by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the war in Iran. We next review several other international and US developments that could affect the financial markets today, including an interest rate hike by the Australian central bank that could signal similar moves around the globe and a move by President Trump to postpone his upcoming summit with Chinese President Xi.

United States-Israel-Iran: According to the Wall Street Journal late yesterday, Iran’s security forces have launched a new crackdown on domestic dissent aimed at preventing any uprising that could threaten the regime’s power. While the crackdown isn’t yet as violent and lethal as the one in January that killed thousands, it does suggest that the government can still control society and that rising popular unrest is not likely to put an end to the war, at least for the time being.

• In another key development overnight, Israel said it had killed Iranian security chief Ali Larijani, who had been seen as a key force in Tehran’s aggressive military response to the US-Israeli attacks. Tel Aviv also said it killed the commander of Iran’s Basij paramilitary force, which the regime uses to tamp down domestic dissent.
• Separately, the US allies that President Trump has asked to help secure shipping through the Strait of Hormuz are showing varying signs that they aren’t interested. For example, German Chancellor Merz and his defense minister, Boris Pistorius, have rejected the idea outright, with Pistorius saying, “This is not our war. We did not start it.” Japan, Australia, the UK, and France have also indicated they’re unlikely to send navy ships. The news appears to be pushing oil prices some 3.3% higher this morning.

Pakistan-Afghanistan: Hundreds of people are feared dead after an air strike on a hospital in Kabul that the Afghan government blamed on Pakistan. The Pakistani government has denied the allegation of civilian casualties, but the incident nevertheless suggests that the ongoing tensions over cross-border terrorist attacks could blow up into a full-scale war. That would not only mean a second major war in Asia, but because of Pakistan’s arsenal of nuclear weapons, it could also be deeply unsettling for global financial markets.

Australia: The Reserve Bank of Australia today hiked its benchmark short-term interest rate by 25 basis points to 4.10%, marking its second increase in the last two months. In its statement, the RBA said the rate hike was needed to address “the expected inflationary implications of the conflict in the Middle East.” The move could be taken as a harbinger of rate hikes by other major central banks as the Iran war continues to push up global commodity prices.

United States-China: In a press conference yesterday, President Trump said he has asked the Chinese government to delay his summit with President Xi that was set to begin at the end of March. According to the president, he requested a delay of about one month so that he can remain in Washington and manage the Iran war. The delay will prolong uncertainty in US-China trade relations, but the bigger story may simply be that Trump expects the war to last at least through the end of the month — a timeline that could well drive global energy prices higher.

United States-Cuba: As the US continues to essentially blockade energy shipments, authorities yesterday announced a massive failure of the power grid and a nationwide blackout. That means some 11 million people are currently without power. The result is likely to be further domestic protests and more pressure on the government to reach a deal with the US regarding dismantling its communist system and reducing its ties with US adversaries such as China.

US Monetary Policy: The Fed today begins its latest policy meeting, with its decision due tomorrow at 2:00 PM ET. Based on futures trading, investors almost unanimously expect the policymakers to hold their benchmark fed funds interest rate at its current range of 3.50% to 3.75%. The real news may come from Chair Powell in his post-meeting presser. The most market-swaying items he could touch on include whether higher wartime energy prices might require new rate hikes or whether he’ll leave the Fed board at the end of his term as chair.

US Stock Market: The Wall Street Journal reported yesterday that the Securities and Exchange Commission is preparing a rule change that would give publicly listed companies the option to publish their financial reports just twice per year instead of the current quarterly requirement. The change could be proposed as early as next month, at which point it would be subject to a public comment period and then an SEC vote. If finally approved, the change would help firms save money, but at the expense of financial transparency.

US Labor Market: Unionized workers at a key JBS beef-processing plant in Colorado remain on the picket lines today after launching a strike for better pay yesterday. The affected plant reportedly accounts for about 5% of domestic beef consumption, suggesting that a prolonged work stoppage could cut supplies enough to drive up prices. On top of the higher energy prices already evident from the war against Iran, the result could be even higher consumer price inflation and more political headwinds for the Republicans in November’s elections.

