February 28th Market Update

Markets Navigate Geopolitical Tensions:

Iran Conflict Raises Tail Risks, While Fundamentals Still Matter

Quick Take:

• The U.S. and Israeli strikes on Iran raised geopolitical risk quickly, and markets reacted the way they usually do when uncertainty spikes. Oil moved up, stocks pulled back, and defensive assets caught a bid.
• I am not going to minimize this. If this expands or disrupts energy flows, especially through the Strait of Hormuz, the impact could be significant and it could last longer than the first wave of headlines.
• History can provide context, but it does not remove risk. The key question is whether this stays a geopolitical shock or becomes an economic shock through energy prices, shipping, and inflation.
• We have been positioning model portfolios more defensively over recent months with higher cash, T-bills, and short duration high quality bonds, plus a more resilient equity mix.
• This week’s economic data still matters, especially Friday’s jobs report, because it influences inflation expectations and the Fed.
• If you want to talk through how we are positioned and what we are watching, call us.

The weekend’s news out of the Middle East is serious. The U.S. and Israeli strikes on Iran are a major escalation, and it is reasonable to feel uneasy about what comes next. There is a human tragedy behind every headline, and there are real risks to global stability when conflict widens.

From a market standpoint, the first reaction was predictable. Oil moved higher on supply concerns, stocks softened, and investors leaned toward safer areas. That is what markets do when the range of outcomes widens.

What actually matters from here

The biggest risk is not the initial airstrikes. The bigger risk is what could follow if this escalates into something that disrupts energy supply or shipping routes.

The Strait of Hormuz is central to that discussion. If shipping is interrupted, or if the market starts pricing in a higher probability of interruption, oil prices can move quickly. Sustained higher energy costs are one of the fastest ways geopolitical conflict becomes an economic problem. It can pressure inflation, squeeze consumers, and tighten financial conditions even before the Fed does anything.

That is the line we are watching closely. We are not assuming the best case. We are watching the mechanics that would turn this into a broader market problem.

A practical scenario lens

This is not prediction. It is simply a clear way to think about the range of possibilities.

Scenario 1: Contained conflict

Tensions stay elevated, but energy continues flowing and shipping routes remain functional. Markets can still be volatile, but the economic impact is limited.

Scenario 2: Ongoing disruption risk

Even without a full shutdown, higher insurance costs, rerouting, and a sustained risk premium can keep oil elevated and keep markets on edge.

Scenario 3: Strait of Hormuz disruption

This is the high impact risk. A material interruption would likely push oil sharply higher and could change the inflation and growth outlook quickly.

Using history carefully

History is not a promise, but it can keep us from making emotional decisions based on a single week of headlines. Markets have often recovered from geopolitical shocks when the events did not create a sustained economic disruption. When they did create one, the path was harder.

First Trust data showing market reactions after major geopolitical events. Outcomes vary, and the differentiator is usually whether the event becomes a prolonged economic disruption.

First Trust data illustrating that markets have delivered positive long term returns through major wars, but with elevated volatility.

First Trust chart showing the market’s long run path through decades of crises. The market has historically moved through shocks, but the ride is rarely smooth.

Now, I want to tie this to something more important than “markets,” which isyour actual financial plan.

Investing is long term, and your portfolio is not one single pile of dollars. We treat dollars differently based on time horizon, and that is intentional. In portfolios, as part of the financial planning process, this is why we use a bucket approach.

The goal is simple: match money to purpose.

We maintain a liquidity bucket for near term cash needs and planned withdrawals. These dollars are designed to have much lower volatility and much less sensitivity to stock market drawdowns. In a normal market pullback, this bucket is built to hold up better by design.

That structure matters when headlines are ugly. If and when markets sell off, we are not forced into selling equities or longer term assets at depressed prices just to meet cash needs. Instead, we can lean on years’ worth of reserves that are built for stability, while the equity bucket and longer term growth assets are given the runway they need to endure volatility and recover over time.

This is not accidental. It is not optimism. It is planning.

It gives us staying power. It ties your goals and your liquidity needs directly to how your portfolio is built. And it helps ensure that panic or day to day noise does not put us in a precarious position when volatility hits.

Corrections are part of investing

This is also a reminder that pullbacks are not rare. They are uncomfortable, but they are normal. The risk is not volatility itself. The risk is making permanent decisions during temporary stress.

First Trust chart showing that after corrections, forward returns have often improved over time. This is not a guarantee, but it is a reminder that time and discipline matter.

What we are watching this week

Geopolitics will drive headlines, but markets still respond to the fundamentals.

• ISM Manufacturing and ISM Services. We want continued expansion without renewed price pressure.

• Labor data through the week, culminating in Friday’s jobs report. This matters for wage inflation and Fed expectations.

• Retail sales. The consumer remains the backbone of the economy.

Closing thought

If you are feeling uneasy, that is normal. The right response is not to ignore risk, and it is not to assume everything will be fine. The right response is to stay disciplined, stay diversified, and make decisions based on a plan rather than a headline.

Ifyou want to review your allocation, your cash needs, or how we are positioned given the current risks, call us. We will talk it through.