Weekly Investment Perspective

Geopolitics returned to the forefront over the weekend as the U.S. and Israel launched joint strikes on Iran, killing Iran's Supreme Leader Ali Khamenei and a number of military leaders. The direct U.S. military engagement, which President Trump says could last for four to five weeks, marks a major escalation that investors quickly translated into higher “risk premium” for energy, inflation, and global trade. U.S. equities slid lower last week, with the Dow declining -1.3%, S&P 500 -0.4%, Nasdaq -1.0%, and Russell 2000 -1.2%. Markets remain volatile in early trading this week as investors continue to weigh the path of the conflict alongside an already noisy backdrop including AI-disruption fears, hotter than expected inflation readings, and renewed scrutiny on pockets of private credit.

The near-term market question is straightforward: does the conflict meaningfully disrupt energy flows? The Strait of Hormuz is used to transport roughly 20% of global oil consumption and even partial impairment can lift energy prices quickly as shippers become more risk-averse. Importantly, the market reaction so far still looks contained though there has been a flight to safe haven assets. Oil has spiked higher with Brent crude oil prices surpassing $80/barrel, energy and defense stocks have outperformed, the U.S. dollar is firmer, and interest rates have edged up modestly as investors weigh the risk of renewed inflation pressure if higher energy costs persist.

What happens next will depend less on daily headlines and more on whether Iran disrupts regional shipping lanes for more than a brief window. President Trump has stated that he is open to lifting sanctions on Iran if new leadership proves pragmatic, but Iran’s security chief said that Tehran refuses to negotiate with the U.S. at this juncture. OPEC+ announced on Sunday that it would boost output by 206k barrels per day to try to offset lost production from Iran, though disruption to energy flows from the Strait of Hormuz may underpin energy prices near-term.

Inflation pressures also showed up in last week’s economic data. The Producer Price Index remained uncomfortably warm relative to expectations: the year-over-year rate eased only slightly to 2.9% from 3.0%, versus consensus expectations closer to 2.6%, reinforcing the message that price pressures are not cooling as quickly as markets would prefer. Monday morning’s ISM manufacturing report added to the same theme as activity came in stronger than expected (52.4 vs. 51.8 consensus), but the prices-paid component jumped sharply to 70.5, the highest level since June 2022. Put simply, the growth picture is still holding together, but the “prices” side of the equation is pushing interest rates higher and keeping policy expectations more constrained.

Away from macro, the push-and-pull of the AI trade contributed to significant volatility within the U.S. equity market. Early in the week, AI disruption fears drove a sharp drawdown in software and pressured AI-linked equities, with renewed attention on potential knock-on effects for hiring, consumption, and private credit managers with large lending exposure to software companies. There has been a rising flow of headlines noting private credit fund markdowns, dividend cuts, and renewed scrutiny of leverage, even as broader credit conditions have not yet signaled any systemic distress. Then on Wednesday, Nvidia reported a very strong quarter with a meaningful beat and robust guidance, yet the stock still traded lower after earnings—an illustration of how elevated expectations and investor positioning can dominate even when fundamentals are strong.

Looking ahead, the week will be framed by the February payroll report and retail sales—key reads on labor momentum and the consumer at a time when markets are oscillating between growth optimism and inflation caution. Earnings will remain a meaningful narrative driver as well, with Broadcom and additional retail reports (including Costco) likely to shape how investors think about AI-linked demand, margin pressures, and consumer resilience. Against a dynamic backdrop of geopolitics, policy noise, and shifting AI narratives, we expect markets to remain headline-sensitive, but we would emphasize that periods like this tend to reward discipline: diversified exposures, a bias toward quality balance sheets, and a willingness to separate short-term volatility from long-term fundamentals.

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