such as the Strait of Hormuz, through which 20% of the world’s daily oil and gas passes.[i]
- Safe-haven flows: In response to uncertainty, investors traditionally rotate toward assets perceived as defensive — including Treasuries, gold, and certain consumer staples — while risk-sensitive sectors often underperform in the near term.[ii]
- Market volatility: Major equity indices have pulled back over recent sessions, and volatility — especially in energy, industrials, and travel sectors — has increased in response to headlines and shifting investor sentiment.[iii]
In the very short term, these developments have the potential to weigh on risk assets, especially if the conflict widens or becomes prolonged beyond initial market expectations.
Historical Context: What Past Conflicts Suggest
History shows that geopolitical shocks often produce sharp short-term market reactions, but limited long-term deterioration in broad equity indices absent a major economic downturn:
- Research on past geopolitical conflicts — including the 1990s Gulf War and more recent Middle East tensions — typically finds initial volatility followed by market stabilization and recovery, provided economic fundamentals remain supportive and energy supply disruptions are contained.
- In most cases when oil has spiked amidst an equity selloff, US equity markets have recovered within a year.[iv]
Therefore, near-term risks should be viewed through a dual lens: immediate price and sentiment effects versus underlying economic and earnings resilience.
Economic Backdrop: U.S. Growth, Employment, and Inflation (2025 Climate)
Amid geopolitical turbulence, the broader U.S. economic backdrop remains a critical stabilizing influence on markets. While economic data through 2025 and into 2026 showed some moderation, data remains positive:
- GDP growth in late 2025 decelerated, with the fourth quarter expanding at roughly 1.4%.[v]
- Annual U.S. GDP growth in 2025 was about 2.2%, slower than pre-pandemic averages but still expansionary.[vi]
- Inflation trends moderated over the year, with headline and core price pressures easing toward central bank targets — although not yet fully converged to 2%.[vii]
- Employment remained reasonably robust through early 2026, with January jobs gains stronger than expected and unemployment steady near historical lows.[viii]
This combination of moderate growth, steady labor market conditions, and inflation pressures has supported resilience in asset prices even as investors digest geopolitical news flows.
Corporate Earnings Trends: U.S. and Global
In assessing the current health of businesses — beyond macro indicators like GDP, employment, and inflation — corporate earnings provide a key signal of market resilience. Our analysis shows that, despite geopolitical risks, earnings have generally held up well and — in many cases — exceeded expectations, helping to support equity valuations amid market volatility.
U.S. Corporate Earnings Are Showing Strength
Recent reporting seasons have revealed broadly positive results from U.S. companies:
- According to The Wall Street Journal, a higher-than-average percentage of S&P 500 companies have beaten earnings expectations with guidance that suggests continued resilience[ix]
- Projections from Wall Street strategists highlighted by Barron’s suggest S&P 500 earnings per share could climb modestly in 2026, potentially above prior consensus forecasts, helping to underpin stock valuations.[x]
- The Wall Street Journal has also noted that earnings growth statistics through late 2025 and early 2026 show double-digit profit increases at many large U.S. companies, underscoring broad fundamental strength despite mixed price action in equity indices.[xi]
These results argue that corporate America has thus far translated stable economic activity into profitable operations, with companies often managing to exceed analysts’ forecasts across a wide range of sectors (not just in mega-cap technology).
International Earnings Have Been Mixed But Outlook is Positive
Internationally, earnings trends are more nuanced but still constructive:
- Narrowing growth gap: Research from global asset managers, including JP Morgan Asset Management, indicates that international earnings growth rates are expected to narrow the gap with U.S. earnings in 2026 as manufacturing and economic activity strengthen outside the U.S. and tariffs/stability improve.[xii]
- Emerging and developed markets outside the U.S. have shown pockets of earnings resiliency, particularly where consumer demand, manufacturing activity, or export strength support revenue growth.
These global earnings outcomes align with the view from major asset managers that earnings trajectories abroad remain an important driver of global equity performance, even if regional differences persist.
What This Means for Investors
Strong corporate earnings — especially when companies consistently outpace expectations — provide a foundation that can help mitigate near-term market volatility. While geopolitical tensions (like the conflict involving Iran) may weigh on sentiment and risk assets in the short run, underlying corporate earnings and profitability are the biggest drivers of long-term stock price appreciation.
Base-Case vs. More Extreme Scenarios
We consider two plausible frameworks:
Base-Case Scenario
- Conflict remains geographically contained, energy markets calm after initial spike, and global supply chains adjust.
- Markets experience short-lived volatility but rebalance, with risk assets recovering as economic fundamentals reassert themselves.
- Central bank policy stays data-dependent — neither highly restrictive nor overly accommodative — reflecting stable yet modest growth and inflation dynamics.
More Extreme Scenario
- Conflict broadens or interrupts key energy exports or trade routes.
- Oil prices spike persistently, triggering renewed inflation pressures and forcing central banks to delay easing or tighten policy, which could weigh on equities and credit markets.
- Market correlations rise, defensive sectors outperform, and risk premia widen.
While the extreme outcome is lower probability, it cannot be dismissed and underscores the importance of prudent portfolio positioning.
Portfolio Implications: Diversification and Liquidity
Given these dynamics, our core investment principles remain:
- Diversification
Diversification helps smooth returns and reduce concentration risk. A diversified mix across major asset classes can help weather volatility and capture returns as markets normalize:
- Equities (domestic and global)
- Fixed income (Treasuries, investment grade, etc.)
- Alternative exposures (commodities, real assets)
- Near-Term Liquidity Planning
Maintaining a degree of liquidity allows you to:
- Meet cash needs without forced selling in downturns
- Take advantage of strategic opportunities when valuations dislocate
- Preserve optionality in uncertain environments
Areas such as shorter-duration fixed income and cash equivalents serve as buffers against near-term liquidity stresses.
Closing Thoughts
While geopolitical risk — including the unfolding situation in Iran — can dominate headlines and influence near-term asset prices, history and current economic fundamentals suggest that broad market recoveries typically follow once clarity emerges and economic growth holds stable. In the interim, diversification and proper liquidity planning are paramount.
[i]Reuters: Iran vows to attack any ship trying to pass through Strait of Hormuz
[ii]The Economic Times: Global Markets | Wall Street turns to ‘Haven-First’ strategies amid Iran attacks
[iii]The Guardian: Stock markets slump amid Iran war as gas prices jump 30% to three-year high
[iv]EIA: Crude oil prices fell in 2025 amid oversupply
[v]Barrons: Government Shutdown Hurt Economy More Than Expected. GDP Growth Was Just 1.4%.
[vi]The Wall Street Journal: Economic Growth Slowed in Fourth Quarter, Hurt by Government Shutdown
[vii]The Wall Street Journal: The 2025 Inflation Numbers Are Finally In. Here’s the Good and Bad News.
[viii]Kiplinger: Job Growth Sizzled to Start the Year. Here's Why It's Unlikely to Impact Interest Rates
[ix]The Wall Street Journal: Companies Are Reporting Earnings Beats at the Highest Rate Since 2021
[x]Barron’s: Earnings Could Push the Stock Market Higher. Too Bad About Everything Else.
[xi]The Wall Street Journal: Wall Street Expects the Market to Keep Rallying in 2026 Despite Lofty Valuations