Watching the Middle East Carefully
In light of the ongoing military operations by the U.S. and Israel against Iran, we wanted to reach out with a brief update on how we are viewing these developments through the lens of your investments.
While the escalation is a tragic development for the region, history suggests that markets often separate short-term geopolitical "noise" from long-term corporate earnings. Here is our current take:
Energy Prices & Inflation: We expect a temporary spike in energy prices. WTI and Brent crude have already seen significant upward movement as oil markets price in the risks associated with the Strait of Hormuz. While this creates a short-term inflationary bump, it is often a "risk premium" that subsides once the scope of the conflict is understood.
Market Resilience: Despite the headlines, the fundamental drivers of the U.S. economy—corporate earnings and profit margins—remain robust. Historically, the S&P 500 has proven remarkably resilient to Middle East conflicts. In most cases, the index has seen positive returns six to twelve months following an initial strike.
Earnings over Emotion: The S&P 500 is currently supported by strong 4th-quarter earnings and record profit margins. While we may see "risk-off" volatility in the coming days, US companies' ability to generate profit generally outweighs the temporary impact of higher input costs.
Our Perspective: We are monitoring the situation closely but believe that staying the course is the most prudent path. We view this as a period of heightened volatility rather than a structural shift in the bull market's trajectory.
As always, we are honored and grateful for the trust you have placed in Oarsman Capital. A core tenet of our firm is that trust must be earned every day as we oversee the investment of your assets. Please don't hesitate to reach out if you would like to discuss your portfolio or the markets, particularly if any aspect of your personal situation has changed.
Your Oarsman Capital Team