Where we stand as oil prices spike

Key takeaways

• Volatility is rising, consistent with a midterm election year and heightened geopolitical uncertainty.
• While the bull market still deserves the benefit of the doubt, history, sentiment, and technicals suggest the near‑term correction likely has further to run.
• For investors with excess cash, our work favors dollar‑cost averaging, with risk‑reward improving on deeper pullbacks.

What Happened

Markets remain under pressure amid escalating geopolitical uncertainty in the Middle East. Over the weekend, Iran named the son of the late Ayatollah Ali Khamenei as the country’s new supreme leader, reinforcing concerns around policy continuity and regional stability.

At the same time, shipping through the Strait of Hormuz was effectively halted, sharply disrupting global energy flows and oil spiked above $100 per barrel.

Our take

We are in a midterm election year, and the reputation for a heightened volatility backdrop is clearly playing out. The ultimate market and economic impact of the latest spike in oil prices will depend on whether this proves to be a short-term disruption lasting several weeks or a more prolonged event lasting several months.

Amid the barrage of challenging headlines this year, risk assets have actually held up reasonably well. Those headlines include:

• AI disruption concerns
• The capture of Venezuela’s Maduro
• A Federal Reserve (Fed) investigation
• Sluggish job growth
• Private credit concerns
• The SCOTUS tariff ruling
• And now, a sharp spike in oil prices

Against that backdrop, the MSCI All Country World Index, a proxy for global markets, is close to flat for the year.

All things considered, markets have held in there relatively well. That said, while our work continues to suggest the bull market deserves the benefit of the doubt over the next 12 months, the near-term corrective phase likely has further to go in both time and price before a more meaningful buying opportunity emerges.

The S&P 500 is only down about 4% from its recent high. Since March 9, 2009, the market has experienced 33 pullbacks of at least 5%. While outcomes have varied widely, the average decline has been about 10.1%, with a median decline of 7.4%. Moreover, it is not unusual for midterm election years to experience deeper intra year drawdowns.

At the same time, key sentiment and positioning indicators are not yet showing the types of extremes that often precede a durable rebound. For example:

• The latest AAII¹ sentiment survey shows the % of investors with a negative outlook at 36%, vs. prior extremes closer to 50%
• Roughly 44% of stocks are trading above their 50-day moving average, while prior market lows this measure has often fallen below 30%, and in more extreme cases under 20%

From a technical perspective, several levels stand out:

• The 200-day moving average near 6,587 represents the first test
• Support in the 6,450 to 6,500 range aligns with prior price support and the median drawdown since 2009
• Longer-term support appears in the 6,000 to 6,200 range, closer to a 10% average correction

Should markets move toward the lower end of this range, we would view it as an area to more aggressively deploy capital. In the interim, we see dollar cost averaging as a more prudent approach for investors working excess cash into the market.

Fundamentals and the economy

Amid the sea of gloom, market fundamentals heading into this geopolitical shock were sound. In fact, S&P 500 forward earnings estimates reached a record high just last week. If this conflict proves short lived, we would not expect a meaningful earnings impact. If it drags on, the effects could become more material.

Notably, the U.S. tech sector’s forward price to earnings ratio has declined from roughly 32 to about 23, approaching levels seen around the Liberation Day lows.

From an economic perspective, tax refunds tied to last year’s tax bill should help partially offset higher oil prices in the near term. Our head of U.S. economics notes that if elevated oil prices persist, they could shave some growth off U.S. GDP. That said, the U.S. is now a major energy producer, meaning the economy is more insulated than in prior decades, even though consumers still feel the impact.

The impact on international economies is generally more acute, as many countries in Europe and Asia are net energy importers. International markets are pulling back after strong runs, though broader uptrends remain intact. This is something we will be watching closely in the coming week.

A reminder from history

Once uncertainty peaks, market rebounds are often sharp and difficult to time. Since 2009, the S&P 500 has experienced 33 pullbacks greater than 5%, each accompanied by a wave of negative headlines. Despite these setbacks, the index delivered cumulative returns of more than 1,200%, including dividends, from the March 2009 low to the recent peak. Importantly, the average rebound following a market low has been 19.1%, with a median rebound of 15.9%.

As one tangible example, after markets moved past the April 2025 tariff related uncertainty, the S&P 500 experienced one of its sharpest six-month rebounds in history, albeit after first suffering a deeper correction than we have seen thus far.

Positioning

In the interim, our work suggests:

• Dollar cost averaging remains appropriate for investors working excess cash into the market
• A deeper pullback would likely improve the risk reward for more aggressive positioning

U.S. equities are still likely to outperform in the near term, given they are more insulated from energy shocks and supported by a firmer U.S. dollar. While U.S. Treasury yields have been rising on inflation concerns tied to oil prices, if this episode drags on, investor focus may shift from inflation to growth risks. This reinforces the case for maintaining an emphasis on high quality fixed income.

We are not adjusting our neutral international positioning at this time, but we are watching closely as markets approach key support levels. Modest allocations to gold as a portfolio diversifier continue to make sense.

Given the wide dispersion across markets, we also see increased value in hedge fund strategies, for qualified investors, that can provide differentiated sources of return.

Bottom line

Uncertainty is elevated, but uncertainty is a constant feature of markets. The weight of the evidence suggests the bull market still deserves the benefit of the doubt. At the same time, the near-term corrective phase likely has further to go. This remains a fluid situation, and we will adjust as new information emerges.

Finally, as today marks the 17-year anniversary of the March 2009 market low, it serves as a reminder that periods of extreme uncertainty have historically helped set the stage for long term recoveries.