Dear Clients and Friends,
We are writing to you this morning as U.S. markets prepare to open into significant volatility. Crude oil has surged past $100 per barrel for the first time since 2022, briefly spiking above $119 overnight before pulling back to around $103, as the U.S.-Israeli conflict with Iran enters its second week with no signs of de-escalation. Stock futures are pointing to a sharply lower open, with Dow futures down roughly 500 points (about 1.1%), and S&P 500 and Nasdaq futures each declining approximately 1%. The Dow had fallen more than 1,000 points overnight before paring losses this morning.
We want to walk you through what is happening, what has changed over the weekend, and, most importantly: how we are thinking about it.
WHAT’S DRIVING THE MOVE
The Strait of Hormuz, which normally handles roughly 20% of the world’s seaborne oil trade and 20% of global LNG supply, remains effectively closed to tanker traffic. Since the conflict began on February 28, Iranian retaliatory strikes have damaged energy infrastructure across the region, including a major refinery in Saudi Arabia and LNG facilities in Qatar. Multiple Gulf producers have now begun cutting output: Kuwait confirmed production cuts over the weekend, Iraqi output has reportedly plunged approximately 70%, and Saudi Arabia announced further reductions this morning.
The result has been extraordinary: WTI crude surged from $67 before the conflict to over $103 as of this morning, an increase of more than 50% in nine trading days. Overnight, prices briefly touched $119 before retreating on reports that G7 finance ministers are discussing a coordinated release of strategic petroleum reserves.
The economic backdrop adds to the concern. Last Friday’s February employment report showed the U.S. economy lost 92,000 jobs, sharply missing expectations of 55,000 jobs added, with unemployment rising to 4.4%. The 10-year Treasury yield has climbed to 4.17%, up from 3.96% just a week ago, as investors weigh inflation risk from surging energy costs. The VIX volatility index has topped 30 for the first time since the tariff-driven sell-off last April. Last week, the Dow fell 3% (its worst week in nearly a year), the S&P 500 dropped 2%, and the Nasdaq declined 1.2%.
In short, markets are pricing in the risk of a stagflationary environment, rising costs colliding with weakening growth, which could complicate the Federal Reserve’s path on interest rates. The CME FedWatch tool currently shows a 97% probability the Fed holds rates steady at its March meeting.
HOW WE’RE THINKING ABOUT IT
First, this is precisely the kind of environment our portfolios are designed to navigate. We don’t build diversified, multi-asset portfolios because calm markets require it, we build them because turbulent ones do. Our allocations to high-quality fixed income, our energy-aware positioning, and our disciplined rebalancing protocols exist for moments like this.
Second, history offers important perspective. Every major geopolitical crisis of the past 35 years: both Gulf Wars, the Libya conflict, and the Russia-Ukraine war all produced sharp initial sell-offs followed by meaningful recoveries. In each case, 12-month returns from the onset of conflict were strongly positive, often significantly so.
Third, and most fundamentally: your financial plan is built for years and decades, not days and weeks. We design portfolios to absorb exactly these kinds of shocks without requiring you to make reactive decisions under pressure. The investors who fare worst in environments like this are almost always those who abandon their discipline when it matters most.
WHAT WE’RE WATCHING THIS WEEK
Several developments could shift the trajectory in either direction. The G7 finance ministers are meeting this morning to discuss a potential coordinated release of strategic petroleum reserves; reports of this discussion alone pulled oil back from $119 to $103 overnight. On the data front, Wednesday’s Consumer Price Index and Friday’s Personal Consumption Expenditures readings will be closely watched, though neither will yet capture the full impact of the recent oil surge. On the earnings front, Oracle and Adobe report this week.
We are monitoring the situation in real time and evaluating whether the dislocation creates any rebalancing opportunities. We will communicate if we make any adjustments. In the meantime, your portfolio’s diversification is doing what it is designed to do.
If you have questions, concerns, or would simply like to talk through what this means for your specific situation, please don’t hesitate to reach out. That’s what we’re here for.
With confidence in the plan,
David J. Labourdette, RICP®, CRPC®
Partner – Wealth Advisor
