Economic activity appears set to recover in this week’s initial estimate of first‑quarter GDP, based on the median nowcast from several estimates compiled by CapitalSpectator.com. But any celebration will be muted as the stalemate in the war between the US and Iran lingers, casting a shadow over the inflation and growth outlook for Q2 and beyond.

Focusing on Thursday’s GDP release from the Bureau of Economic Analysis points to a pickup in output following Q4’s tepid 0.5% rise. This week’s Q1 data, by contrast, is projected to increase to an annuallized 2.3% rate via the median estimate.

The path ahead is fraught due to the slow‑moving but ongoing blowback from the Middle East turmoil, which has blocked energy exports from the Gulf. The conflict’s continuing reverberations are expected to lift inflation and slow economic growth. The US is better positioned than Europe and much of Asia, but America isn’t immune.

Survey data for April highlight US resilience, at least in relative terms. “US business activity growth recovered slightly in April, having slowed to near‑stagnation in March following the outbreak of war in the Middle East,” reports S&P Global via the US Composite PMI Output Index, a GDP proxy. “However, the overall pace of expansion remained subdued, most notably in the services economy, where demand faltered.”

The stalemate in the war suggests that a resolution could be brewing. But until energy exports from the Gulf resume, the headwinds for growth—and the tailwinds for inflation—will persist and strengthen.

“A diplomatic settlement to the Iran war at some point would bring some immediate relief,” forecasts the Washington Center for Equitable Growth, a think tank. “But extensive physical destruction to critical infrastructure in Iran and around the Persian Gulf means US economic growth will likely continue to suffer over the medium term to long term.”

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● Prophecy: Prediction, Power, and the Fight for the Future, from Ancient Oracles to AI
Carissa Véliz
Review via The Wall Street Journal
Oil and gas prices have been so erratic lately that the time-honored roller-coaster metaphor now looks sedate. Yet none of the price shifts have been in response to actual supply. Instead, the market has been making bets on what it thinks the consequences of the Middle East war will be.
Traders rely on prediction in the most unpredictable of circumstances. Energy markets are far from unique, as Carissa Véliz, a professor at Oxford University’s Institute for Ethics in AI, shows in “Prophecy.” Her sweeping account of prediction across history demonstrates why we would do well to approach most forecasts with the skepticism we now show to prophets.

● Muskism: A Guide for the Perplexed
Quinn Slobodian and Ben Tarnoff
Review via The New York Times
“Muskism: A Guide for the Perplexed” begins with a simple proposition. We live in a bewildering moment defined by a bewildering man: Elon Musk.
Not that the book’s authors, Quinn Slobodian and Ben Tarnoff, believe there’s much to be gained by peering into Musk’s soul. Muskism, like Fordism, is not an individual but a system. Henry Ford was the industrialist who pioneered the use of the assembly line and the $5-a-day wage. Fordism characterized the form of 20th-century capitalism that paired “mass production with mass consumption.” Musk is the entrepreneur who sells electric cars and satellite service (among other things). Muskism characterizes a new, technologically driven political economy that dismantles state institutions with one hand while promoting self-reliance, or the fantasy of it, with the other.

● Capitalism For All: Inclusive Economics and the Future-Proofing of America
John Hope Bryant
Summary via publisher (Wiley)
Capitalism For All: Inclusive Economics and the Future-Proofing of America by John Hope Bryant presents a revolutionary framework for rebuilding American prosperity through economic inclusion rather than division. As the founder and CEO of Operation HOPE, America’s first non-profit social investment banking organization, and a former vice-chairman of the President’s Advisory Council on Financial Literacy, Bryant brings decades of frontline experience empowering underserved communities. This book addresses America’s growing economic inequality and social fragmentation by demonstrating how inclusive capitalism – not exclusionary policies – can restore the middle class, revitalize the American Dream, and maintain our position as the world’s leading economy.

● How to Get a Return on Failure: Fail Smarter―Return Stronger
John C. Maxwell
Summary via publisher (Forbes Books)
How to Get a Return on Failure by John C. Maxwell is a transformative guide for leaders, professionals, and personal growth seekers ready to change their relationship with failure. Drawing from decades of leadership experience, Maxwell reframes failure not as a dead end but as a critical investment in future success. The book addresses the emotional weight of failure and replaces fear with strategy, helping readers overcome self-doubt, regret, and perfectionism. Instead of being defined by what went wrong, Maxwell invites readers to lead with purpose shaped by what they’ve learned.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

Who Wins and Who Loses In Prediction Markets? Evidence from Polymarket
Pat Akey (ESSEC Business School), et al.
April 2026
We study pricing efficiency in decentralized prediction markets by comparing marketimplied probabilities from Polymarket with benchmarks derived from option-implied riskneutral distributions extracted from the derivatives market. We study Bitcoin and Ethereum prediction bets and find that, although Polymarket prices broadly track option-implied benchmarks, they show systematic price differences driven by behavioral factors and market frictions. Price differences are most pronounced in tail events, during periods of high volatility, and in response to major macroeconomic shocks, and they reflect the influence of sentiment, attention, and blockchain-specific risks. These results reveal both efficiency and behavioral distortions in prediction markets.

How Wise is the Crowd? Bias and Edge in Prediction Markets
Avaneesh Deleep (University of California, Berkeley), et al.
March 2026
Prediction markets are increasingly relied upon as real-time probability oracles, yet their predictive signals remain polluted by structural inefficiencies. While prior literature documents anomalies like the favorite-longshot bias at an aggregate level, the microstructural origins of these distortions—specifically, who generates and exploits them—remain unstudied in modern ecosystems. To investigate this, we engineer a scalable, multi-threaded data architecture capable of synchronously ingesting and persisting tick-level order flow, decentralized wallet histories, and user commentary across Polymarket and Kalshi… Our findings challenge the idea that favorite-longshot bias is present in every prediction market. In the markets we find it to be present, such as Mention Markets, the classic favorite-longshot bias may in fact be a statistical artifact masking a pervasive “Yes Bias”, driven by extreme temporal volatility and not controlling for the time to market completion in previous methodologies. Furthermore, we find that “Whales”, or the most capitalized players, are not the most sophisticated. By dynamically reconstructing participant positions, we demonstrate that Whales, on average, systematically bleed expected value to small-order traders. Rather than acting as sharp informed players, these large actors likely trade on ideological conviction, structurally overpaying for specific narratives and suffering from adverse selection against smaller participants.

