Key Observations
Operation Epic Fury
On February 28, 2026, U.S. and Israeli forces launched coordinated military strikes on Iran (Operation Epic Fury), targeting nuclear facilities, military infrastructure and senior leadership. Iran’s Supreme Leader, Ali Khamenei, was killed in the initial strikes, triggering the conflict that persists to this day. The situation remains fluid, and military action that results in civilian death and displacement is, of course, a grave humanitarian tragedy. Within financial markets, the impact of these geopolitical events tends to be concentrated in specific markets and economic sectors. In the Middle East, that nexus is energy production and its transit.
The Middle East accounted for approximately 30% of global oil production and 17% of global natural gas production in 2024.[1] Material disruption to these facilities could place upward pressure on headline inflation. We are already seeing the impact on oil prices from the closure of The Strait of Hormuz, a 21-mile passage and one of the world's most critical chokepoints for seaborne energy. In 2024, flows through the Strait accounted for more than one-quarter of total global seaborne oil trade and approximately 20% of global oil and petroleum product consumption.[2] Separately, approximately 20% of global liquid natural gas (“LNG”) trade also transited the Strait in 2024, primarily from Qatar.[3] That flow is not distributed evenly across the globe, but oil is priced globally, and rising prices would affect U.S. producers and consumers alike.
Market Impact
History shows that while geopolitical shocks cause immediate turbulence, they rarely derail a well-constructed plan. As illustrated below, the market’s "time to bottom" following such events is often swifter than the headlines suggest, with a median recovery time of just 17 trading days. While there are many examples that can be highlighted, we included the market reaction to Russia invading Ukraine in February 2022.
With limited public appetite for a sustained U.S. military engagement in Iran, and the risk that prolonged conflict could lift headline inflation ahead of an affordability-focused midterm election later this year, we expect either resolution or meaningful de-escalation in the near term. The larger puzzle pieces on the board are connecting the events in Iran with developments in Venezuela, pressure on Cuba and Greenland, and the evolving arc of U.S.-China relations. President Trump and Xi are scheduled to meet in a few weeks to discuss evolving relations. Lastly, our attention domestically remains on the future structure of tariffs, increasing cracks within the labor market, and inflation.
Market Recap
While so much has changed in the last few weeks, in similar fashion to previous market reviews, we did want to quickly highlight February performance. The month delivered a mix of optimism and unease, as investors grappled with a host of developments throughout the month. Early on, markets took comfort from signs that inflation was cooling, as the January CPI report (released in February) came in lower than expected. That helped keep the conversation alive around eventual rate cuts, even as Federal Reserve communications indicated mixed views on the future path of interest rates. Later in the month, the U.S. Supreme Court ruled the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose broad based tariffs.
In February, S&P 500 Index fell (-0.8%), pressured by continued anxiety around software disruption from AI. Information technology and financials were among the sectors negatively impacted. While the headlines of 2025 were dominated by a few AI software names, February saw investors favor 'HALO' assets (Hard-Assets with Low Obsolescence) such as utilities, energy, and industrials. This shift plays into the strengths of a well-diversified portfolio, providing stability when high-growth tech valuations face scrutiny. Outside the U.S., returns were notably stronger, with international developed stocks (MSCI EAFE) gaining 4.6% and emerging markets (MSCI EM) returning 5.5%. Part of that strength reflected a market narrative that emerging market exposure to the “hardware side” of AI looked more durable than stretched U.S. software valuations. Additionally, bond markets offered welcome ballast with core fixing income (Bloomberg U.S. Aggregate Bond Index) returning 1.6%, supported by a meaningful rally in Treasuries.
In Conclusion
Given the transitory and regionalized nature we described above, we do believe portfolios are well positioned to navigate near-term volatility. The increase in volatility can be uncomfortable, but we remain focused on the long-term while also carefully tracking the potential impacts of the conflict with Iran. We are always monitoring these events, and should the situation evolve meaningfully, we will follow up with the potential impact.
Sources
[1] Middle East provided approximately 30% of global oil production and 17% of global natural gas production in 2024. Source: IEA, World Energy Investment 2025, Middle East | iea.org/reports/world-energy-investment-2025/middle-east | As of: 2025.
[2] In 2024, oil flow through the Strait averaged 20 million barrels per day, more than one-quarter of total global seaborne oil trade and ~20% of global petroleum liquids consumption. Source: U.S. EIA, "Amid regional conflict, the Strait of Hormuz remains critical oil chokepoint" | eia.gov/todayinenergy/detail.php?id=65504 | As of: June 2025.
[3] In 2024, approximately 20% of global LNG trade transited the Strait, primarily from Qatar (~9.3 Bcf/d) and UAE (~0.7 Bcf/d). Source: U.S. EIA, "About one-fifth of global LNG trade flows through the Strait of Hormuz" | eia.gov/todayinenergy/detail.php?id=65584 | As of: 2025.
Disclosures
The information provided is illustrative and for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. This document may contain certain statements that may be deemed forward looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur. Certain targets within the presentation are estimates based on certain assumptions and analysis made by the advisor. There is no guarantee that the estimates will be achieved.
All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.
No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. All investments include a risk of loss that clients should be prepared to bear. The principal risks of Clarendon Private’s strategies are disclosed in the publicly available Form ADV Part 2A.
Diversification does not ensure a profit or guarantee against loss. Asset Allocation may be used in an effort to manage risk and enhance returns. It does not, however, guarantee a profit or protect against loss. Index returns are unmanaged and do not reflect the deduction of any fees or expenses.
Comparisons to any indices referenced herein are for illustrative purposes only and are not meant to imply that actual returns or volatility will be similar to the indices. Index returns reflect all items of income, gain and loss and the reinvestment of dividends and other income. You cannot invest directly in an Index.
S&P 500 is a capitalization-weighted index designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
Russell 2000 consists of the 2,000 smallest U.S. companies in the Russell 3000 index.
MSCI EAFE is an equity index which captures large and mid-cap representation across Developed Markets countries around the world, excluding the U.S. and Canada. The index covers approximately 85% of the free float-adjusted market capitalization in each country.
MSCI Emerging Markets captures large and mid-cap representation across Emerging Markets countries. The index covers approximately 85% of the free-float adjusted market capitalization in each country.
Bloomberg U.S. Aggregate Index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities.
Bloomberg U.S. Corporate High Yield Index covers the universe of fixed rate, non-investment grade debt. Eurobonds and debt issues from countries designated as emerging markets (sovereign rating of Baa1/BBB+/BBB+ and below using the middle of Moody’s, S&P, and Fitch) are excluded, but Canadian and global bonds (SEC registered) of issuers in non-EMG countries are included.
FTSE NAREIT Equity REITs Index contains all Equity REITs not designed as Timber REITs or Infrastructure REITs.
Bloomberg Commodity Index is calculated on an excess return basis and reflects commodity futures price movements. The index rebalances annually weighted 2/3 by trading volume and 1/3 by world production and weight-caps are applied at the commodity, sector and group level for diversification.
Clarendon Private, LLC (“Clarendon Private”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Clarendon Private and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at https://www.clarendonprivate.com/ or the Investment Adviser Public Disclosure website at www.adviserinfo.sec.gov by searching with Clarendon’s CRD # 316616