Market Perspective: Geopolitics, Oil Prices, and Shifting Expectations in 2026
As we enter the second quarter of 2026, the market environment has become more complex. Conditions shifted in late February following the escalation of geopolitical tensions involving Iran, which pushed oil prices sharply higher, from approximately $65 toward $100 per barrel, creating renewed inflation concerns and increased market volatility.
The US economy continues to grow, but at a more moderate pace, while inflation has improved but not fully settled. At the same time, interest rates have moved higher, with the U.S. 10-year Treasury approaching 4.5%, and expectations for rate cuts have become more limited compared to earlier in the year. Equity markets peaked in late January and have since pulled back close to 10%. Performance has varied across sectors.
None of this suggests that the economic cycle is ending, but it does suggest markets are adjusting after a prolonged period of strong, momentum-driven performance. While geopolitical shocks often lead to short-term disruption, history suggests these effects can moderate once supply conditions stabilize, though uncertainty remains elevated for now.
The US Economy Is Cooling – But Still Expanding
Recent economic data shows that US growth has moderated from the unusually strong pace seen last year. Fourth-quarter GDP came in at 1.4%, compared with 4.4% growth in the previous quarter.
Some of that slowdown was driven by temporary factors. The government shutdown during the October and November period reduced federal spending, and there were also signs that consumer spending and exports slowed slightly. That said, private investment remains strong, particularly in areas such as data centers, artificial intelligence infrastructure, and technology-related capital spending.
Looking ahead, expectations for the first quarter are closer to 2% growth, which remains healthy. In many ways, what we are seeing now is the economy settling back toward a more sustainable pace after an unusually strong period.
The Labor Market Is Evolving
The jobs data has been more difficult to interpret recently, with large revisions and a fair amount of volatility in the monthly reports.
Part of the reason for this is structural change within the workforce. Over the past year, there have been shifts related to immigration policies and reductions in certain government roles. At the same time, participation among American-born workers has increased.
These adjustments mean the headline numbers do not always tell the full story. What this reflects is a labor market going through a period of transition rather than one that is weakening significantly.
Geopolitics and Energy Markets
One of the most notable developments in recent weeks has been the sharp increase in energy prices. Tensions in the Middle East have pushed oil above $100 per barrel, a significant move from earlier in the year.
Much of the concern centers around the Strait of Hormuz, one of the most important shipping routes for global oil supply. Disruptions in that region can tighten energy markets worldwide.
For the United States, the impact is somewhat more limited. However, countries across Asia, particularly China, Japan, and India, are heavily dependent on energy flowing through that corridor.
Higher oil prices feed into inflation and production costs, making the duration of these tensions an important factor for the global economy.
Market performance has diverged across sectors. Energy has benefited from higher oil prices, while some technology segments, particularly software, have come under pressure as expectations adjust.
The Federal Reserve’s Balancing Act
The Federal Reserve continues to navigate a challenging environment. Inflation has improved but remains above its 2% target, which makes policymakers cautious about cutting interest rates too quickly.
At the same time, if growth slows while energy prices remain elevated, the Fed could face a more difficult scenario where inflation persists alongside weaker growth.
Expectations for rate cuts have moderated as inflation risks have re-emerged, reinforcing a more cautious policy outlook. There is also additional uncertainty around potential changes in Federal Reserve leadership later this year.
Credit Markets Remain Stable
Despite these shifts, credit markets remain relatively calm. Corporate bond spreads, both investment grade and high yield, are still near historically tight levels.
This suggests markets are not currently pricing in a significant economic downturn.
However, there are early signs of pressure in parts of the private credit space, where some funds have begun adjusting liquidity terms as investors seek to withdraw capital. Defaults remain low, so this is not a stress event, but it is an area worth monitoring.
A Broadening Market Landscape
Another important development is the gradual shift in market leadership.
For much of the past fifteen years, US equities have outperformed international markets. However, valuations have diverged significantly. The S&P 500 is trading at roughly 22 times earnings, while developed international markets are closer to 13 times.
At the same time, rising commodity prices tend to support markets outside the United States, many of which have greater exposure to energy and materials.
Within the US, there are also early signs of a shift away from high-growth technology stocks toward more defensive sectors such as energy, defense, consumer staples, and utilities.
While still early, the market leadership we have become accustomed to may be starting to broaden.
Gold and Global Reserves
Gold has also performed strongly, supported by both geopolitical uncertainty and shifts in central bank behavior.
Since the freezing of Russian assets during the Russia-Ukraine conflict, several countries have been reassessing their reliance on the US dollar and increasing gold reserves.
From a portfolio perspective, traditional allocations to gold typically range between 5% and 10%, which already represents the higher end of standard exposure.
A Market That Requires Discipline
Overall, the current environment reflects transition rather than crisis.
Growth is slowing but remains positive. Inflation has improved but remains above target. Geopolitical tensions are influencing energy markets, and leadership within equity markets may be beginning to broaden.
In this type of environment, discipline becomes increasingly important. Diversification across geographies and asset classes matters, and maintaining a long-term perspective remains key.
Markets rarely move in straight lines. Periods like this can feel uncertain, but they can also create opportunities for investors who remain focused on fundamentals and thoughtful portfolio construction.
Some of the content of this communication was provided by third parties of BlackPoint Capital Partners. We have not verified the information contained herein, but we believe the content is reliable. None of this content should be construed as legal, accounting or tax advice. Tax laws are complex and often have highly-individualized requirements, you should seek the advice of a competent tax professional if you have specific tax questions.