Kalshi and the Rise of Macro Markets
Anthony M. Diercks (Board of Governors of the Federal Reserve System), et al.
February 2026
Prediction markets offer a new market-based approach to measuring macroeconomic expectations in real-time. We evaluate the accuracy of prediction market-implied forecasts from Kalshi, the largest federally regulated prediction market overseen by the CFTC. We compare Kalshi with more traditional survey and market-implied forecasts, examine how expectations respond to macroeconomic and financial news, and how policy signals are interpreted by market participants. Our results suggest that Kalshi markets provide a high-frequency, continuously updated, distributionally rich benchmark that is valuable to both researchers and policymakers.

Market Efficiency in Prediction Markets – A Comparison with Derivatives
Michele Fabi (CREST-ENSAE), et al.
April 2026
We study pricing efficiency in decentralized prediction markets by comparing marketimplied probabilities from Polymarket with benchmarks derived from option-implied riskneutral distributions extracted from the derivatives market. We study Bitcoin and Ethereum prediction bets and find that, although Polymarket prices broadly track option-implied benchmarks, they show systematic price differences driven by behavioral factors and market frictions. Price differences are most pronounced in tail events, during periods of high volatility, and in response to major macroeconomic shocks, and they reflect the influence of sentiment, attention, and blockchain-specific risks. These results reveal both efficiency and behavioral distortions in prediction markets.

Minority Report: Contrarian Traders, Prediction Markets, and the Return of Post-Earnings Drift
Chloe Feng (Stanford U., Graduate School of Business, Students)
March 2026
Prediction markets on the Polymarket platform allow traders to bet on whether a company will beat or miss an earnings-per-share consensus target. Using 338 resolved markets matched to IBES analyst consensus forecasts, I document four findings… Taken together, the results suggest that a small contrarian minority drives prediction market accuracy, and that their signal is most valuable as a short-side veto: when the crowd assigns a low beat probability, shorting into earnings produces significant risk-adjusted returns over a 10-day horizon.

Skilled Liquidity Provision in Prediction Markets: Evidence from 150 Million Trades
Hsiang-Chieh (Alex) Yang (Augusta University)
March 2026
Do skilled traders provide liquidity, and when? I study this question using 150 million trades across more than 200,000 markets on Polymarket, a zero-fee prediction market with observable outcomes and wallet-level identification. The zero-fee setting isolates the information channel from fee confounds present in prior work on Kalshi. The central finding is dual-role profitability: skilled traders (top 5% by rolling historical accuracy) earn $121 as makers and $63 as takers per market entered, extracting $228 million over three years, while ordinary traders lose on both sides. Aggregate spread transfer is economically negligible, but this null masks the skilled-ordinary asymmetry. Skilled traders strategically choose their role, providing liquidity more often in highervolume and shorter-duration markets. Within-trader variation confirms this reflects strategy, not selection. Placebo tests, wash-trading exclusions, out-of-sample persistence, and domain-specific skill classifications that measure accuracy within rather than across market categories validate the skill classification and confirm that the findings are not artifacts of cross-domain luck. Trader skill, not the maker-taker distinction, determines who profits in prediction markets.

From Iran to Taylor Swift: Informed Trading in Prediction Markets
Joshua Mitts (Columbia Law School) and Moran Ofi (U. of Haifa)
March 2026
This Article presents a systematic empirical and legal study of informed trading on prediction markets. We document a series of case studies in which traders appear to have exploited material nonpublic information on Polymarket and Kalshi, spanning events from the joint U.S.-Israel February 2026 strike on Iran to pre-announcement trading in Taylor Swift’s engagement. Building on these cases, we develop a statistical screening of all Polymarket markets from February 2024 through February 2026, analyzing over 210,000 suspicious wallet-market pairs using a composite score that combines bet size anomalies, profitability, pre-event timing, and directional concentration. Flagged traders achieve a 69.9% win rate well in excess of chance, and we estimate approximately $143 million in aggregate anomalous profit. We then analyze the legal framework governing this conduct, finding that neither the classical nor misappropriation theories of securities fraud map cleanly onto geopolitical or macroeconomic event contracts, and that the CFTC’s principal anti-fraud vehicle, Rule 180.1, is narrower in critical respects than SEC Rule 10b-5 and has rarely been applied to prediction markets. We argue that a comprehensive regulatory response requires mandatory registration and surveillance obligations for any platform serving U.S. persons, contract-level rules targeting high-risk information channels, and an extended misappropriation theory directed at informed traders on decentralized platforms that resist operator-level regulation.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

The Iran conflict has triggered “the biggest energy security threat in history,” according to Fatih Birol, head of the International Energy Agency (IEA), speaking on CNBC yesterday. Yet the impact will not be felt uniformly, a disparity that likely plays a role in the varied responses in global stock markets to date.

Using a set of ETFs (and one closed-end fund for Central and Eastern Europe) to track investor sentiment on a regional basis highlights a wide mix of performances since the war started on Feb. 28 through yesterday’s close (Apr. 22). Initially, stocks fell just about everywhere, but in late-March a rebound kicked in, although the recovery has been conspicuously uneven, driven in part by differences in energy vulnerability related to the sharp drop in oil exports from the Gulf region.

Leading the winners: stocks in Central and Eastern Europe (CEE) are up 5%. That contrasts with a 7.8% loss for equities in Africa (AFK).

US shares (SPY) are in the winner’s circle via a 4% gain since hostilities started.

Notably, a globally diversified portfolio of stocks (VT) has recovered, and is currently up 1.8%. A key driver of that gain comes from US shares: a global equities fund ex-US (VXUS) is still down 1.4% since Feb. 28.

The question is how markets will price in the energy risk that Fatih Birol outlined. The pain will vary dramatically, depending on the level of reliance on energy imports. Asia is especially vulnerable.

“The war in the Middle East and the ensuing energy supply shock are raising inflation, weakening external balances, and narrowing policy options, underscoring the region’s dependence on imported oil and gas,” the IMF advised. “Even so, we project Asia to remain the main driver of global growth. The 5 percent expansion last year will moderate to 4.4% and 4.2% this year and next, according to the reference forecast in the latest World Economic Outlook that assumes the energy shock proves transient. We expect China and India to contribute 70% of the region’s growth.

Nonetheless, “The headwinds will test Asia’s resilience,” the IMF continued.

The same will be true for the rest of the world, although as varying results in stock markets suggest, the effects will be distributed asymmetrically.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

US retail sales rose in March, beating expectations and posting the strongest increase in more than three years, but a significant portion of the spending was driven by gasoline sales—an effect of the spike in energy costs due to the Iran war. The results raise a warning flag for the consumer sector at a time when a return to pre‑war energy costs appears unlikely in the near term.

