The S&P 500 peaked in late January at just over 7,000 while gold touched $5,595 per ounce. The Iran war-induced volatility caused a nearly 10% drawdown on the S&P 500 from its peak, closing -4.3% as of quarter end.
On February 28th, the U.S. military launched Operation Epic Fury in coordination with Israel with the goals of preventing Iran from developing nuclear weapons and regime change. The conflict sparked a sharp oil price shock. Crude oil prices skyrocketed from $65 a barrel to $118 in a matter of days. Prices have retraced to the mid $80s per barrel on Iran’s announcement that the Strait of Hormuz would fully reopen during the ceasefire period and was likely encouraged by the U.S. naval blockade. However, unfettered passage through the strait remains unresolved and a major obstacle to peaceful resolution.
Fixed income markets were also rattled by the war. For example, the two-year Treasury has ranged from a low of 3.38% as investors rushed to safety, to as high as 4.00% as the conflict drew on and inflation worries mounted. Significant volatility was also seen in longer term Treasury rates that counterintuitively spiked in yield during the global market rout. Bonds have now settled with the 10-year Treasury trading around 4.20%, remarkably back to where yields began 2026 and before the Venezuelan and Iranian military actions began.
Inflation averaged 2.7% in 2025, and was just 2.4% in the first two months of 2026, then jumped to 3.3% in March as the oil shock filtered into the economy. Unemployment has also been edging higher this year to 4.3%.
As of this writing, the S&P 500 has surprisingly surpassed 7,100, marking a ferocious rally of over 12% from the March 30th low of 6,317. An upward move of this magnitude in just 14 trading days is unprecedented. The Iran war has yet to be fully resolved but the market has looked ahead to optimism about corporate earnings and more attractive price earnings multiples as a signal to get further invested.
Warren Buffet often quotes legendary value investor Benjamin Graham: “short term, the market is a voting machine driven by emotions and headlines. But long term, it is a weighing machine, driven by fundamental business value.” It appears that March 30th was the peak voting machine day as panic translated into maximal selling. Now we are in the weighing machine phase of 2026, with the scale pointing upward toward resolving geopolitical shocks and back to the basics of long-term investing fundamentals. We were glad to have been in contact with so many of you during this tumultuous period. Let’s stay in touch, we are always available.
