The recent market volatility continues to be dominated by the Middle East conflict involving Iran, with the most immediate and significant headwind being the sharp surge in oil prices. Brent crude has climbed dramatically since late February 2026—often trading above $100-$115 per barrel in recent sessions (reaching highs near $119 intraday on March 19)—driven by disruptions in the Strait of Hormuz. This critical chokepoint, through which roughly 20% of global oil flows, has seen severely reduced tanker traffic due to threats and restrictions, fueling supply fears and pushing energy costs higher.
A Shift in Expectations: Rates and Sentiment
This energy shock has compounded another key pressure: a jump in interest rates. Since the conflict escalated, the 10-year U.S. Treasury yield has climbed toward 4.3% as markets price in heightened inflation risks.
Crucially, we are seeing a major shift in market expectations:
- The "No Cut" Reality: Investors have largely moved away from factoring in Federal Reserve rate cuts for the near term. Persistent energy-driven inflation has forced a repricing where the market now anticipates a more hawkish stance and a "higher for longer" environment.
- Negative Sentiment: Current investor sentiment has become very negative. While this reflects the gravity of the geopolitical situation, it also means a significant amount of "bad news" is already priced into current valuations.
As of March 20, 2026, the S&P 500 has pulled back roughly 5-6% from recent highs, trading around the 6,550-6,600 levels. While we should expect further drawdowns if the conflict escalates, the market is actually holding in remarkably well given the scale of the headwinds.
Putting Volatility into Perspective
While we are not suggesting a "bottom" is officially in, it is important to recognize that current behavior is well within historical norms:
- Normal Drawdowns: The average peak-to-trough drawdown in any calendar year—even in positive years—is around 12-15%. At about 6% down from peaks, this remains a typical market correction.
- The 2011 Parallel: History shows that high oil prices do not necessarily doom equities. In March 2011, Brent crude broke above $90 and averaged $114 through September 2014 (inflation-adjusted to $135+ today).
- The 53.8% Gain: During that exact 2011-2014 period of elevated energy costs, the S&P 500 rose from roughly 1,300 to 2,000—a 53.8% return. This proves equities can advance amid energy spikes when corporate earnings and productivity remain in play.
The Path Forward
The duration of the current pressure hinges on oil dynamics. The longer disruptions persist in the Strait of Hormuz, the more prolonged the strain on stocks and growth. However, because so much negativity is already priced in, any easing of the conflict or move toward resolution could spark a swift counter-trend rally.
Geopolitical events can drag on unpredictably, but the long-term outlook remains constructive. Equity markets have historically rewarded disciplined investors who weather these cycles. We continue to monitor developments closely while emphasizing patience and diversification. Our goal remains to ensure your portfolio is positioned for where the world is going, not where it has been.
Matt Goldstein
Chief Investment Officer ยท Exit Wealth®
All opinions expressed in this newsletter is for general informational purposes and constitutes the judgment of the author(s) as the date of the newsletter. The opinions and views expressed by the author are personal and based on economic or market conditions at the time of publication. Actual economic or market events may turn out differently than anticipated. Nothing in this material is intended to serve as personalized investment, tax, or insurance advice. These opinions are subject to change without notice and are not intended to provided specific advice or recommendations for any individual.
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