On its face, the 1.7% increase in retail spending last month looks encouraging, marking a sharp acceleration from February’s 0.7% gain. Soaring gas prices were part of the mix, although the gains were broad‑based.

“It’s a blowout retail sales figure for March,” wrote Heather Long, chief economist at Navy Federal Credit Union, in a report. “Stripping out the big surge in spending on gas due to the Middle East conflict, it’s a solid but more modest 0.6% increase.”

Monthly comparisons can be misleading due to short‑term noise, so it’s useful to monitor the year‑over‑year trend. On that basis, spending was stable, rising 4.0% last month compared with the year‑ago level.

An alternative measure of retail spending highlights a relatively robust trend. The Visa Spending Momentum Index rose to its highest level in four years in March. The benchmark, which measures the health of consumer spending, suggests that demand has been strengthening compared with recent history.

One‑time effects from tax refunds may be a factor, notes Gary Schlossberg, global strategist at Wells Fargo Investment Institute. “Pressure on household budgets is being cushioned, for now, by sizable increases in tax refunds tied to last year’s legislation,” he wrote in a research note yesterday.

James McCann, senior economist for investment strategy at Edward Jones, agrees. “Households remain resilient for now, potentially leaning on tax refunds and broader savings to keep spending in the face of the latest price squeeze,” he said.

The caveat is that inflation is also a factor. March spending was clearly affected by higher gas prices and broader price pressures that boosted nominal sales but strained household budgets.

A clearer picture may emerge in April, when the temporary effects of tax refunds begin to fade.

“Overall, the American consumer is still healthy,” Navy Federal Credit Union’s Heather Long opined. “Extra income from tax refunds is helping many households weather this oil shock, but that extra money won’t last forever.”

The war with Iran appears headed for some form of negotiated settlement. The main uncertainties are timing and details. But the longer the conflict lasts—and the longer the Iranian regime survives—the outlook, as interpreted by The Capital Spectator, is that a decisive US victory, defined as capitulation by Tehran, becomes less likely. The implication of this forecast: a messy, uneven, and protracted period of de‑escalation on the road to a settlement may continue to disrupt the global economy for the foreseeable future.

My reasoning starts with the near certainty that Iran will not prevail, at least not militarily. The US, by contrast, has the capacity for a decisive win, but forcing Iran to surrender unconditionally would almost certainly require a land invasion with a significant number of US troops—a decision that seems unlikely. The experience of the wars in Afghanistan, Iraq, and Vietnam suggests that the political price would be too high.

The US can still inflict more damage on Iran from the air, using missiles and air power. But after more than seven weeks of bombing by the US and Israel, the shock value is fading. A deeper and broader array of attacks on Iran’s infrastructure would surely be painful and push the economy to the brink of collapse. But Iran’s leaders view the conflict as an existential battle, and it is unclear whether extending the air campaign would change minds at this late date within the regime—at least not to the point of full and complete capitulation.

As a result, the path of least resistance suggests that facts on the ground will favor a negotiated settlement, eventually. A mix of factors will influence the timing and shape of an agreement, but the key pressure points are internal constraints related to resources and public sentiment, which are creating very different breaking points for each side.

For the US, the prestige and perception of America’s ability to project power and shape geopolitical outcomes in the Middle East are hanging in the balance. Another pressure point is the global economy. The closure of the Strait of Hormuz has driven energy prices sharply higher. Iran has demonstrated that it can restrict exports through this chokepoint and that the US has limited means of preventing that constraint.

A major pressure point on Iran is economic exhaustion. The regime may be able to shut down energy exports from the Gulf, but the US can extend that chokehold to Iranian oil exports, the country’s main source of revenue.

The calculus comes down to: who will blink first.

A potentially influential factor is China, the largest buyer of Iranian oil—more than 80% of Iran’s exports in 2025, amounting to roughly 13–14% of China’s total seaborne crude imports, according to Kpler. China also remains a major trading partner of the US, despite tariffs, leaving both countries with significant shared economic interests. In other words, China has substantial ties to both sides and could play a role in negotiations, albeit behind the scenes. A key issue to watch: Beijing may have enough leverage to keep Tehran at the table, even as it continues to support Iran’s ability to resist US demands.

For the US, the question is when political and economic pressures will persuade President Trump that a negotiated settlement is the only realistic path. A related uncertainty: How far the US is willing to go in inflicting additional damage on Iran’s economy? The administration may be inclined to escalate, but doing so is not cost‑free. If an overt military campaign resumes, energy exports will remain restricted, which threatens to keep inflation higher and economic growth lower for longer, in the US and around the world.

In the end, neither side may get the victory it wants, only the compromise it can live with.

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The US Business Cycle Risk Report

The US stock market closed at a record high on Friday (Apr. 17), but a few days ago is ancient history when the firehose of war news can reshape investor sentiment by the hour. Right on cue, the trading week ahead has plenty of fresh shape-shifting headlines to process and decide if last week’s optimism revival still resonates.

Among the highlights over the weekend: Iran reversed its earlier agreement to reopen the Strait of Hormuz to restart energy exports, with hardliners in the country asserting control and insisting it will remain shut as long as the US blockade continues. A US Navy ship fired on an Iranian cargo ship violating America’s blockade, later seizing the vessel. Iran vowed to retaliate. Meanwhile, Vice-President Vance is headed to Pakistan again for peace talks, but Tehran says it has no plans for further talks with the US.

What this means for markets is anyone’s guess, but equities begin the week from a position of strength. The S&P 500 Index’s recovery set a record for speed, but the drama may not be over just yet. The key challenge is that while stocks priced in an effective end to the war, it’s still not obvious that a quick solution the supply-energy shock is imminent.

“We had the most violent day in the strait on Saturday that we’ve had since the beginning of this crisis, and things don’t seem to be getting any better,” Rory Johnston, founder of Commodity Context, tells CNBC. “While we keep getting these sell-offs and it keeps seeming like we’re about to finally get that football — Lucy pulls it away — and we’re back to where we started. The strait still isn’t flowing, and 13 million barrels a day of production remains shut-in. We’re losing it every single day this goes on.”

As for the resiliency in the stock market through Friday’s close, much of the hefty lifting comes from technology stocks. Using a set of ETFs to track the sectors that comprise the S&P 500 highlights that tech (XLK) is the leading source of gains by far when measured since the war’s start through the end of last week. XLK is up more than 11% during the conflict, far above the S&P 500’s 3.8% rise since Feb. 28. The rest of the sectors are split with a mix of gains and losses.

Upbeat earnings news is a key factor for the stock market’s overall resiliency. FactSet reports: “For Q1 2026 (with 10% of S&P 500 companies reporting actual results), 88% of S&P 500 companies have reported a positive EPS surprise and 84% of S&P 500 companies have reported a positive revenue surprise.”  

