Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA®), a CERTIFIED FINANCIAL PLANNER™ (CFP®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.
Market Update: Volatility Rises as Geopolitical Conflict Continues
Global markets experienced renewed volatility this week as the conflict in the Middle East entered its tenth day with no clear signs of resolution. While investors initially hoped for a quick de-escalation, uncertainty about how long the conflict may last is now driving market reactions.
The S&P 500 is currently down about 4% from its recent all-time high. U.S. markets have held up somewhat better than many international markets, largely because the United States is a net exporter of oil. Countries that rely more heavily on imported energy are experiencing greater economic pressure as energy prices rise.
Market expectations suggest the conflict may continue for some time. Betting markets currently indicate a roughly 75% probability that the situation persists beyond March, with about a 50% chance it could extend into late April. While a quicker resolution would likely help markets stabilize and allow some of the hardest-hit sectors to recover, a prolonged conflict could begin to weigh more heavily on the global economic outlook and corporate earnings expectations.
Energy Prices Driving Immediate Impact
The most immediate economic effect has been seen in energy markets. Crude oil prices have surged past $100 per barrel, rising sharply over the past several weeks.
Consumers are already feeling the impact. The national average price for unleaded gasoline has climbed to nearly $3.50 per gallon, an increase of roughly 50 cents in just one week—about a 15% jump. That marks the largest weekly increase in gasoline prices since Hurricane Katrina in 2005.
If energy prices remain elevated, the ripple effects could extend further into the broader economy. Higher fuel costs can reduce consumer confidence and shift spending away from discretionary purchases, which may eventually slow economic activity.
Mixed Economic Signals
Complicating the outlook, last week’s employment report showed the U.S. economy lost approximately 90,000 jobs in February, falling well short of expectations that called for job growth of roughly 50,000 positions.
At the same time, the unemployment rate rose to about 4.4%, nearly reaching 4.5% when looking at unrounded data. While one month of data does not establish a trend, the combination of rising price pressures and potential slowing in the labor market raises the possibility of what economists call stagflation—a period characterized by slowing economic growth alongside rising inflation.
Staying Disciplined in Volatile Markets
Periods of geopolitical tension often bring short-term volatility to financial markets. However, history shows these disruptions are typically temporary and differ significantly from structural economic crises such as financial system shocks.
For investors, the most important response during periods like this is to remain disciplined and maintain diversified portfolios. Reacting to short-term headlines by making significant portfolio changes can often do more harm than good.
While the situation remains fluid and continues to be closely monitored, maintaining a long-term perspective remains the most effective strategy for navigating uncertain market environments.
We will continue watching developments closely and provide updates as conditions evolve.
EP Wealth Advisors offers a comprehensive range of services to help you invest with greater insight, as well as develop a holistic wealth management strategy. To discuss your finances and investment goals, we invite you to contact one of our advisors.
Disclosures:
Video Summary:
Adam Phillips:
Well, as usual, there's no shortage of topics for us to cover. I had planned on talking about the underperformance of technology, the magnificent seven companies in this rotation, and the rest of the market. On today's weekly update, I was also planning to talk about this being a big week for economic reports.
This is the first week of a new month, which means we get a lot of important data, including the jobs report. That's all important, but it really all goes out the window. It went out the window over the weekend when on Saturday we woke up to news that the US and Israel. Had attacked Iran. And so we know all the events that, that have transpired since then.
And we were all waiting for the market, just looking at the future's activity. Last night, on Sunday night, we were all waiting for the markets to open. Pretty weak. And we did. We saw the S&P 500 open up, down about 1.5%. As we're recording this. It's later on Monday morning. The markets have actually recovered.
They're about flat for the day, and so take that for what you will. This is still a very fluid environment, though, and so President Trump actually spoke earlier. He said this conflict could last about four or five weeks, but he also said it's going to last as long as needed. And so this is something that we can't pretend to have any insider knowledge or clarity on.
And we're really just waiting for more facts and information to come here. But what does this mean for us as investors? I think it's really important not to let these geopolitical events derail a long-term investment plan. What we've seen historically is that it's the financial events, a financial crisis, that can have a long-lasting and deep impact on an investment portfolio.
Historically, we actually see that geopolitical events do not have a long-term impact. , and a prolonged impact on investment performance. And actually, the visual for this week comes from Schwab, and it's a table looking at military conflicts over the last several decades. And what it does is it looks at performance.
One month after that conflict began, three months after it began, six months, and then one year following the outbreak of that conflict. And the takeaway here is that forward returns are not negatively impacted by conflicts going back in history. And so past performance is no guarantee, but I think this really helps to just provide that broader perspective here.
You will see on that visual that there are a couple of exceptions. One of them is the Afghan. That the war in Afghanistan in, in 2001, you see that performance 12 months later was negative by actually a fair amount. And that is largely because I, that that happened to coincide with the.com bubble bursting.
So there was a lot more going on there. So I think these exceptions almost deserve an asterisk. The other exception you see there is in 2022. And let's just, if we rewind the clock a few years, we remember that this is a year when we were dealing with the highest inflation in about 40 years. And because of that, the Federal Reserve had to respond very aggressively by tightening rates.
And so we saw 2022 was actually a, a really rough year for both stock and bond investors. So again, I think these exceptions deserve an asterisk. For investors. I think that what we need to focus on here and what we're all waiting to see is what happens with energy prices. I think that's how a lot of this is going to be transmitted.
These issues in the Middle East are going to be transmitted to the investment landscape. It's really energy prices. We're focused a lot on the genre of horror movies. That is because about 20% of the global supply of oil goes through this waterway. And so if there are disruptions there, that could cause energy prices to spike.
And sure enough, this morning, we are seeing that oil prices are up about 8% at the time of this recording. The question is, how long will this last? If it lasts, then that certainly doesn't help our case towards getting inflation lower, which could actually increase inflationary pressures, and it comes at a really rough time when we know that there's still a lot of tariff uncertainty.
That inflation, as it remains above the Fed's target, which is 2%, is closer to 3% right now. And we know that this is a midterm election year. So President Trump is certainly going to be watching this when affordability remains one of the central themes during this midterm election cycle.
So that's what we are, really focused on here, and that's why we think a lot of the investment and market reaction is going to be concentrated within a handful of these sectors. Energy, um, the impact on travel stocks, airline stocks, we are not worried about a broad market selloff or certainly one that lasts, because at the end of the day, what we focus on is when you're faced with this kind of uncertainty, the question that you need to ask is, does this impact the long-term trajectory of the economy?
And for corporate earnings? Right now, one of the reasons that we have a favorable outlook on the equity markets is because. The expectation is for corporate earnings to grow at a very healthy clip of about 15% in 2026. If we start to see expectations start to move lower and considerably lower as a result of what's going on in the Middle East, that might cause us to rethink our outlook.
But for right now, we need to ask ourselves does the, do the, the most negative or bear scenarios have a meaningful impact on the growth trajectory? And right now the answer is no. That is why if we see some volatility, we're likely to look through it. We advise you to do the same. I'll leave it there for now.
I'll look forward to checking back in next week. But as always, if you have any questions, please don't hesitate to reach out to your financial advisor.