Market Thoughts: Hey Charlie Brown

As markets churn about and headlines swirl, investors continue to anchor on a short, sharp, shocked resolution to this conflict. The extreme volatility we’re seeing across energy markets may abate. But as we’ve seen, that can change in an instant.

The International Energy Agency’s (IEA) announced release of 400 million (mm) barrels in oil reserves initially brought calm. But with the Strait of Hormuz closed, those reserves won’t immediately direct the right products to the countries that need them. Oil reserve releases, once they start, may not be able to exceed 4mm barrels per day (bpd). Drops in a fast draining bucket.

I’ve seen expert estimates of around 15mm bpd of oil currently stalled in the Strait of Hormuz. Gulf producers are believed to have cut production by over 10mm bpd. The IEA expects world production in March to be down by 7-8%. To lend context, February total oil production was just under 110mm bpd.

The global economy is already seeing knock on effects from the energy supply shock to oil, natural gas, diesel, jet fuel and fertilizer prices. Appreciating human nature, I expect there will be a rush to hoard, only driving higher prices.

Markets believe the impact on inflation from the energy supply shock will be transitory. Base case that seems right, without this turning into a more protracted conflict. Oil futures continue to reflect very gradual normalization ahead. Short term (spot) prices rightfully remain elevated and pressured.

If the Straits closure proves lasting, it will be felt across logistics and trucking companies, airlines, retailers and farmers globally. Ultimately impacting consumer demand, growth and company margins. The key to understanding the downside risks to the macro economy and markets is the duration of the conflict. Today, it isn’t obvious how long it lasts.

It takes every party in a conflict to end it. We have three. The motivation for a quick exit by the U.S. seems obvious. Regime change still doesn’t strike me as a base case outcome. Iran views this as an existential threat. Israel does as well. To state the obvious: interests are anything but aligned.

U.S. Government bonds have been fairly well-behaved. Ten-year treasuries are hugging the trading range they’ve been in the past six months. Where bond markets lead, risk assets follow.

Range trading in the bond market—with a few rumbles—can help steady equity and credit markets. That’s an index level observation. There’s a lot going on within credit and equity markets currently, not all of it pretty.

Across fund flows data we track, we’re seeing what looks to be defensive rather than ‘offensive’ de-risking. If you’re playing offense cutting risk, markets can get ugly. We’ve seen a bit of that across European Government bond markets recently. Also, global financials. They’re worth paying close attention to.

It’s fair to expect central banks to remain on hold as it relates to monetary policy. For the Federal Reserve, their juggling act between full employment and low inflation just became complicated. For the European Central Bank and Bank of England, there have already been rumblings of rate hikes in the offing. Right now, I’d make a strong argument that it would make things far worse.

Emerging markets (EM) find themselves caught in the crosshairs of geopolitics and rising developed market interest rates. Also, a stronger dollar. I expect EM central banks to pause in what looked like a year where easing was pre-ordained. We may see a bit more risk-off in those markets.

The fact that investors continue to look through the worst case scenario of a marked escalation in the conflict is ‘good’ news, if there’s any to be had. But a pivot to playing aggressive defense can happen quickly. Investor sentiment isn’t there, but it’s wobbling.

Lucy was renowned in the Peanuts cartoons for convincing Charlie Brown to trust her. This time would be different… she’d let him kick the football. This time is rarely, if ever, different. But investor behavior always manages to rhyme. Rational until not and then… parabolically emotional.

How that emotion gets channeled is key. Fear or greed? Energy prices have shown erratic anxiety driven dashes up and down intra-day. That amount of volatility in any market becomes exhausting. It weighs on broad sentiment, clouding otherwise rational investment behavior and judgement. Don’t let it. Emotion has nothing to do with investing.

At the start of this week a quote from Sun Tzu popped into my head. It applies as much to investor behavior as geopolitics. Even kicking a football. “Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.”

“Hey Charlie Brown, kick the football while I hold it. This time you can trust me.” Lucy Van Pelt.

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 3/12/26

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.