In terms of performance, however, tech is still doing the hefty lifting, largely thanks to optimism, overbaked or not, related to the business opportunities in artificial intelligence (AI).

Therein lies a familiar question for investors that’s taken on greater relevance: Can bullish sentiment fueled by AI keep the party going in what could be a protracted battle over reopening the strait?

One reason that the bulls are still answering “yes” relates to expectations of the disinflationary effect of AI for the economy. Citing that “many companies are talking about efficiency gains from AI,” the head of Northern Trust’s $1.4 trillion asset management unit predicts: “If even a portion of those [gains] actually materialize on an economy-wide basis, it could be one of the biggest positive supply shocks we’ve ever seen,” Mike Hunstad tells the FT. “You can’t ignore that.”

By that reasoning, the “massively disinflationary” outlook he thinks is possible leaves room for the Fed to stand pat on monetary policy until it’s clear how AI-driven productivity gains evolve.

“AI has the potential to be massively disinflationary,” Hunstad advises.

Perhaps, but whether that’s enough to keep stocks rallying in the short term is another question entirely.

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● Mobilize: How to Reboot the American Industrial Base and Stop World War III
Shyam Sankar and Madeline Hart
Review via The Wall Street Journal
Shyam Sankar is a Silicon Valley Paul Revere. The chief technology officer of the software company Palantir, Mr. Sankar comes at us with warnings of imminent danger, although not on a galloping steed. Instead, he delivers his hair-raising message—that we’re staring at “a humiliating and bloody defeat” if we go to war with China—in a jaunty, clever and sometimes breathless book.
“Mobilize,” written with the assistance of Madeline Hart, a strategist at Palantir, intends to jolt us out of our national-security slumber. “Complacency in peacetime can lead to war,” Mr. Sankar writes. (The book went to print before the U.S.-Israeli use of force against Iran.)

● Lucky Devils: The True Story of Three Rebel Gamblers Who Beat the Odds and Changed the Game
Kit Chellel
Review via Publishers Weekly
Bloomberg journalist Chellel (Dead in the Water) sheds light on advantage gambling, or using math and technology to beat the house, through the stories of three of its pioneers in this fascinating history. In the 1970s, gamblers Bill Nelson, Rob Reitzen, and Bill Benter arrived in Las Vegas obsessed with beating the house, and went on to redefine what that meant. Nelson’s success with a computer-driven sports betting syndicate drew FBI scrutiny before he resurfaced with a lucrative roulette operation. Reitzen went from playing poker in casinos to founding online poker sites where human players competed against algorithmic bots, with fortunes won and lost at dizzying speed. The most spectacular arc belongs to Benter, who became a legend in Hong Kong and U.S. horse racing by combining massive betting syndicates with sophisticated statistical modeling, and later parlayed his winnings into the Benter Foundation, which supports causes including the arts, Alzheimer’s research, and financial education.

● Financial Mathematics for Cryptocurrencies
Tom J. Espel
Summary via publisher (Wiley)
Financial Mathematics for Cryptocurrencies by Tom J. Espel combines two of today’s most dynamic fields – quantitative finance and cryptocurrencies – in a comprehensive guide that addresses the unique mathematical challenges faced by everyone involved in the crypto markets. Espel draws on his extensive experience in frontier assets to explain the analytical frameworks you’ll need to make informed investment decisions, identify pricing opportunities, and manage risk in this volatile asset class. The book adapts relevant quantitative finance methodologies specifically for digital assets, bridging the gap between traditional financial mathematics and the distinctive characteristics of blockchain-based instruments. Espel introduces three essential constructs for DeFi pricing theory: network time, the validator account as a new numéraire, and wrapped token frameworks for cross-chain valuation. Its modular structure allows readers to navigate directly to relevant sections, covering everything from blockchain fundamentals to advanced valuation models, staking contract mathematics, and liquidity cost analysis in cryptocurrency markets.

Please note that the links to books above are affiliate links with Amazon.com and James Picerno (a.k.a. The Capital Spectator) earns money if you buy one of the titles listed. Also note that you will not pay extra for a book even though it generates revenue for The Capital Spectator. By purchasing books through this site, you provide support for The Capital Spectator’s free content. Thank you!

Markets are pricing in higher odds that the war with Iran has ended, but even if that proves true, the economic effects of the conflict will linger for months, if not years.

Most of the world’s attention is focused on the immediate drama of conflict—military attacks, closures, and sanctions. But the most destabilizing effects of war in the Persian Gulf don’t unfold in real time. They arrive with a delay, reverberating slowly across oceans in the hulls of tankers and reflected in reduced exports of natural gas and crucial agricultural feedstocks. That lag in transit time suggests the global economy has only begun to feel the consequences of reduced exports from the region.

“Wars have a way of revealing the world’s hidden architecture,” writes Comfort Ero, president and CEO of the International Crisis Group. “We notice the narrow straits, the fragile chokepoints, the invisible bargains that keep daily life intact only when they begin to fail. Today, the Strait of Hormuz is one such place.”

Oil exported from the Persian Gulf typically takes 30–45 days to reach major markets in Europe, Asia, and the Americas. When conflict disrupts production or shipping lanes, the impact isn’t instantaneous. Instead, the world consumes existing inventories while the flow of new supply slowly declines. By the time the shortage becomes visible in destination markets, the underlying problem has already been compounding for weeks.

The sharp reduction in oil production and exports last month is the first sign that the disruption in global supply is beginning to reverberate. OPEC’s production fell by 27% in March — a record drop — and prospects for a quick rebound look dim, even if the current ceasefire holds. In the best‑case scenario, it will take months for Gulf states to restore production to normal levels, predicts Sheikh Nawaf al‑Sabah, CEO of Kuwait Petroleum Corp.

Meanwhile, the lag in energy exports fosters a misleading illusion of stability as attention shifts to the decline in military attacks. But the war’s effects will resonate far into the future.

Luke Gromen, president of Forest for the Trees, a research shop, recently noted that seven weeks into the conflict the Strait of Hormuz is still closed. “Supply chain issues are just now really starting to to stack up.” As an example, he cites Toto, a Japanese toilet maker, has halted new orders for its prefabricated bathrooms due to material shortages as the Iran war continues to strain the global oil supply chain.

Consider the US farming industry. The planting season ends in about six weeks, and surging fertilizer prices driven by the conflict are forcing farmers into a corner: reduce planting or proceed as planned and absorb a financial hit. A survey by the American Farm Bureau Federation reports that “nearly six in 10 farmers report worsening finances, reflecting rising fertilizer and fuel costs during spring planting.”

