Market Update: U.S.-Iran Conflict and Portfolio Positioning
WHAT IS HAPPENING
On February 28, the United States and Israel launched Operation Epic Fury, a coordinated military campaign targeting Iran’s nuclear and military infrastructure. Since then, the conflict has broadened across the Gulf region, with missile and drone exchanges involving Kuwait, Bahrain, the UAE, and Qatar. President Trump has indicated the operation could last four to five weeks, though he has acknowledged the timeline may extend depending on developments.
The primary market transmission channel from this conflict is energy markets. Oil prices have already moved higher, with crude rising into the $80 per barrel range as markets price in geopolitical risk around supply routes in the Middle East.
THE OIL QUESTION
The key strategic risk remains the Strait of Hormuz, the narrow shipping corridor through which roughly 20% of globally traded oil moves each day. A sustained disruption to tanker traffic through that passage would push energy prices higher, add inflationary pressure globally, and complicate the Federal Reserve’s interest-rate outlook.
It is worth noting, however, that the United States is less directly exposed to a supply disruption than many other regions. The majority of U.S. crude imports come from Canada and Mexico, not the Middle East. While global prices would still rise and consumers would feel it at the pump, the direct supply shock would fall more heavily on Europe and Asia, which are far more dependent on Gulf energy flows.
There are also policy mechanisms available that can limit the severity of an oil spike if conditions deteriorate. These include releases from the Strategic Petroleum Reserve, naval escorts for commercial shipping, and government-backed insurance guarantees designed to keep tanker traffic moving through contested waters. These tools can help stabilize supply and dampen short-term price spikes.
However, policy responses can only mitigate the impact to a degree. Sustained normalization in energy markets ultimately requires de-escalation of the conflict itself. Oil prices historically retreat once shipping flows stabilize and geopolitical risk premiums fade.
We are monitoring tanker traffic through the Strait of Hormuz daily and watching closely for signs that shipping activity is stabilizing.
HISTORICAL PERSPECTIVE ON GEOPOLITICAL SHOCKS
Periods like this understandably generate anxiety for investors. However, the long-term market record around geopolitical events is surprisingly resilient.
Across 40 major geopolitical shocks over the past 85 years, the S&P 500 has declined less than 1% on average in the first month following the event. Six months later, the market has historically been more than 3% higher on average.
Markets tend to reprice quickly for geopolitical risk, but those shocks rarely produce lasting damage to diversified portfolios unless they materially disrupt global economic activity for an extended period.
What matters most for markets is not the headlines themselves, but the second-order effects: whether energy prices drive sustained inflation, whether central bank policy changes, and whether economic growth begins to slow.
PORTFOLIO POSITIONING
Our portfolios are constructed with diversification specifically to help navigate periods like this.
We maintain exposure to areas that historically act as geopolitical hedges, including positions in defense and aerospace companies, gold, and select energy exposure. These allocations can help offset volatility that may emerge elsewhere in markets when geopolitical tensions rise.
At the same time, diversification across sectors and asset classes remains the primary defense against concentrated geopolitical risk. Our focus remains on maintaining balanced exposure while monitoring for tactical opportunities that may arise if markets overreact in either direction.
BROADER ECONOMIC AND MARKET BACKDROP
Beyond geopolitics, there are several constructive developments within the broader economy. Tax refund season is underway, and refunds are currently running higher than last year. That represents additional capital flowing back into household budgets, supporting consumer spending and economic activity during the first half of the year.
Within the technology sector, recent earnings also reinforced that the AI investment cycle remains strong. Broadcom (AVGO) reported revenue of $19.3 billion, up 29% year over year, with AI-related revenue growing 106%. Management indicated visibility toward $100 billion in annual AI chip revenue by 2027.
Marvell Technology (MRVL) also delivered strong results, reporting $2.22 billion in revenue and raising its long-term revenue outlook as demand for data center connectivity and networking infrastructure continues to accelerate.
The broader takeaway from both companies is that AI infrastructure spending remains robust, particularly across data centers, custom silicon, and high-speed networking — an important tailwind for the technology sector.
WHAT WE ARE WATCHING
Our focus remains on the variables most likely to influence markets in the coming weeks: the trajectory of oil prices, shipping activity through the Strait of Hormuz, and whether energy volatility begins to feed into broader inflation expectations.
We are monitoring developments in the Middle East closely and evaluating whether market movements create risks that need to be managed or opportunities that can be selectively taken advantage of.
Short-term volatility is often unavoidable during geopolitical events, but disciplined positioning and long-term focus have historically proven to be the most effective approach for navigating periods like this.
WATCH: Geopolitical Update: Iran Conflict and Potential Market Implications by Freedom CIO
Kyle Cain CFP®, CIMA®, APMA™