What This Means For You
The most direct impact for most people is at the gas pump and grocery store. Energy prices feed into transportation, food production, and manufacturing costs, so some of the inflationary pressures that had been easing earlier this year have picked back up. The International Monetary Fund (IMF) has noted that even in a scenario where a deal is reached, supply chains and infrastructure take time to recover, so elevated energy costs are likely to continue into the second half of the year.
The IMF's working assumption, published in April, is that if energy flows through the strait resume by midyear, global growth comes in around 3.1% this year. That's slower than 2025, but not a recession scenario, and a more grounded read than some of the headlines might suggest.
Corporate earnings are also telling a more encouraging story than the geopolitical headlines might lead you to believe. With about two-thirds of S&P 500 companies having reported Q1 results so far, 84% have beaten earnings estimates, well above the five-year average of 78%, according to FactSet. Earnings growth for the quarter is running at 27%, up sharply from expectations entering the year. I've always thought about markets this way: in the short term, they can behave emotionally, reacting to news and fear. Over the long run, they act more like a scale, weighing the actual value companies create. And right now, those companies are creating a lot of it.
Investors broadly appear to be pricing in some form of resolution, though how quickly and completely the Strait of Hormuz reopens will have a big effect on how markets move from here. The situation is still evolving, and this newsletter reflects conditions as of early May.
The diversification we've maintained across asset classes is designed to behave differently in exactly these kinds of environments. That includes our shift toward higher-quality government bonds, our exposure to global defense, and our gold position, which has been a strong contributor through this period. The goal, as always, is to keep you on track toward your long-term goals even when short-term conditions are noisy.
What I'm Watching
A sustained reopening of the Strait of Hormuz is something markets are watching closely. Analysts generally expect that even after a resolution, oil prices won't immediately snap back to pre-conflict levels given the amount of infrastructure damage and supply disruption that's occurred. A gradual normalization over the second half of the year is a more realistic path, and that's roughly what most markets seem to be anticipating.
There's also a leadership change coming at the Federal Reserve. Jerome Powell's term as chair ends May 15. He'll remain on the Board as one of its seven governors and one of the 12 voting members. The Senate is expected to vote on Kevin Warsh as the incoming chair during the week of May 11. Warsh is generally characterized as someone who takes inflation seriously and tends toward caution on rate cuts, though his recent posture has leaned more accommodative given current conditions. How he approaches monetary policy against a backdrop of elevated energy prices and ongoing geopolitical uncertainty is something I'll be watching closely going into the second half of the year.
Along those same lines, I'm also paying close attention to how energy prices affect inflation data in the coming months, and what that means for the Fed's rate decisions. We'll have a fuller picture of the economic landscape in next month's newsletter, where we'll be sharing our mid-year market and economic update.
If you'd like to talk through any of this as it relates to your unique situation, feel free to call or reply directly to this email.
All the best,
Joel