Although only a small fraction of pre‑war commercial traffic has moved through the strait in recent days—an improvement from the near‑shutdown in previous weeks—it remains unclear how quickly exports will recover.

“Even if the strait were to reopen soon, the underlying supply and logistical stresses of the waterway’s closure will likely persist for months,” notes the Atlantic Council. “Much of the region’s refining capacity has been damaged or destroyed during the conflict, and the infrastructure required to process and export commodities may take years to fully rebuild.”

Oil is hardly the only export at risk. The Persian Gulf is a major source of natural gas liquids, ammonia, urea, and other petrochemical feedstocks essential for global fertilizer production. A sustained disruption in these flows threatens agricultural supply chains far beyond the region.

A delay of even a few weeks in feedstock shipments can cascade into reduced fertilizer availability, lower crop yields, and higher food prices months later.

The war’s impact on oil and fertilizer feedstocks is a slow‑moving shockwave. The world is still in the early phase, buffered by inventories and pre‑conflict shipments. But as the lag catches up, reduced exports from the Persian Gulf will exert growing pressure on energy prices, food production, and global economic stability.

The real effects aren’t behind us. They’re just beginning to arrive.

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The US Business Cycle Risk Report

In another display of resilience, the stock market rebounded to a record high on Thursday following the recent correction. The drawdown wasn’t particularly unusual, or unexpected, given the geopolitical risk lurking in the background. But the recovery from the low was notable for its speed.

The latest cycle of peaking and recovery cut the S&P 500 Index by 9.1% at the deepest drawdown (Mar. 30), ranking as the 32nd‑deepest peak‑to‑trough loss since 1955. It was a relatively significant loss, but far from the deepest on record—roughly the ninth percentile in the context of the skewed historical data for S&P drawdowns for the past seven decades.

The speed of the rebound off the trough—just 11 trading days—set a new record for drawdowns of 9% declines or deeper. The previous fastest recovery occurred in early 2000, when the market fully erased its drawdown in 17 days.

In a world of whirlwind news cycles and rapidly evolving macro guesswork in recent years, market sentiment is moving faster. For investors looking at their latest statements, that’s a good thing for now, at least through yesterday’s close. But volatility continues to work both ways, and I suspect the rollercoaster ride will persist at a degree that’s more extreme than the historical record.

One implication: the behavioral skill set of looking through short‑term noise is more valuable than ever.

Then again, am I seeing ghosts? Although current events have been taking markets on a wild ride lately, it’s still reasonable to argue that the jury’s still out on whether volatility has undergone a regime shift. Using Morningstar’s calculations, it’s not yet obvious that the big picture has changed.

“Expressed in standard deviation of daily returns, or how much the index’s fluctuations vary from their average, volatility for 2026 through April 10 registered at 15% on an annualized basis,” writes Dan Lefkovitz, a strategist at Morningstar. “It turns out that 15% is right about average for US stock market volatility,” he observes, based on the average annual standard deviation of daily US stock market returns for the past century.

Plus ça change, plus c’est la même chose.

Learn To Use R For Portfolio Analysis
Quantitative Investment Portfolio Analytics In R:
An Introduction To R For Modeling Portfolio Risk and Return
By James Picerno

How much policy uncertainty and geopolitical risk can the US economy absorb without derailing its expansion? More than many analysts expected.

As a thought experiment, let’s return to Jan. 1, 2025. Your task is to consider what the economic impact would be if the global trading system were upended with tariffs and a major war in the Middle East sharply raised energy costs. Would those events disrupt the US economy, perhaps to the point of triggering recession? Answering “yes” would have been a reasonable forecast. But here we are, and economic activity—although battered and bruised by some measures—is still skewed toward growth overall.

How long this lasts is unclear, but a review of several indicators suggests that US economic resilience has been more durable than many of us would have expected when gaming out a world of tariffs and war with Iran.

Part of the reason is US energy independence. As a net energy exporter, the economy’s reliance on oil imports is low. That doesn’t shield the country from surging energy costs — oil is priced globally, not locally. But compared with the high dependence on imported oil in Asia, for instance, the US is in far better shape to weather a supply-side energy shock.

There are limits to US resilience, of course, and those limits may be near. Much depends on how long oil prices (and energy costs generally) remain elevated. As I discussed yesterday at TMC Research, the risks of higher inflation and slower growth will rise the larger the potential shock to the economy in the months ahead.

“After withstanding higher trade barriers and elevated uncertainty last year, global activity now faces a major test from the outbreak of war in the Middle East,” the IMF warned yesterday. “A longer or broader conflict, worsening geopolitical fragmentation, a reassessment of expectations surrounding artificial intelligence–driven productivity, or renewed trade tensions could significantly weaken growth and destabilize financial markets.”

The US stock market, however, appears to be pricing in higher odds that the worst has passed. The S&P 500 Index yesterday (Apr. 14) rallied for a second day, recovering nearly all of the loss since peaking earlier in the year.

The stock market isn’t the economy, as the caveat goes, but several proxies for the business cycle suggest a growth bias is holding. For example, the Dallas Fed’s Weekly Economic Index (WEI) reflects real year-over-year economic growth of 2.7% through Apr. 4. That’s up from a 2.0% pace through last year’s fourth quarter, based on GDP data.

Several other real-time measures of economic activity also point to ongoing resilience. The Johnson Redbook Index—a weekly year-over-year measure of same-store sales growth for large US general merchandise retailers (roughly 80% of retail sales)—rose 7% for the week through Apr. 11, in line with the trend in recent months. The implication: consumer spending has yet to take a hit from the war.

None of this is to suggest that there are no warning flags. Au contraire. The sharp rise in headline consumer inflation in March suggests that the war’s effects on the economy and spending may not be trivial. Add to that the possibility that economic growth could be sluggish in the upcoming Q1 GDP report, according to the Atlanta Fed.

One measure of consumer sentiment is also flashing red. “Consumer sentiment sank about 11% [in April], extending a decline that began with the start of the Iran conflict, and is currently about 9% below a year ago,” according to the University of Michigan’s widely followed survey.

In the hard data, by comparison, the signs of trouble for the US economy are still limited. It would be naïve to expect no repercussions. But the blowback so far has been minimal, at least from a top-down perspective. But economic data arrives with a lag and so the brunt of the war’s effects will likely become clearer in the weeks and months ahead.

Watching the incoming data, in short, is a high priority. Meanwhile, the US economy appears to be beating the odds by staying resilient. The relative strength has surprised more than a few keen observers of the economic scene.