US Precious Metals Market: The Wall Street Journal yesterday carried an interesting article noting that several states — including Georgia, Tennessee, Wyoming, and Utah — have now passed or considered legislation requiring them to hold some of their investment assets in gold bullion. The amounts bought so far are small, but the news provides further evidence of how growing geopolitical frictions and the threat of currency debasement are spurring greater demand for precious metals.

US Artificial Intelligence Industry: At AI chip darling Nvidia’s annual developers’ conference yesterday, CEO Jensen Huang announced an array of new products and services aimed at making AI models more efficient and ushering in the age of “inference.” Importantly, Huang also predicted that Nvidia would sell $1 trillion of its current cutting-edge chips, Blackwell and Rubin, by the end of 2027.

• Investors so far seem to be taking Huang’s announcements as signs that the firm can keep innovating and adding value as the AI industry evolves.
• In pre-market trading so far this morning, Nvidia’s stock price is up 0.2% to $183.57 per share.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with an update on the US-Israeli war against Iran and President Trump’s call for foreign nations to chip in with naval forces to restart the flow of oil, natural gas, and other commodities through the Strait of Hormuz. We next review several other international and US developments with the potential to affect the financial markets today, including a preview of this week’s many central bank policy meetings around the world and the start of talks on updating the USMCA trade agreement.

United States-Israel-Iran: President Trump on Saturday called on foreign countries such as China, France, and Japan to send naval forces to the Persian Gulf to help secure commercial shipping traffic through the Strait of Hormuz. The call has produced political headaches for countries as it would put their navy ships at risk for a war they didn’t start. They also may be reluctant to contribute if they feel they can’t rely on the US military coordinating with them. Still, in the interest of easing energy prices, many are mulling whether and how to help.

• Separately, US Energy Secretary Chis Wright yesterday warned that there are “no guarantees” that oil prices would fall in the coming weeks,” despite rosier assessments from the White House.
• Indeed, the Wall Street Journal reported over the weekend that top US energy firms such as Exxon Mobil and Chevron have warned the US administration that energy prices could well keep rising as long as hostilities continue.
• On a more positive note, however, Iranian Foreign Minister Araghchi said yesterday that the strait “is open to everyone, except American ships and those of its allies.” That could suggest that Iran is open to letting some shipping through the strait, although ship owners, crews, and insurers are still likely to avoid the area until the fighting ceases definitively.
• On balance, investors appear to be encouraged by the weekend developments, pushing oil prices lower so far today and giving a boost to US stock index futures.

Global Monetary Policy: Major central banks from the Federal Reserve to the European Central Bank and the Bank of England will hold their latest policy meetings this week, and all are expected to hold their benchmark short-term interest rates unchanged as they gauge the potential impact of the Iran war on consumer price inflation. The Fed will open its meeting on Tuesday and will release its decision on Wednesday at 2:00 PM ET. Investors are nearly unanimous in expecting it to hold its fed funds rate at the current 3.50% to 3.75%.

United Kingdom: In response to the massive jump in natural gas prices touched off by the war against Iran, the British energy industry is reportedly pressuring the government to boost the country’s investment in gas storage facilities. The aim would be to give the UK economy emergency reserves that could help it better weather supply shocks. More broadly, we see the effort as consistent with our view that global fracturing and rising geopolitical tensions will spark more hoarding of natural resources and drive up commodity prices over the longer term.

Cuba: With the US continuing to essentially blockade oil deliveries to Cuba even as it wages its war against Iran, reports show a growing number of Cubans are protesting against their regime. The growing protests suggest the US policy is prompting greater popular unrest, which could potentially encourage further US pressure on Cuba once the US administration can divert its attention from Iran.

