As we close the quarter, geopolitical risk has moved to the forefront of global markets. What began as targeted military strikes on weapons and launch facilities has escalated into direct attacks on energy infrastructure—not only in Iran, but across key parts of the Middle East. That shift materially changes the macro landscape.
Markets are not just reacting to conflict—they are reacting to the growing probability of sustained supply disruptions. The difference matters.
Energy Infrastructure Now at the Center
Energy assets are no longer peripheral to the conflict—they are central targets. Damage to oil production, refining capacity, LNG facilities, and export terminals have meaningful consequences that cannot be reversed overnight. Even in a best-case scenario involving an immediate ceasefire and end to hostilities, rebuilding energy infrastructure takes months, not weeks.
That reality suggests oil and natural gas prices are likely to remain elevated above pre-war levels.
It is also important to remember that the Strait of Hormuz is not simply the world's most important oil chokepoint. In addition to carrying roughly 20% of global oil supply and 20% of global LNG trade, it is also a vital corridor for nearly 10% of the world’s primary aluminum output, roughly one-third of global seaborne fertilizer shipments, and a range of petrochemicals, sulfur, methanol, and other essential industrial inputs. A prolonged disruption would likely trigger sharp increases not only in energy prices, but in food and industrial input costs as well, while raising the risk of shortages across metals and chemicals and further straining global transportation, construction, agriculture, and manufacturing supply chains.
Equity Markets: A Benign Decline—So Far
The S&P 500 has broken below its 200-day moving average. So far, the decline has been relatively orderly and, in my view, benign. That may sound reassuring—but it actually increases my concern.
Sustainable market bottoms are typically marked by panic, forced liquidation, and capitulation. We are not seeing that. Measures of breadth are weaker than they were several months ago, and yet sentiment indicators—such as the VIX futures curve—do not show the kind of inversion associated with true fear-driven selling.
In fact, near-term volatility pricing has normalized compared to earlier in the conflict. That suggests complacency rather than capitulation.
At the same time, one of the strongest sources of equity demand in recent years—corporate share buybacks—is set to diminish as we enter earnings blackout periods. When a major liquidity provider steps away during a technically vulnerable period, downside risk increases.
Absent a clear catalyst for de-escalation, I believe the market remains vulnerable to the downside.
The Logistical Light at the End of the Tunnel
From a timing perspective, we believe there is a compelling case that the war with Iran—and any further selloff in risk assets—will likely run its course this month or by early May at the latest, primarily because of logistical pressures.
Consider the following (emphasis added):
Over 11,000 munitions in 16 Days of the Iran War: ‘Command of the Reload’ Governs Endurance
Significant numbers of advanced munitions have been expended, revealing that battlefield dominance matters less than the industrial capacity to replenish critical stockpiles.
If the war in Ukraine was a wake-up call for the Western defense industrial base, the first 16 days of the Iran conflict are a fire alarm signaling a crisis of endurance. The intense consumption of advanced munitions during Operation Epic Fury has revealed a critical vulnerability: a strategically ruinous cost-exchange ratio that the West’s industrial capacity is not prepared to sustain.
While American and Israeli forces achieve some tactical success by striking thousands of targets, the wider coalition is also downing drones and intercepting missiles by expending multi-million-dollar missiles that cost a fraction of the price. These tactics have ‘astonished’ Ukrainian military advisors deployed to the region because they have observed coalition air defenses ‘firing thoughtlessly…’
While the war could proceed with other munitions, this implies accepting greater risk for aircraft and tolerating more missile and drone ‘leakers’ damaging forces and infrastructure. The precariousness of this ‘empty bins’ issue could possibly explain why President Trump is already suggesting the ‘winding down‘ of the Iran war; it could take years to replace what was expended in only 16 days.
While the defense industrial base is producing most of these munitions at present, they are incredibly complex and difficult to surge, meaning it will likely take at least 5 years to replenish the 500 plus Tomahawk missiles already fired in the war.
Table 3. Payne Institute modelled estimates of when coalition forces run out of munitions at the current rate of daily salvos as of 24 March 2026. Source: Payne Institute for Public Policy.