“It is notable that client sentiment, especially in the US, seems quite resilient considering the amount of uncertainty you have in the Middle East,” says Jeremy Barnum, JPMorgan’s chief financial officer.

A fragile peace in the war with Iran continues, which lays the groundwork for cautious optimism. A resumption of hostilities, by contrast, would likely be cause for downgrading resiliency expectations. By that standard, evaluating macro risk remains a day-to-day affair.

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Bonds are prized for offering stability in an asset‑allocation strategy, providing an offset to the higher risk in stocks, particularly during periods of market stress. But since the Iran war began, fixed‑income securities have had a rough ride as markets struggle to assess whether the conflict’s main threat is higher inflation, slower growth (if not recession), or some mix of both.

A broad review of the US bond market, using a set of ETF proxies, shows that some corners of fixed income are posting gains since the conflict began on Feb. 28. But the winners aren’t the usual suspects that you would expect to shine an energy shock and a Middle East war.

The leading performer so far since the fighting started—through yesterday’s close (Apr. 13)—is bank loans. The Invesco Senior Loan ETF (BKLN) is up more than 2%, far ahead of the rest of the fixed‑income field. Before the war, few investors thinking about safe havens for a new Middle East conflict would have anticipated that BKLN’s portfolio would become a go‑to port in the storm, but here we are.

BKLN primarily holds floating‑rate senior secured loans—also known as leveraged loans—issued by US corporations (see Morningstar profile below). These loans sit high in the capital structure and typically carry below‑investment‑grade credit ratings. The fund’s relatively strong performance suggests that a preference for higher yield, by way of higher risk, has been a motivating factor for investors during the current turmoil.

A conventional junk‑bond ETF is in second place during the war‑driven rally in select slices of the bond market: the SPDR Bloomberg Short Term High Yield Bond ETF (SJNK) is up 0.6%. Just behind it is the iShares 0–5 Year TIPS Bond ETF (STIP), edging up 0.5%.

Meanwhile, medium‑ and longer‑term Treasuries are underwater so far during the war period. The biggest loser is long‑term government bonds (TLT), which have tumbled 3.8%.

One interpretation: inflation worries are dominating risk perceptions for Treasuries. By contrast, the view that government bonds would benefit from heightened anxiety about slower economic activity or recession seems to be in remission at the moment.

But this explanation isn’t fully satisfying. The Treasury market’s implied inflation forecast has remained relatively stable since the war’s start. The so‑called breakeven rate—the yield spread between nominal and inflation‑indexed Treasuries—hasn’t changed much in recent weeks, and is still trading in the mid‑2% range.

If inflation isn’t weighing on Treasuries, what is? Fiscal risk may be a factor. As I’ve been discussing at TMC Research recently, the government’s budget deficit continues to flash warning signs. The high price tag for the war isn’t helping.

Is the bond market looking for new safe havens these days? Hard to know for sure, but the pivot into high‑risk bond securities doesn’t fit neatly into the standard playbook for periods when geopolitical risk spikes.

The inflation-driven spike in the market premium for the US 10-year yield in 2022-2023 has been gradually reversing over the last several years. But in the wake of the turmoil in the Middle East, which has raised energy costs and inflation, the pre-war calculus may be set for an attitude adjustment.

The Treasury market’s reaction to the war has been muted so far. The benchmark rate shot up to nearly 4.50% in late-March, but has pulled back to close at 4.34%. A rise above the previous high would signal that the bond market is pricing in higher inflation risk.

The Capital Spectator’s ensemble model currently estimates fair value for the 10-year yield at roughly 4.0%, based on monthly analytics through March. That reflects a mostly steady fair-value calculation in recent months.

A market premium over fair value has prevailed in recent years. During the height of the 2022-2023 inflation shock, the premium spiked to well over a full percentage point. Investor sentiment has been gradually unwinding that premium, but the Middle East turmoil, and the potential for unleashing higher inflation for an unknown period going forward, will likely raise the premium again.

The offsetting factor is the potential for slower growth. The energy-supply shock threatens to elevate inflation and reduce economic growth, which is disinflationary. It’s unclear if one or the other side of this macro equation will dominate.

It’s possible that each risk offsets the other, leaving the yield premium relatively steady and near equilibrium. My guess is that the market will initially favor a higher premium driven by inflation risk, followed by a lesser premium as sentiment pivots to the potential for slower growth later in the year.

The greater clarity on what lies ahead is that the news flow from the Middle East will continue to dictate market sentiment. On that score, the crowd has yet another challenging trading week ahead in the wake of failed peace talks between the US and Iran over the weekend, followed by President Trump’s announcement that the US Navy will ‘interdict’ ships that pay Iran to pass through the Strait of Hormuz. In response, Iran threatened to attack Gulf ports in retaliation against a blockade.

Surprisingly, a fragile ceasefire is holding, as of early Monday. Regional mediators are racing to close remaining gaps between the US and Iran as the ceasefire deadline nears, even as President Trump weighs renewed military pressure if diplomacy stalls.

“The volume of ships passing the Strait needs to surge in the coming two weeks for the oil market to be convinced that the crisis is over,” said Malcolm Melville, a commodities fund manager at Schroders. “If the vessel number surges to 75% of prewar levels, then that represents a near normalization of flows, given the current use of pipelines that were not previously running at full capacity.”

What passes for “normal” these days, however, isn’t showing up on anyone’s bingo card this morning.

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● Planet Money: A Guide to the Economic Forces That Shape Your Life
Alex Mayyasi
Interview with author via WVPB radio
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● The Coffee Can Investor: A Stock-Picker’s Journey to Build Generational Wealth
Neeraj Khemlani
Summary via publisher (Columbia U. Press)
What would happen if you bought a handful of stocks and then left them alone for some time, like stashing valuables in a coffee can? If you picked the right ones, you might wake up one day with life-changing wealth. Neeraj Khemlani introduces readers to this investing philosophy through the eye-opening story of a portfolio manager who has put it into practice. Matt Ankrum researched 100-baggers—stocks that have multiplied in value a hundred times over multiple decades—looking for what they have in common. Drawing on these clues, he hunts down and buys shares in what he thinks are tomorrow’s breakout companies, planning to gift his children a coffee can portfolio that could someday be worth half a billion dollars.

● Financial Mathematics for Cryptocurrencies
Tom J. Espel
Summary via publisher (Wiley)
Financial Mathematics for Cryptocurrencies by Tom J. Espel combines two of today’s most dynamic fields – quantitative finance and cryptocurrencies – in a comprehensive guide that addresses the unique mathematical challenges faced by everyone involved in the crypto markets. Espel draws on his extensive experience in frontier assets to explain the analytical frameworks you’ll need to make informed investment decisions, identify pricing opportunities, and manage risk in this volatile asset class. The book adapts relevant quantitative finance methodologies specifically for digital assets, bridging the gap between traditional financial mathematics and the distinctive characteristics of blockchain-based instruments.

