Behind the Headlines: What's Actually Driving Markets Right Now
Updated: Sep 21
The past few weeks have delivered the kind of headlines that tend to drive markets wild. The U.S. and Israel began military operations against Iran on February 28th, effectively bringing maritime traffic through the Strait of Hormuz — a chokepoint for roughly 20% of the world’s oil supply — to a near standstill.¹ An already uncertain global backdrop got considerably more complicated overnight.
And yet, U.S. equity markets have largely held their ground. Unexpectedly, investors do not seem to be panicking, presumably because they don’t believe this all will end in a worst-case scenario. As long as the Strait of Hormuz disruption is measured in weeks rather than months, the U.S. — as a net oil exporter — is better positioned to weather the shock than most of the rest of the world. The risk of a 1970s-style stagflation scenario is real if the conflict drags on, but markets are betting it won’t.²
Why Higher Oil Prices Aren’t Simply Bad News for U.S. Investors
Rising oil prices, in the American context, are not a straightforward negative for the stock market. President Trump claimed the Strait closure “doesn’t really affect” the United States, and while that framing overstates the case — oil is priced globally, so prices go up everywhere regardless of where supply is disrupted — there is a kernel of truth worth understanding: Only about 8% of U.S. crude oil imports came from Persian Gulf nations last year, with Canada and Mexico supplying roughly 70% of what we import.³ About 80% of oil transiting the Strait is destined for Asia.³ America’s domestic oil infrastructure was never structured around Hormuz in the way that much of the rest of the world’s is.
But the economic reality that gets less of Trump’s attention: because oil is priced on a global market, “if something goes wrong anywhere, the price goes up everywhere.”³ American consumers are feeling that at the pump — gas prices have spiked since the conflict began.³ At the same time consumers feel pain, however, higher oil prices are simultaneously a significant tailwind for a meaningful portion of the U.S. stock market. The S&P 500 Energy Sector has surged to record highs— currently the only major sector in the green for the first quarter.⁴ Energy companies make up roughly 4-5% of the S&P 500 by weight, helping support the broader market.⁴
What’s Holding the Rest of the Market Up
Beyond the oil story, we believe the broader market’s resilience is grounded in more durable fundamentals: corporate earnings remain strong, consumer spending remains healthy, technology investment continues at a strong pace, and profit margins have held up. Companies are also revising their forward guidance upward — a signal that corporate America, at least for now, sees the road ahead more clearly than the headlines might suggest.⁶
There’s also a favorable operating environment to acknowledge. Deregulation has accelerated, compliance costs have fallen, and the policy climate in Washington is explicitly oriented toward corporate profitability. Whether one views that as sound economic stewardship or a net positive for the country at large is a matter of perspective — but from a pure earnings standpoint, companies operating with lower regulatory friction and a more accommodating tax environment have room to post strong results. The recently passed tax legislation allows for full expensing of certain capital costs, further reducing effective tax rates for many businesses.⁶
None of this is to say risks aren’t real. Elevated stock valuations leave little margin for error and we have entered an unprecedented geopolitical era. But, for now, as relates to the stock market, our posture remains cautiously optimistic. The underlying fundamentals that have driven markets higher over the past two years remain intact, and we are not making reactive changes based on geopolitical uncertainty that may resolve itself in short order. An extended disruption in the Gulf, a meaningful slowdown in consumer spending, or an unexpected earnings miss at the large-cap level could change the picture quickly.
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