Investors have had a volatile ride so far this year as markets have been susceptible to several crosscurrents. The year started on a strong note, with broad global equity market participation and falling yields as multiple rate cuts were anticipated throughout 2026, even though mega-cap tech companies came under increased scrutiny due to fourth-quarter earnings results. Everything changed during the second half of February.
First, on February 20th, tariffs were once again front and center after the Supreme Court ruled against the use of the International Economic Emergency Powers Act (IEEPA) to justify the “reciprocal” tariffs announced in 2025. In response to the ruling, the U.S. administration implemented a flat 10% tariff on all imports. Global corporations again had to adjust to these new rules. Second, nearly a week later, on February 28th, geopolitical tensions ratcheted up due to the Middle East conflict with Iran. This created fresh uncertainty with potential long-term implications for the price of fossil fuels and food. Iran virtually closed the Strait of Hormuz, which represents a crucial stretch of waterway where approximately 20% of the world’s oil and natural gas travel via oil tankers from the Middle East to the rest of the world. This caused gasoline prices in the U.S. to spike 43% since mid-January and crude oil to spike 82% since mid-December. Fossil fuels went even higher in Europe and Asia, which are more directly impacted.
Prolonged higher energy prices will have a negative impact on the economy, particularly the consumer, and raise the chances of an economic slowdown or recession. However, it is important to remember that the U.S. consumer can absorb higher energy prices, as cars are much more fuel-efficient, and energy is a much smaller percentage of the overall household budget than it was during the 70s and 80s. Currently, there is a fragile 2-week ceasefire with Iran, but the situation is quite fluid until ships start flowing consistently around the Strait of Hormuz once again.
As we have said many times over the years, geopolitical events and the subsequent market volatility must be tolerated when investing. It is the price we pay for being long-term investors. It is important to understand that this is not the 1970s all over again. Today, domestic oil production is much higher than it was 50 years ago. In fact, the U.S. is a net global exporter of oil, and the U.S. receives less than 10% of its oil from the Middle East. Currently, the energy sector represents only about 4% of the S&P 500 earnings, down from nearly 30% in the 1980s. Geopolitical events can create significant short-term market swings, especially when oil prices are involved. However, volatility alone is not evidence of economic weakness. The latest data continues to show that consumer demand, business investment, and economic growth are all holding up reasonably well, even as markets react to the latest headlines. Over the long run, earnings are what drive markets, and estimates have been increasing even throughout this period of uncertainty.
This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.