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The tentative ceasefire between the US and Iran is holding as both governments prepare to meet for high‑stakes talks in Pakistan. The foundation for a peace deal may be wobbly, but the stock market is cheering: the S&P 500 Index closed on Thursday (Apr. 9) at its highest level in five weeks. Equity factors have also rallied, though results vary widely, with momentum posting the strongest gain based on a set of ETFs.

The iShares MSCI USA Momentum Factor ETF (MTUM) is leading the field by a wide margin for performance since the war began. The fund is the clear upside outlier, posting a 3.8% gain since the close on Feb. 27, the eve of the conflict’s start. Several other factors have rebounded, but none come close to momentum’s surge.

A number of equity factors remain underwater. The biggest loser since the war began is low volatility (USMV), which has declined 3.6%.

The broad stock market is also posting red ink for the war‑regime period. The SPDR S&P 500 ETF (SPY), despite a sharp rally in recent days, is down 0.6% since Feb. 27.

The revival of risk appetite remains precarious, hinging on the outcome of ceasefire negotiations that begin tomorrow. Markets will be keenly focused on the macroeconomic stakes, which are tied to control, stability, and predictability in the Strait of Hormuz—a chokepoint through which roughly a fifth of global energy supplies flows. At the center of these negotiations is the question of whether energy markets can avoid prolonged disruption—and whether the global economy can withstand the shock if they cannot.

“This is the most effective bargaining chip that Iran has got, and will always have,” said Martin Kelly, the head of advisory at EOS Risk Group, a consulting firm. “This is going to have a huge impact on global trade and the global economy.”

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US economic activity is still expected to rebound in the upcoming first-quarter GDP report scheduled for Apr. 30, but recovery from Q4’s stall-speed increase may face stronger headwinds in Q2 as the effects from the war with Iran reverberate in the months ahead.

A fragile ceasefire suggests the macro healing can begin, but the conflict’s consequences will take time to assess. Meanwhile, the government’s initial estimate of Q1 GDP is expected to post a 2.3% increase, based on the median nowcast compiled by CapitalSpectator.com from a range of sources. If correct, output in Q1 will recover from a weak 0.7% rise in Q4.

There are several caveats to consider for today’s update. For example, one of the inputs — the Atlanta Fed’s GDPNow model — has downgraded its Q1 nowcast in recent weeks. The current reading estimates growth at 1.3% (as of Apr. 7), down from 2.8% two weeks ago.

A survey-based estimate of GDP has also been revised lower recently. The S&P Global US Composite PMI was cut last week, aligning with a roughly flat performance for US economic activity in March.

“The PMI survey data show the US economy buckling under the strain of rising prices and intensifying uncertainty, as the war in the Middle East exacerbates existing concerns regarding other policy decisions in recent months, notably with respect to tariffs,” says Chris Williamson, chief business economist at S&P Global Market Intelligence. A key source of weakness is the services sector, which “has slipped into contraction for the first time since January 2023,” he reports.

The softer GDPNow and PMI inputs have yet to affect the median estimate, but incoming data between now and the Q1 report due on Apr. 30 are expected to trigger downside revisions.

The odds that a US recession has started or is imminent remain low, based on modeling updated weekly in The US Business Cycle Risk Report. But with the war’s effects still swirling, and uncertainty about the ceasefire, the near-term risks remain elevated.

Mark Zandi, chief economist at Moody’s, writes: recession risks are “uncomfortably high.”

Confidence will rise in the coming weeks for confirming, or rejecting, Zandi’s view. For now, one of the most important risk indicators is evolving in real time: the stability of the ceasefire.

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The two-week ceasefire announced by the US and Iran on Tuesday is welcome news, but deciding if the threat of war has truly passed will take time. The peace may be fragile, but markets are already cheering this morning. The true test will unfold over the coming weeks. Here are some of the indicators I’ll be watching for determining if the worst has passed.

Let’s start with the stock market. The S&P 500 Index has already been rallying off its recent low, and the recovery is likely to continue today.

One of the many technical profiles of markets I’ll be monitoring is this variation of my estimate of overbought-oversold conditions for the S&P. As of yesterday’s close, hints of recovery have emerged in recent days.

The performance of Treasury yields will be even more critical this week and beyond. The 10-year yield, for example, has pulled back from its recent runup. The risk appetite’s recovery for the near term will rely in no small degree on the bond market remaining calm. The key variable is whether the expected rebound in war-related headline inflation stays modest and short-lived.

Economic risk will come into sharper focus in the weeks ahead. The Atlanta Fed’s GDPNow model continues to downgrade the expected rebound in output for the first quarter. Yesterday’s nowcast was downgraded to a soft 1.3% for the upcoming Q1 report (due on Apr. 30). That still marks a recovery from Q4’s stall-speed 0.7% gain, but the current Q1 estimate suggests that the war’s effects will remain a headwind for an already struggling economy in Q2.

Inflation will also remain a critical factor for market behavior in the weeks ahead. The concern is that repairing damaged energy infrastructure in the Middle East will take months, perhaps years in some cases, and so relief for headline measures of inflation will arrive slowly.

The initial reaction of US consumers on the inflation outlook since the war started raises a warning flag. Median inflation expectations rose to an expected 3.4% annual pace for the year-ahead outlook, according to the New York Fed’s survey. The question is whether the bump is temporary, or the start of an extended reflationary run for the public’s perception. The Federal Reserve will be closely watching as it determines how or if to adjust its target interest rate in the months ahead.

Speaking of the Fed, keep an eye on how the policy-sensitive 2-year yield evolves from current levels. As I noted yesterday, this key rate has recently shot above the median Fed funds rate, signaling that the market is pricing in a modest rate hike. The futures market disagrees, but sentiment in Treasuries still matters and so the 2-year yield’s path ahead could play a key role in determining the risk appetite for the near term.

The main test will be the durability of the ceasefire. Talks between the US and Iran are scheduled to start on Friday in Islamabad to discuss Iran’s 10-point plan, which President Trump said was a “workable basis” for negotiations in a social media post. Meanwhile, Iran’s foreign minister Abbas Araghchi announced that Tehran would allow two weeks of “safe passage” of energy shipments through the Strait of Hormuz.

It’s unclear how much give and take each side will tolerate in the upcoming talks. For now, a precarious peace prevails.

