Our Updated Views on Iran

As the conflict moves into its fourth week, a few items are worth highlighting. First, we still do not think the conflict will spark a lasting change in the corporate profit or credit cycles. We are coming out of a strong earnings season featuring resilient consumer spending and steady sales and earnings trends that have exceeded expectations for most sectors. While we acknowledge some elevated investor concerns within certain credit sectors, we are not seeing signs of credit deterioration that would cause us to have deep concerns about lending markets in general.

We continue to emphasize the conflict’s breadth and duration as the main factors shaping markets. The conflict’s specific path remains “edgeless,” or difficult to predict through analysis, with strategic paths and reaction functions across participants remaining fluid. To be clear, the longer the conflict lasts and the broader the geographic and infrastructure repercussions, the greater the risk that hydrocarbon prices will remain elevated.

Higher hydrocarbon prices act like a resistance ramp on a treadmill; the longer the ramp remains elevated, the more difficult it will be for consumers and businesses to retain their current, healthy jog pace. Our thoughtful Northern Trust Economics team recently noted that “while higher energy costs complicate the outlook, they are not enough to derail the expansion on their own.”¹ They cite real income gains, solid household balance sheets and larger comparative tax refunds as offering some counterbalance.² While we still anticipate a reasonable total return opportunity for diversified portfolios in this environment, we remain watchful for what could challenge that glass-half-full perspective amid dynamic macro conditions.

One of financial markets’ greatest properties is their indifference to politics, narratives and biases over time. No opinion or prognostication shortages exist in markets, but price represents where buyers and sellers meet. As the saying goes for any market — whether stocks, bonds, cryptocurrencies, baseball cards or vintage cars — “price equals truth, at least for the moment.”

As of Friday’s market close, a proxy for global stocks tracking the MSCI World index is down 7% since the Iran conflict began, and the S&P 500 is down 5.5%. If we were to ask investors to guess the stock market’s return since Operation Fury’s initial salvo, we would hypothesize that most would give a much more dour guesstimate than the reality. Brent Crude, the global oil benchmark, closed on Friday $9 lower than its peak intraday price reached on March 9: Earlier today, West Texas Intermediate Crude, the U.S. benchmark, traded $20 below its March 9 intraday high.

While some of the more global or broad-based hydrocarbon proxies remain elevated relative to pre-conflict levels, significant jumps in local market prices — for example, in Germany, natural gas prices spiked 38% intraday Thursday — speak to how certain markets are more vulnerable to infrastructure disruptions crossing headlines. Further, inflationary pressures continue to have market participants’ attention, including that of central banks (more on that below). The U.S. 10-Year Treasury Bond, which does not respond well to inflationary pressure, has moved down in price and up in yield to trade above 4.3% — a level we have not seen since last September. We would have deeper concerns if we pressed to the 5% level, which is not our base case but would represent a level not breached in nearly 19 years.

Finally, despite a more muted headline stock index reaction thus far, we note that on Thursday the S&P 500 closed below its 200-day moving average (a technical measure that works mathematically just as it sounds; a rolling average of the last 200 day’s closing prices) for the first time since the Liberation Day aftermath. Markets are much more complex than the representations of simple heuristics like moving averages, but the message across hydrocarbons, equities, bonds, and even currencies and precious metals is that growth tailwinds may fade as a function of the conflict’s breadth and duration, though it is too soon to draw that conclusion yet. 

This week was a central bank extravaganza with, among others, the European, English, Canadian, Australian and Japanese central banks all convening for regularly-scheduled gatherings. While some similarities emerged, most of the takeaways are best contextualized within each unique region.

The European Central Bank (ECB) has a single mandate: Price stability. The ECB left interest rates on hold for the sixth consecutive meeting, but the press conference and official statements made it clear that officials have concerns about energy prices. The ECB raised its consumer price inflation estimate to 2.6% for the year, and, although Europe is in a slightly better position than it was when Russia invaded Ukraine, markets do expect the ECB to raise interest rates three times this year in order to get prices to the ECB’s 2% inflation objective.

The Bank of England (BOE) made the largest about face from its prior meeting despite no change to its interest rate target. Heading into the meeting, the BOE signaled a cutting bias for the year, but, in a unanimous agreement to hold rates steady, the official statement shifted to a hiking bias. One interpretation from the BOE is that, while the inflationary impacts will be immediate, the concomitant growth implications are less clear. However, the UK has had a more challenged labor market than some of its peers, and that could somewhat restrain economic activity. The Bank of Canada had similar messages on unemployment trends but was more willing to look through the immediate energy price increases in holding interest rates steady.

The Reserve Bank of Australia increased interest rates for the second straight meeting in a narrow 5-4 vote. The official statement suggested a bias towards hiking despite its target rates increasing to 10-month highs. The Bank of Japan, which like Australia has had a tightening bias, opted to keep rates at the target 0.75% level but did reiterate it will increase rates if economic activity and a weaker currency persist. Similar to the Fed, each central bank emphasized a wide range of potential outcomes but also a vigilance towards price stability. 

Analyst forecasts, which academic research suggests can be overly optimistic, provide useful baselines when assessing valuation and market sentiment. Given three years of strong equity market returns that are at least partially explained by revenue and earnings growth, investors may have become complacent or, at worst, entitled to ongoing trend progression or continuation.

Amid inflationary concerns, consumers reallocating expenditures towards energy and other potential adverse outcomes, one would naturally expect diminished future earnings estimates. Ironically, the opposite has happened. In evaluating 2026 and 2027 S&P 500 earnings estimates, analysts expect earnings growth of 15.8% for both this year and next on sales growth of 8% and 7%, respectively. Since the Iranian conflict began, analysts have increased their earnings per share growth estimates for the S&P 500 from $314 to $321 for 2026 and from $361 to $372 for 2027. While those estimates can and do change daily, it is apparent that companies, on average, have not convinced analysts to lower their expectations. Perhaps one reason why domestic equities have had a more subdued reaction is because estimates remain elevated. However, as we have highlighted throughout this piece, the range of expected outcomes remains high, and, the longer the conflict and the greater the geographic territory in play, the greater the risks of adverse outcomes — including downward revisions to still high earnings estimates. 

¹ Northern Trust Asset Management Institute: U.S. Economic & Interest Rate Outlook. Accessed 20 March 2026.

² Ibid

³ U.S. Federal Reserve: Transcript of Chair Powell’s Press Conference March 18, 2026. Accessed 20 March 2026.

⁴ Ibid