United States-Mexico-Canada: The US and Mexico today launch their long-planned review of the USMCA free-trade agreement that was struck in 2020 to replace the previous NAFTA deal. The talks will focus on curbing imports from Asia and other regions, tightening the rules that make products eligible for USMCA benefits, and improving North America’s supply chain security. However, the US administration has indicted its displeasure with the trade deal, so the result could well be a significant weakening of it, to the detriment of Mexico and Canada.

US Monetary Policy: A federal judge late Friday invalidated the Department of Justice’s subpoenas against the Federal Reserve and Chair Powell, accusing the White House of issuing them for political purposes. According to the judge, “There is abundant evidence that the subpoenas’ dominant (if not sole) purpose is to harass and pressure Powell either to yield to the President or to resign and make way for a Fed Chair who will.”

• The DOJ has already said it will appeal the ruling, potentially delaying the confirmation of Kevin Warsh as the new Fed chair.
• That means the Fed is likely to continue holding its benchmark short-term interest rate steady at its current high level. As we have argued in the past, any rate cuts this year are likely to be backloaded in the second half of 2026.

US Private Credit Industry: In new research published today, credit hedge fund Davidson Kempner Capital Management warns that the private capital industry’s problems are far worse than Wall Street has acknowledged, as traditional metrics obscure weaknesses in the leveraged buyout market. The analysis indicates that excessive leverage, weak cash flows, and loose debt contracts have converged to significantly boost the risk of defaults. The news will likely raise further concerns about growing risks in the US financial system.

US Movie Industry: At last night’s Academy Awards ceremony, Warner Brothers production One Battle After Another won six Oscars, including for best picture and best director. The movie beat out Sinners, also from Warner Brothers, which won four Oscars.

China: Retail sales in January and February were up 2.8% from the same period one year earlier, roughly matching expectations and accelerating from a gain of 0.9% in the year to December. Fixed-asset investment in the same period was up 1.8% on the year, beating expectations and reversing part of its 3.8% decline in 2025. Despite the improved figures, however, home sales in the period were down 22.0% year-over-year, reflecting how the lingering effects of China’s real estate bubble continue to weigh on economic growth.

France: In the first round of local elections yesterday, the far-right populist National Rally did well across the country, including in the southern areas it was prioritizing. That sets the party up to sharply increase its local political power after the run-off elections of March 22. The elections are being taken as an indicator of how well National Rally could do in the presidential election next year. If it wins the presidency, France would likely undergo major policy changes, such as embracing Russia in foreign policy and enacting populist economic policies at home.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with our perspective on why private credit exposure to software companies has attracted heightened scrutiny. We then examine how the White House is seeking to ease war-related supply chain stresses. Next, we highlight key market developments, including signs of a potential broadening of the Middle East conflict, rating agency views on software-sector debt, and new consumer efforts to secure tariff refunds. As always, we include a summary of recent US and international economic data releases.

Private Credit & AI: Concerns about private credit are deepening as AI-related risks to software companies weigh on sentiment. On Thursday, JPMorgan Chase announced it would restrict lending to several private credit institutions following a preemptive markdown of loan portfolios, particularly those exposed to the software sector. This tightening follows a turbulent few weeks for the $2 trillion market, with several major funds forced to cap redemptions or offload assets to manage a surge in withdrawal requests.

• JPMorgan’s decision to curb lending to certain private credit funds follows a move to mark down the value of loans linked to those vehicles on a portfolio-by-portfolio basis. Unlike typical markdowns driven by missed interest or principal payments, these adjustments are largely tied to loans made to software companies that the bank views as particularly vulnerable to disruption from advances in artificial intelligence, which has pressured valuations and collateral quality.
• The write-down appears to reflect the bank’s evolving view of AI-related risks. Under lending agreements with the affected funds, the bank can periodically re-evaluate leverage based on the overall quality and valuation of the collateral backing the facilities. In this case, the markdown was applied to a relatively small subset of borrowers and is therefore not considered large enough to pose any meaningful systemic risk.
• JPMorgan’s decision to limit lending underscores that, even if major banks are not the primary lenders in private credit markets, they still provide an important backstop by financing those lenders. Large banks supply critical liquidity to private credit funds through credit lines and other financing facilities, enabling those funds to extend loans, often on more flexible terms than tightly regulated banks can offer directly to borrowers.
• A pullback in this type of bank financing, therefore, points more toward a gradual tightening in overall financial conditions than an immediate deterioration in the underlying quality of corporate debt. However, the optics of the move are likely to compound negative sentiment, especially in the wake of recent stresses in parts of the consumer loan market. In our view, as long as credit remains accessible to private borrowers, any retrenchment by private funds should remain relatively limited in scope.

