Economic and market signals stay steady despite oil shocks

John Maynard Keynes has been credited with saying, “When the facts change, I change my mind. What do you do sir?” There’s no actual proof that he said it, but Keynes was never afraid to change his mind. In fact, there was a longstanding joke that if the British Parliament asked six economists for an opinion on any subject, they always got seven answers, two from John Maynard Keynes.

The facts for the global economy are changing. At the same time, I don’t want to give you two answers to the issues plaguing investors. The problem is that the answer to whether the conflict with Iran has me changing my optimistic view of the global economy and cyclical assets is more dependent on the thinking of the Trump administration, the Israelis, and the Iranians than I would prefer.

So, what facts have changed?

The Strait of Hormuz is effectively closed.¹ Roughly 20% of the world’s oil flows through that passage.² Production in the Gulf states has been reduced significantly,³ both due to direct attacks and because remaining oil storage is limited when barrels can no longer be shipped immediately. The availability of strategic petroleum reserves helps, but only for a limited time. That math is straightforward.

• The world consumes roughly 100 million barrels of oil per day.⁴
• About 20 million barrels per day are now unavailable, the result of the closing of the Straight of Hormuz.⁵
• Strategic petroleum reserves controlled by governments amount to roughly 1.2 billion barrels.⁶
• 1.2 billion divided by 20 million equals 60.

The total strategic reserve covers about 60 days of the missing supply. Compounding the challenge is that the International Energy Agency recently announced the release of 400 million barrels,⁷ so the more appropriate number may be 20 days. The Trump administration is also planning to issue temporary waivers of the Jones Act, requiring American-built ships to be used to transport goods between US ports as part of its effort to stop surging oil prices.⁸ That could potentially help on the margin, but it’s not a fix to the current issues. Whether the conflict lasts longer than 20 to 60 days is anyone’s guess. If it does, then the facts truly change. In that scenario, our core views for 2026 that cyclical assets would outperform the broad market and that the US dollar would weaken — which had been working well until the conflict began⁹ — would be severely challenged.

No clear warning signs yet

That brings me to my second answer.

It starts with the likelihood that most investors have a significantly longer-term time horizon than the probable duration of this conflict. It also acknowledges that markets have historically performed reasonably well in the year following peak geopolitical stress around conflicts, provided the economic backdrop heading into them was largely sound.¹⁰ It also requires an honest look at our preferred indicators. They’re becoming more challenged, but they aren’t flashing clear warning signs yet.

• Credit spreads have drifted modestly wider but remain historically tight.¹¹
• Inflation expectations have risen, with the five-year breakeven now above 2.65%, which still falls within a range that can be described as relative price stability.¹²
• The market continues to expect two to three rate cuts from the Federal Reserve this year.¹³
• The oil forward curve adjusted, and prices six months and 12 months out have moved higher, but they remain below spot prices today.¹⁴
• The US dollar has rallied, but it’s still well below its level at the start of 2025.¹⁵

None of this is meant to sugarcoat the current situation, but to acknowledge that the market recognizes that the conflict could end on a moment’s notice. I’m inclined to manage my action bias and not do anything drastic. We’re sticking with our optimistic views, while recognizing that risks to cyclical assets have risen. Consider hedging where appropriate.

Important information

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All data is based on the US dollar.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

The Consumer Price Index (CPI) measures the change in consumer prices and is a commonly cited measure of inflation.

Credit spread is the difference in yield between bonds of similar maturity but with different credit quality.

Duration is a measure of the sensitivity of the price (the value of principal) of a fixed income investment to a change in interest rates. Duration is expressed as a number of years.

The fed funds implied rate is the difference between the spot rate and the futures rate, which is an interest rate that can be calculated for any security with a futures contract.

The Geopolitical Risk Index measures adverse geopolitical events based on a tally of articles covering geopolitical tensions from 10 different newspapers.

Inflation is the rate at which the general price level for goods and services is increasing.

The International Energy Agency (IEA) focuses on areas including data and statistics, training, innovation, and international cooperation.

Option-adjusted spread (OAS) is the yield spread that must be added to a benchmark yield curve to discount a security’s payments to match its market price, using a dynamic pricing model that accounts for embedded options.

The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output. The prices included in the PPI are from the first commercial transaction for many products and some services.

The S&P 500 cyclical indexes focus on the cyclical sectors of the S&P 500, which include industries like consumer discretionary, financials, industrials, information technology, and materials, that are heavily influenced by economic cycles

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

A spot price is the current market price at which an asset is bought or sold for immediate payment and delivery.

A spread in finance is the difference between two related values, such as prices, rates, or yields.

Treasury Inflation-Protected Securities (TIPS) are US Treasury securities that are indexed to inflation.

West Texas Intermediate (WTI) is a type of light, sweet crude oil that comes from the US.

The opinions referenced above are those of the author as of March 13, 2026. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.