“Markets will be able to breathe for at least a few days,” said Michael Alfaro, chief investment officer at Gallo Partners, a US hedge fund.

There’s still no quick fix for the energy shock, even if the war is truly over.

“Presuming traffic begins to flow through Hormuz, trade flow normalization will take months, not weeks,” predicts Zhuwei Wang, director of research and analysis at S&P Global Energy.

The good news is that the repair process, for infrastructure and sentiment, can start today. It’s a recovery… if Washington and Tehran can keep it.

The Federal Reserve is steering through one of the most challenging policy environments in years as the war with Iran destabilizes global energy markets and raises uncertainty about inflation and economic activity. The spike in geopolitical volatility leaves policymakers navigating an exceptionally narrow path: tightening too aggressively risks tipping the economy into recession, while easing too soon could reignite inflation. For the near term, the least worst option is to sit tight and leave rates unchanged until the incoming data start to make a strong case for changing the monetary policy bias.

The Cleveland Federal Reserve president, Beth Hammock, underscored this point in an interview with AP on Monday. Noting that keeping the Fed’s target rate steady for the near term “for quite some time” is her preference, “I can foresee scenarios where we would need to reduce rates … if the labor market deteriorates significantly,” she added. “Or I could see where we might need to raise rates if inflation stays persistently above our target.”

The Treasury market has recently recalibrated its outlook and is now firmly pricing in a higher probability of a rate hike in the near term after an extended run of dovish pricing. The policy-sensitive 2-year yield (3.84% as of Apr. 6) continues to trade above the median effective Fed funds rate (3.64%), marking a clear change in sentiment toward a hawkish bias for the first time since 2022.

The degree of future inflation risk remains debatable, as does the potential for a slowdown in economic growth. But the odds are widely perceived as higher for one or both sides of this coin.

“All roads now lead to higher prices and slower growth,” predicts IMF managing director Kristalina Georgieva. “We are in a world of elevated uncertainty,” she told Reuters yesterday, pointing to a variety of risk factors, including geopolitical tensions, technological advancements, climate shocks and demographic shifts. “All of this means that after we recover from this shock, we need to keep our eyes open for the next one.”

Current Fed policy is still modestly tight, based on a simple model using the unemployment rate and the year-over-year change in the headline Consumer Price Index. That gives the central bank space to take a wait-and-see approach and monitor incoming numbers.

Chicago Fed President Austan Goolsbee, however, suggests that a rate hike could be near. Asked to characterize the state of risk for the economic outlook using a four-color template, ranging from “the house is on fire” red to “everything is looking swell” green, he responded. “At least orange. Orange with ​a chance of meatballs; it hasn’t been great.”

The Treasury market is inclined to agree lately. But inflation and economic data arrive with a lag, and so the Fed will continue to wait to develop a clearer view of how the economy’s reacting to the war with Iran.

The challenge is not waiting too long, lest inflation and/or slower growth move too far ahead of policy, which would leave the Fed in the difficult position of trying to play catch-up. That was the case when the central bank was slow to raise rates when inflation spiked in 2021-2022, and so avoiding that mistake is very much a priority just a few years after that policy mistake.

At the same time, the risk of acting too early could make a bad situation worse, on either the inflation or growth fronts.

In the end, the Fed’s challenge is less about choosing the perfect policy setting and more about staying nimble in a world where the ground keeps shifting. The only certainty is that the next move—whenever it comes—will be made under conditions that are anything but certain.

Global markets are entering a sixth week of stress testing as the war with Iran continues with no immediate resolution in sight. The main risk factor remains the closure, or near‑closure, of the Strait of Hormuz, a strategic chokepoint through which roughly one‑fifth of global oil and liquefied natural gas flowed before the conflict began on Feb. 28.

Until energy exports through the Strait return to something approximating normal levels, a global shockwave will continue to reverberate across the world economy. The US is partly insulated because it is a net exporter of total petroleum, but oil is a globally priced commodity, so rising prices abroad still lift energy costs at home. Higher fuel prices will spill over into the broader economy, pushing up headline inflation and slowing growth to some degree. Uncertainty about the extent of these risks will keep markets on edge for the foreseeable future.

Investors have repriced assets accordingly since the war began, and this shift in risk appetite remains intact. With the exception of commodities, all major asset classes have declined in the regime shift triggered by the conflict with Iran.

Using a set of ETFs through Thursday’s close (Apr. 2), a broad commodities portfolio (GCC) is the lone upside outlier, rising 2.9% since the war began. At the opposite extreme, the biggest loser is global property stocks ex‑U.S. (VNQI), which have fallen nearly 12%.

In a sign of the times, the Global Market Index—a passive benchmark holding all major asset classes in market‑value weights except cash—has dropped 4.8% during the war. That’s a reminder that most globally diversified strategies have probably taken a hit during the war.

The crucial question for markets is when normal (or near‑normal) energy exports will resume. The odds of a quick resolution remain low, based on the latest news reports. Notably, President Trump on Sunday threatened to destroy Iran’s critical infrastructure unless it allows energy shipments to move through the Strait. Iran responded that new attacks on its civilian infrastructure would intensify Tehran’s strikes on energy facilities in the Gulf region.

As the war drags on, it is becoming clear that Iranian control over the Strait will not easily be dislodged without a deal with the government in Tehran. On that basis, a quick resolution may remain elusive.

Professor Robert Paper, a professor of political science at the University of Chicago who studies military strategy and international security, summarizes the challenge, warning that “The War Is Turning Iran Into a Major World Power.”

Modern economies do not simply require oil. They also require oil delivered on time, at scale and with predictable risk. When that reliability breaks down, insurance markets tighten, freight rates spike and governments begin to look at energy access as a complex strategic challenge rather than a simple market transaction.

The problem for the United States is one of asymmetry. Protecting each and every oil shipment that passes through the Strait of Hormuz against potential attacks — mines, drones, missile strikes — is a full-time operation. It requires continuous military presence. Iran needs only to hit an oil tanker once in a while to cast doubt on the reliability of the world’s oil shipments.

President Emmanuel Macron of France said as much on Thursday when he declared that it was “unrealistic” to open the Strait of Hormuz by force and that “this can only be done in concert with Iran.” He was all but admitting that the flow of oil cannot be guaranteed without Iran’s agreement.

Short of a complete regime change, Iran appears set to maintain significant influence over the flow of Middle East energy exports. Before Feb. 28, this risk factor was essentially off the radar for global markets. Now that it has become central to setting risk premiums and recalibrating risk appetite, markets are likely to remain volatile.

How long this transition lasts is anyone’s guess, but the aftershock of the war with Iran may last longer, and run deeper, than optimistic estimates suggest.

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