Resolving Supply Chains: The White House has explored alternative strategies to address disruptions in trade through the Strait of Hormuz, which have pushed crude oil prices above $100 per barrel for the first time since August 2022. The president has called for a temporary suspension of the Jones Act to facilitate additional crude shipments and, in parallel, authorized the purchase of Russian oil cargoes already en route. These measures aim to mitigate rising costs as supply disruptions from the ongoing conflict continue to worsen.

• The Jones Act is a century-old maritime law that requires cargo transported between US ports to move on vessels that are US-built, US-owned, and US-crewed. The proposed 30-day exemption would specifically apply to ships carrying petroleum products and would mark the first such waiver since 2022. The measure is expected to increase shipping capacity and ease bottlenecks by allowing a broader fleet to operate, particularly on routes serving East Coast ports.
• Additionally, mounting concerns over supply disruptions have encouraged the United States to modestly soften its stance on Russia. On Thursday, Washington issued a second authorization allowing the sale and delivery of Russian crude that was already loaded on vessels and stranded at sea. While most of these cargoes are not expected to head to the United States, they are intended to help ease global prices by enabling key buyers such as India to absorb the stranded barrels and reduce competition for new supplies.
• Beyond these measures, the White House is evaluating additional strategies to mitigate the supply-side shocks triggered by the conflict. The Department of Energy has already committed to releasing 172 million barrels from the Strategic Petroleum Reserve, with the potential for further drawdowns. Additionally, the administration is weighing an unprecedented move to intervene in financial markets by directly purchasing oil futures contracts to dampen price volatility.
• White House efforts to stabilize energy prices have created a temporary ceiling on volatility, with $100 a barrel emerging as a key pivot point for Brent crude. However, this stability is fragile. As long as the Strait of Hormuz remains blocked, the persistent deficit in physical supply will force increasingly costly supply chain adjustments, likely worsening the inflationary outlook for the coming months.

War Broadening: The conflict in the Middle East continues to show signs of spilling beyond the Gulf. On Friday, Turkey reported that NATO forces intercepted a third Iranian missile that had entered its airspace. These incidents are likely to reinforce concerns that the war will be prolonged and could draw in additional countries, with any further widening of the conflict likely to put upward pressure on oil prices by heightening the risk of new supply disruptions.

Software Assured? Ratings agency S&P Global has offered some reassurance that the debt backing software firms is unlikely to face broad, sector-wide downgrades. In a report published this week, it said that while AI has the potential to fundamentally reshape parts of the software industry, the impact on credit quality is expected to play out on a case-by-case basis and over a longer period, rather than triggering an immediate, uniform shock.

Tariff Refund: Retailers are facing a new wave of consumer litigation following the Supreme Court’s invalidation of IEEPA tariffs. A proposed class-action suit against Costco asserts that shoppers should receive any tariff refunds the company recovers from the federal government, arguing that higher retail prices effectively forced consumers to pay those duties. This case highlights the broader regulatory and accounting mess following the February ruling, as both the government and private sector struggle to interpret how to process and distribute refunds.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an update on the war in Iran, focusing on rising tensions around the Strait of Hormuz. We then review the February CPI report and assess how the Middle East conflict could shape the path of inflation. Next, we highlight key market developments, including shifts in the US trade strategy and China’s recent incursions into Taiwan’s airspace. As always, we include a summary of recent US and international economic data releases.

