David Hagee, Executive Vice President, Chief Investment Officer
Geopolitical tensions intensified over the weekend following a coordinated U.S.- Israeli strike on Iranian military and political targets. The action marks a significant escalation after weeks of military buildup and rising friction surrounding Iran’s nuclear program. This development adds a new layer of uncertainty to an already fragile geopolitical environment and represents a meaningful shift in the risk backdrop investors are
evaluating.
Uncertainty in global energy markets
Iran’s position within global energy logistics heightens the significance of this event. The country’s influence over the Strait of Hormuz, a critical corridor through which roughly 20% of the world’s oil and gas supply is transported, creates immediate concerns about potential disruption. Approximately 90% of the oil passing through this channel is destined for Asian markets. Crude prices have pushed above $80 per barrel as investors weigh the likelihood of supply bottlenecks. Even a partial disruption at this chokepoint can introduce renewed volatility across energy markets and reinforce the global economy’s sensitivity to geopolitical developments.
Equity markets respond
The U.S. equity markets have reacted in several ways. Major geopolitical events typically have immediate reactions of selling off as investors assess the changing environment. U.S. equities initially moved lower as investors reassessed risk sentiment against a backdrop of elevated valuations, which tends to amplify volatility during moments of uncertainty.
Higher energy prices are also contributing to inflation concerns. Although energy represents about 7% of the U.S. consumer price basket, the impact is higher for lower income households, where fuel and utilities command a larger share of monthly expenditures. Increased energy costs could weigh on discretionary spending and slow progress on inflation.
International Developed and Emerging equity markets haven’t fared as well as the U.S. market as they tend to be net oil importers and the flight to safety benefits the U.S. dollar and markets.
Fewer interest rate cuts, fundamentals remain strong
The inflationary pressures have also influenced monetary policy expectations. Prior to the escalation, market consensus called for two Federal Reserve interest rate cuts in 2026. Markets now anticipate only one cut as policymakers evaluate the potential inflationary impact of sustained higher oil prices.
Despite this shift, corporate fundamentals remain supportive. Consensus estimates project approximately 13% earnings growth for U.S. companies in 2026, providing a stabilizing counterweight as geopolitical risks are evaluated. In fixed income markets, the 10-year U.S. Treasury yield has remained above 4%, and corporate credit spreads have been steady.
Geopolitical events of this magnitude add to investor uncertainty, producing swift market action. This is exacerbated by above average valuations. Historically, markets at valuation levels similar to today have shown a 60% probability of experiencing a 15% correction and roughly a 30% probability of a 20% drawdown. While these probabilities underscore the potential for market swings, they do not alter our disciplined approach to investment management.
Through this heightened period of market tension, we remain steadfast to our core belief that asset allocation is the driver of returns. Asset allocation should reflect our clients’ goals, characteristics, and circumstances, while reevaluating and rebalancing portfolios remains our path to investing success.
Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of March 4, 2026. This summary is intended to provide general information only and is reflective of the opinions of Commerce Trust. This material is not a recommendation of any particular security, is not based on any particular financial situation or need and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional.
Diversification does not guarantee a profit or protect against all risk. Commerce Trust does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product and specific financial situation. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Commerce Trust is a division of Commerce Bank.
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