A rough time for the markets during the month of March—equities and bonds alike, no less—as the shock to the system from the Iranian conflict led to a broad-based sell-down across most financial assets outside of the commodities complex, more specifically crude oil and its derivatives. That being said, as this is being written a couple of weeks removed, we appear to be glimpsing the light at the end of the tunnel, at least insofar as near-term equity and bond market volatility are concerned.

The overall resilience of the markets in the face of this significant geopolitical event (which, as of this moment, is still unresolved) is something to marvel, in its own way. Set against a major military engagement that has given rise to the largest-ever supply shock in the oil market, the S&P 500 has returned to and exceeded its pre-conflict (Feb. 27th) closing price over recent trading sessions.

When considering why this has been the case, and focusing more so on near-term conditions as opposed to structural factors, we think the economy entered this conflict in good shape (notwithstanding lingering concerns around the labor market), characterized by strong corporate profit growth, moderating inflation, and the potential for expansionary conditions to broaden out with some fiscal help from the OBBB.

Moving forward, the conflict is likely to serve to increase the near- to medium-term noise around the path of inflation progress and dent growth (at the margin). We should also be conscious of possible tail risks associated with the conflict’s lack of resolution and the degree of stress that the global energy market now finds itself in.

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