Rising Tensions: Trade tensions have escalated following reports that shipping lanes in the Strait of Hormuz are becoming increasingly impassable. On Wednesday, an attack on six oil tankers in Iraqi waters signaled the growing risks for vessels navigating the region. The incident has raised concerns that the war is showing signs of becoming prolonged and that trade throughout the region is likely to remain restricted, leading to a significant rise in oil prices due to renewed fears of a supply shock.

• Rising tensions in the Strait of Hormuz have underscored Iran’s capacity to prolong the conflict well beyond earlier expectations. The latest attacks came about just as the United States had tried to reassure shippers by destroying Iranian mine‑laying vessels, warning Tehran over the use of naval mines, and considering naval escorts to safeguard commercial traffic and keep the waterway open.
• These incidents have reignited fears of prolonged disruptions to trade flows, despite a historic, coordinated effort to stabilize markets through strategic oil releases. On Wednesday, the International Energy Agency said member countries will collectively release 400 million barrels, with Japan initiating the first drawdowns and the United States planning to contribute 172 million barrels from its Strategic Petroleum Reserve.
• Additionally, there are growing signs that Iran is prepared to widen the scope of its attacks to ensure that more countries bear the costs of the war. On Wednesday, the United Arab Emirates reported that it had intercepted another wave of missiles after Iran threatened to target Israeli‑linked banks in the region. US officials have also warned of indications that Iran is considering plotting strikes as far afield as California, underscoring the expanding geographic reach of its threat posture.
• Despite the latest attacks, it appears that Iran may be seeking an off‑ramp from the conflict. Tehran has reportedly signaled a willingness to de‑escalate in exchange for international guarantees that the United States and Israel will halt military strikes on its territory. While this is unlikely to bring both sides to the negotiating table on its own, it does suggest that Iran recognizes it cannot prevail in a direct confrontation and may be looking to limit further escalation.
• While we remain cautiously optimistic that the war will begin to wind down over the next couple of weeks in line with the president’s timeline, we are increasingly mindful that its economic and market aftershocks could persist for months. In our view, this evolving backdrop continues to favor value over growth, and we advocate for maintaining broad diversification away from riskier market segments, particularly as the conflict’s trajectory remains uncertain.

Inflation Risk: The latest CPI report offers fresh evidence that inflation is holding mostly steady but not quite enough to fully dispel concerns about renewed price pressures. According to the BLS, both headline and core inflation held steady in February at 2.5% and 2.4%, respectively, reinforcing the view that some of last year’s inflationary momentum is easing. In a world without the current conflict in the Middle East, this pattern likely would have opened the door to more serious discussions about a potential summer rate cut.

• The modest headline inflation reading reflects gradually easing underlying price pressures, particularly in services, even as some energy components ticked higher. In February, shelter inflation continued to exhibit tentative moderation, with its annual pace the slowest since August 2021. By contrast, the energy index rose for the month, driven by gains in gasoline and natural gas, while electricity prices edged slightly lower after strong increases over the past year.
• The inflation report indicates that price pressures are gradually returning to more normal levels but there are signs that they were starting to lose steam while moving toward the Fed’s 2% target. Shelter inflation has moved back into its typical historical range, and core services inflation, while still slightly elevated, is drifting closer to its longer‑run pace. Goods inflation, which has been influenced by shifting tariffs and supply‑chain costs, also appears to be stabilizing after prior bouts of volatility.

• Renewed turmoil in the Middle East has reignited concerns that supply-chain stress will once again feed into the inflationary pipeline. As higher energy and raw-material costs filter through the production process, core goods prices could face sustained upward pressure. Services may face “cost-push” inflation as energy-intensive services like air travel — currently facing rising fuel, insurance, and rerouting expenses — are likely to face margin pressure due to the conflict.
• The supply chain risks emanating from the Middle East could collide with surging demand pressures stemming from last year’s tax bill. Beyond stimulating household consumption, the legislation’s aggressive investment incentives have triggered a significant capital expenditure boom. The resulting scramble for materials to build AI data centers has already tightened markets for critical inputs like aluminum and energy, a situation poised to worsen as the conflict in the Middle East persists.
• While the current hostilities are contributing to higher inflation, the full magnitude of the impact remains unclear at this time. At present, we do not anticipate a return to the peak inflation levels seen in the post-pandemic era as the current supply-chain disruptions lack the breadth of the 2021–2022 lockdowns. However, the duration of the conflict remains the critical variable. We expect the resulting inflationary pressure to push back the timeline for the Fed to achieve its 2% target, a dynamic that will likely weigh on bonds.

