Originally published for clients on April 2nd, 2026
In Roman history, the Ides of March refers to a series of religious observances and festivals that took place each spring in the Roman Empire. In modern times, the Ides is known as the date when Julius Caesar was assassinated, which was followed by a series of bloody civil wars that ultimately led to the fall of the Roman Republic. These events have since fueled superstition that the Ides of March is a time of bloodshed and war, and while there is little evidence that conflicts occur more frequently in March, the military action in the Persian Gulf that began at the beginning of last month eerily fits the story line.
At the start of the year, a widespread military conflict in the Middle East wasn’t on the radar. Our outlook centered on healthy earnings growth of both domestic and international stocks, especially in smaller domestic businesses and emerging markets. Now, over a month into the U.S. campaign against Iran, headlines are covered with almost nothing but Middle East news and financial markets are responding negatively as volatility surges across asset classes. The first quarter of 2026 has been the worst three months for the financial markets in nearly four years.
Oil
Oil is the world’s lifeblood. Many developed East Asian countries, notably China, Japan, and South Korea, import the majority of their oil from the Middle East. Iran is a major OPEC member and big petroleum producer in a prime geographical position. Offensive and retaliatory strikes that impact various Middle East states’ export ability could wreak economic havoc on the global economy. With oil scarcity a growing fear, foreign markets have plunged from their recent highs on worries that skyrocketing prices and supply shortages could suddenly drive economies into recession.
We don’t profess to be foreign affairs experts, but the deeper theme here appears to be a major strategy shift by the United States to secure its energy dominance. The military action in Venezuela may have marked the start of a campaign to reshuffle global natural resource trade. South American nations are loaded with oil and other critical commodities of particular interest to China. In one of the most insightful books I’ve read on global natural resources, Winner Take All by Dambisa Moyo, Moyo describes China’s ferocious appetite for commodities that feeds its massive industrial output. China’s consumption of natural resources is now so great that it may threaten the long-term economic security of the U.S.
With Iran’s exports under significant restraint, China could be forced to shift its oil purchases to the Americas. This is purely speculation but would make sense in the context of the Trump Administration’s stated objective of boosting U.S. exports to reduce its radically large trade deficit. The unfortunate reality is that this strategy comes at a huge cost. The ruling Iranian regime seems fiercely committed to fighting back U.S. military efforts and sowing chaos among its neighbors. This means loss of life, destruction of infrastructure, and long-term economic consequences.
Stagflation
At the time I wrote my 2026 outlook (publicly available on our website), strong global GDP growth and falling inflation pointed to a “goldilocks” environment for the markets. As the Middle East crisis unfolded just weeks ago, the outlook changed radically. Rapidly rising commodity prices and a sudden arrest of trade and economic activity in various parts of the world have created obvious stagflationary conditions, defined as slowing GDP growth and rising inflation.
Stagflation was the Federal Reserve’s greatest fear in the years following the COVID-19 shutdowns. The Fed’s aggressive response to inflation in 2022 seems to have avoided much of the “pain” Jerome Powell warned about, but this latest round of exogenous shocks to the economy may bring the pain Powell expected. The Fed’s current hawkish stance in response to the sudden spike in inflation expectations will likely exacerbate the trend in rising unemployment and falling consumption. We believe stagflation could be with us for some time. With any luck, inflation will stay reasonably anchored and growth will reaccelerate late this year.
The Winners Taking It All
High energy and commodity prices aren’t bad for everyone. Companies in the energy and utilities sectors may thrive in this environment. The dollar and gold may also both do well. Investors who are properly diversified and have exposure to these assets should find themselves well insulated from the most severe effects of the Middle East conflict and ensuing market volatility. We expect the winners during times of economic and geopolitical stability and peace, many of which produce discretionary goods and services, will give up market share to the utility and energy companies that keep our lights on and furnaces running in times of instability and conflict.
Take Precautions Before the Storm
It’s extremely challenging for investors to make sense of all the media noise, constantly distracting and fearmongering. The short-term market volatility may have a correlation to Washington’s news cycle, but investors should never forget that wealth is built in financial markets through the long-term ownership of productive assets. Uncertainty is ever-present, and volatility is the effect of the constant digestion of continuously new information and changing financial conditions.
We believe it’s best to ignore calls for urgent action and to maintain a disciplined investment strategy over an adequate time horizon. Maintaining a properly diversified portfolio ensures that large random downward moves in certain assets have limited negative impact on portfolios (think the market crashes of 1987, 2000, and 2020), while also helping during large upswings (think the recent oil and gold price spikes). Diversification is like having insurance before a storm hits. It’s too late to get it after the storm arrives.
Jason D. Smith, CFP®
These are the opinions of Legacy Private Wealth Advisors, Inc. and not necessarily those of Cambridge Investment Research, are for informational purposes only, and should not be construed or acted upon as individualized investment advice.