In light of the depletion dates above, is it any wonder in President Trump’s address to the nation on April 1st that he expects to complete all of their objectives in the coming 2-3 weeks? We believe the US will withdraw its forces this month and leave the fate of the Strait of Hormuz to the rest of the world. What we do not know is between now and then if the US will put boots on the ground for strategic operations such as securing Iran’s enriched uranium.
The Greater Risk: Sovereign Bond Markets
While many investors are focused on equities, my greater concern lies in sovereign bond markets.
Persistently elevated energy prices feed into headline inflation. If inflation remains sticky or reaccelerates, bond yields could break out from the relatively contained range they’ve traded in since late 2023.
We are already seeing signs of stress. U.S. long-term Treasury yields are pressing toward the upper end of their range, and UK yields are threatening multi-year highs. A decisive breakout in global sovereign yields would significantly increase debt servicing costs and strain government finances worldwide.
The sovereign bond market dwarfs private credit in both size and systemic importance. Instability there would ripple across all asset classes, including equities, currencies, and credit markets.
The relative calm in bonds over the past few years has been a key pillar supporting risk assets. If that calm is disrupted, the spillover effects could be substantial.
Portfolio Positioning: Cash Is King
With the end of the war potentially in sight, we reduced our energy positions across all accounts this week. Our guiding principle was simple: do not let perfect be the enemy of good.
Could energy stocks move higher from here? Certainly. However, this presented an attractive opportunity to sell into strength and raise cash, allowing us to take advantage of future opportunities. Historically, oil tends to decline near the peak of geopolitical conflicts—not necessarily at their conclusion.
If we are correct that the conflict is nearing its peak, we believe downside risk now outweighs upside potential for energy stocks. As a result, we felt it prudent to lock in gains.
Our original thesis for overweighting energy in late 2025 was that the sector would outperform over the following 12–18 months as the U.S. economy strengthened. Those expected returns were realized in less than six months. Now, with the economy potentially slowing due to an energy shock, we believe reducing exposure is appropriate.
Recent portfolio adjustments have resulted in elevated cash levels, positioning us well to capitalize on market volatility. We have identified a list of high-quality companies and will look to deploy capital opportunistically in the coming weeks.
Commodities: Structural Opportunity Remains
While we are defensively positioned overall, we maintain a bullish long-term outlook on commodities and a bearish view on the U.S. dollar.
Late last year, we reduced our precious metals exposure following a strong rally and rotated into energy, where valuations were more compelling. Since then, precious metals have declined while energy has rallied. We are now preparing to redeploy capital from energy back into precious metals.
We continue to follow Warren Buffett’s principle: “Be fearful when others are greedy and greedy when others are fearful.” When enthusiasm for precious metals was high, we trimmed positions. When energy was out of favor, we accumulated. We are now reversing that positioning—selling energy into strength and preparing to buy precious metals during weakness.
Sentiment: A Lack of Fear
One of the more notable features of the current market backdrop is the lack of broad-based fear or meaningful investor capitulation. Even the volatility index—a widely watched measure of market stress—has not yet signaled the kind of near-term dislocation that often accompanies more durable market bottoms.
Fear spiked earlier in the conflict but has since moderated, even as equities have drifted lower.
This combination—technical deterioration, reduced liquidity, escalating geopolitical risk, and muted fear—creates conditions where markets remain vulnerable to further downside. We believe the market still has unfinished business in the weeks ahead and will use any weakness as an opportunity to deploy cash.
Final Thoughts
We are in a period where escalation—not resolution—remains the dominant trend. Energy markets are under strain. Sovereign bond markets are at risk of renewed pressure. Equity markets are technically fragile, yet not washed out.
Until we see meaningful de-escalation and stabilization—particularly in energy infrastructure and global bond yields—we believe caution is warranted.
Our approach remains disciplined: preserve capital, maintain flexibility, hold strategic exposure to areas of structural strength—particularly commodities—and wait for clearer signals before increasing risk.
In uncertain times, prudence is not pessimism. It is preparation.
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