Tariff Wall: The White House is preparing a new trade investigation targeting major partners as it seeks to reimpose tariffs recently struck down by the Supreme Court. The probe will focus on economies with excess manufacturing capacity. While the administration has pivoted from now‑illegal IEEPA tariffs to temporary duties tied to current account imbalances, those measures will expire after 150 days unless Congress intervenes. The new investigation is therefore likely to stoke concerns about renewed tariff hikes and greater trade policy uncertainty.

China’s Moves: Beijing sent warplanes into Taiwan’s airspace on Wednesday in a provocative move that signals rising tensions. The incursion followed a period of relative calm, during which China appeared to scale back such flights after trade and diplomatic talks with the United States. However, the move seems to be a test of what China can get away with while the US is focused on the Middle East, potentially setting a precedent for future actions.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with what Oracle’s earnings signal about the AI investment cycle, then examines how the US’s difficulty in securing passage through the Strait of Hormuz illustrates the challenges of confronting smaller asymmetric adversaries. We next highlight key market developments: the IEA’s reserve release, Google’s provision of AI technology to the Pentagon, and Israel’s expanded Red Sea presence. As usual, the report includes a summary of recent US and international economic data.

AI Maturing: Oracle surprised investors with a stronger‑than‑expected earnings report, though its financial statements also revealed a developing concern. On Tuesday, the company said revenue from its cloud infrastructure business surged 84% to $4.9 billion in the quarter ended February 28, outpacing prior growth of 68% and topping analyst estimates. While these results were warmly received, the release was not without controversy as Oracle’s aggressive AI‑related capital spending has pushed its free cash flow into negative territory for the first time in decades.

• The revenue beat reassured investors that Oracle is starting to turn its substantial AI-related bookings into actual sales. While the company now counts more than 700 AI and cloud infrastructure customers, a significant portion of its remaining performance obligations remains tied to a single partner. OpenAI’s roughly $300 billion cloud infrastructure deal represents a substantial share of Oracle’s reported $553 billion AI-driven backlog.
• Oracle has effectively emerged as a proxy for the broader AI infrastructure trade that rose to prominence last year, driven by investor focus on surging demand for cloud computing and storage capacity. This theme has been cemented by generous data-center tax incentives and supportive federal and state policies, which continue to encourage heavy capital investment while keeping the near-term tax burden low.
• Much of the market’s attention has centered on tech companies’ readiness to build out infrastructure and their tendency to keep raising the bar. Just this quarter alone, Meta, Alphabet, Microsoft, and Amazon signaled as much as $700 billion in combined capital expenditures for 2026 as they race to keep pace with demand. Nvidia, meanwhile, estimates that trillions of dollars’ worth of infrastructure still needs to be built.
• While the AI build-out has delivered strong returns, it has also fueled growing concerns that an industry once considered capital-light is becoming capital-heavy. This shift has drawn scrutiny, as much of the spending has come at the expense of free cash flow and is increasingly being financed by debt. Although deploying cash in this way is often viewed as a sign of confidence in future investment opportunities, it also raises questions about a company’s ability to return capital to shareholders down the line.
• Although we remain confident that tech momentum still has room to run, we suspect that the heavy spending on infrastructure could lead investors to place a higher premium on profitability and strong cash flow. As a result, we could see sharper pullbacks if companies disappoint and a more muted upside if they beat expectations. We continue to believe that diversifying beyond tech could be beneficial for wealth preservation.

Mixed Message: Oil prices remain volatile as the White House continues to send mixed signals about the war’s progress. On Tuesday, President Trump encouraged oil tankers to take the risk of passing through the Strait of Hormuz, a move later reinforced by a US general who said the military was considering ways to escort the vessels. However, market sentiment quickly shifted after reports surfaced that Iran had deployed mines in the strait, prompting the White House to announce that it was not ready to provide naval escorts at this time.

• The controversy over transit within the strait underscores that the US’s continued demonstration of military dominance may no longer be enough to ensure safe passage. Over the last four years, modern weaponry has evolved in ways that enable smaller nations to sustain prolonged engagements. Iran, for instance, has increasingly relied on inexpensive weapons such as drones to strike targets across the region. Ukraine has used similar tactics in its fight against Russia.
• This shift toward low-cost, high-impact warfare has made modern conflicts far less predictable. The resilience of smaller adversaries has made it far more difficult to compel outright, unconditional surrender in modern wars. Rather than seeking to defeat a stronger rival outright, these states can rely on cheap, easily produced weapons to prolong the fighting and steadily raise the political and financial cost of maintaining dominance over a region.
• Iran’s ability to inflict outsized damage relative to its economic and military weight has become a major source of market uncertainty. This is reflected in recent oil price swings, which underscore investor unease as Iran disrupts traffic through the Strait of Hormuz — even after much of its conventional military capacity has been degraded. The underlying concern is that the conflict could broaden to include more countries.
• While we remain cautiously optimistic that the conflict will conclude within the president’s stated four-to-five-week window, we recognize that the probability of a more protracted campaign is rising. This lingering uncertainty is likely to weigh further on market sentiment in the near term, particularly for risk assets. In our view, investors should focus on broad portfolio diversification, which can include exposure to precious metals and value-oriented sectors.

Strategic Reserve: Japan has announced it will be the first country to draw on its strategic reserves in an effort to cool energy prices. This follows a coordinated move by IEA members to undertake the largest collective release of strategic stocks in history to offset supply lost from the blockade of the Strait of Hormuz. While this action is likely to put near-term downward pressure on oil prices, it could also create significant future demand once markets stabilize and reserves need to be rebuilt.

Google Defense Contract: Tech companies are deepening their ties with the Pentagon. Alphabet will provide AI agents to handle unclassified, routine tasks, highlighting Washington’s growing use of AI to boost efficiency and manage staffing. This could leave the Defense Department more dependent on private tech firms for daily operations, while making those firms more reliant on government contracts. We see this as another step in the blurring of the line between the public and private sectors.

Israel’s New Base: Israel is moving to establish a foothold on the Red Sea as it prepares to confront key Houthi strongholds and safeguard maritime trade routes. The planned security presence builds on Jerusalem’s recent decision to recognize Somaliland, a breakaway region of Somalia, as an independent state. A base on Somaliland’s coast would enhance Israel’s ability to counter Iranian-backed proxies in Yemen. The expanding presence underscores how Israel is positioning itself as an increasingly important power in the Middle East and Red Sea basin.

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by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment today opens with the latest news on the Iran War and discusses how challenging it will be to end the conflict in the near term. We next review several other international and US developments with the potential to affect the financial markets today, including the European Union’s plans to adjust its environmental and tax policies to shield investors from higher energy prices and new survey results suggesting artificial intelligence isn’t having much impact on corporate hiring plans just yet.

United States-Israel-Iran: After global stocks tanked early yesterday on a surge in energy prices related to the war in Iran, they reversed and ended with decent price gains after President Trump said in an interview that the war was substantially finished. We recognize that the threat of much higher gasoline prices and other economic disruptions could force the president to wind down the war. However, we think ending the war and dislodging US forces will be easier said than done. Geopolitical and economic tensions in the region are likely to continue.

• Separately, the Wall Street Journal reported last night that some of President Trump’s advisors have privately urged him to look for an exit plan amid spiking oil prices and concerns that a lengthy conflict could spark political backlash.
• However, as long as Tehran continues to attack regional countries and Israel still wants to strike Iranian targets, it is unlikely that the US could easily withdraw from the war. That’s especially the case if Iran continues to threaten the shipment of oil, gas, and other mineral products through the Strait of Hormuz.
• One official also reportedly said that the president won’t withdraw US forces until he can claim a satisfactory victory. That alone raises the risk that the war could continue, since Iran could well continue to stage asymmetric attacks regionally or around the world for some time to come. Indeed, Iranian officials yesterday insisted they won’t discuss a ceasefire with the US or Israel.
• Separately, after the International Energy Agency yesterday convened a meeting of the finance ministers of top countries, a spokesman said the group is prepared to take all necessary measures, including drawing on strategic stock reserves, in order to stabilize the market. Historically, substantial drawdowns of strategic reserves during geopolitical crises have helped bring down energy prices.
• Despite the difficulty of ending the war soon, investors today appear to be responding to the president’s assurances that it is winding down. Global oil prices are down some 7% so far today, with Brent crude currently trading at about $92.18 per barrel. In turn, that has given a lift to global stock values so far this morning.

European Union: As the Iran War continues to buoy global oil and gas prices, officials in the European Commission have begun exploring adjustments to the EU’s environmental and tax rules to help hold down energy costs for consumers. The national governments of France, Italy, Spain, and other countries are also showing signs they may intervene in their markets to hold down energy costs for consumers. For example, the French government has ordered a series of checks on gasoline stations to root out price gouging.

Japan: New reporting says the government of conservative Prime Minister Takaichi is launching a survey of Japanese ground-water resources that will include tracking the nationalities of users. The initiative has alarmed foreign nationals in the country who fear that Japan’s current wave of anti-immigrant fervor could dispossess them of water needed for personal or industrial uses. The move threatens to scare away foreign workers and investors needed to make up for the country’s ongoing population challenges.

China: The total dollar value of exports in January and February rose 21.8% from the same period one year earlier, triple the expected increase and far more than the 6.6% rise in December. With imports up a relatively more muted 19.8%, the January-February trade balance showed a record surplus of $213.6 billion. The continuing imbalance reflects China’s weak domestic demand and the government’s encouragement for firms to sell their excess production overseas. The record surplus will likely continue to spur trade tensions with other countries.

United States-China: At a forum yesterday, Assistant Secretary of Energy Audrey Robertson asserted that recycling rare metals, materials, and magnets within the US is one of the fastest ways the country can boost its access to critical minerals and sidestep China’s near monopoly on some of them. As the federal government works frantically to boost US critical minerals supplies, the statement suggests investors could find opportunities among recyclers and processors, rather than just critical-mineral miners.

• According to Robertson, “New technology in this space will be a game changer … I think you will see significant gains in the output from recycled black mass and material in the coming 12 months.”
• Black mass is the powdery residue from lithium-ion batteries that contain valuable critical minerals.

US Stock Market: Nasdaq yesterday said it is working with crypto exchange Kraken to offer tokenized stocks on Kraken’s platform. The firms are apparently focusing on the legal and governance details that would give the owners of tokenized stocks the same governance rights as holders of the underlying securities, including proxy voting and dividend payments. Issuing companies would have to opt into the plan. According to reports, Nasdaq and Kraken hope to have the plan up and running by early 2026.

US Labor Market: According to KPMG’s new CEO Outlook Pulse for 2026, only 9% of surveyed chief executives plan to cut their workforce this year because of artificial intelligence. Indeed, fully 55% expect to increase their hiring in 2026 as a direct result of AI, while 36% expect no change in hiring. The data provides a counter-narrative to widespread corporate, individual, and investor concerns about job losses due to AI.

US Airline Industry: The Wall Street Journal reports that the ongoing funding standoff for the Department of Homeland Security has begun to seriously slow security checkpoints at some major airports, including Houston, New Orleans, and Atlanta. Although Transportation Security Administration officers are supposedly working without pay, staff shortages have slowed wait times for security checks to as much as several hours at some airports. The disruptions are increasingly raising the political stakes for the administration.

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