Over the past five days, markets have been navigating the most significant geopolitical event in the past several years. Below, we address the questions we're hearing and what this means for your portfolio. Please don't hesitate to reach out with any questions. We are here to help you navigate uncertainty with clarity and confidence.

1. What happened between the U.S., Israel, and Iran?

Over the past week, the United States and Israel launched coordinated military strikes against Iran, prompting retaliatory attacks by Iran against Israel, U.S. military bases, and energy infrastructure across the Persian Gulf. The most significant economic impact so far has occurred in energy markets. Iran declared the Strait of Hormuz closed to commercial shipping, a critical chokepoint through which roughly 20% of the world’s oil supply passes. As a result, major marine insurers withdrew coverage for vessels operating in the region, effectively halting tanker traffic. Oil prices have surged roughly 12% over the past five days as markets react to the potential disruption in global energy supply.

2. Why haven’t stock markets fallen more sharply?

Despite the severity of the conflict, U.S. equities have remained relatively stable. The S&P 500 has traded roughly flat since the conflict began, reflecting a measured response from investors. Two factors explain the resilience. First, history shows that most geopolitical shocks tend to have short-lived impacts on financial markets. Investors have learned that selling into the initial panic often proves costly. Second, reports have emerged that Iranian intelligence has indirectly contacted U.S. officials to explore a potential diplomatic resolution, leading markets to assign some probability to a near-term off-ramp. Corporate bond markets reinforce the equity market’s relative calm. High-yield credit spreads are largely unchanged from pre-conflict levels, suggesting investors do not currently see a major threat to economic stability.

3. Why haven’t bonds provided their usual protection?

In most geopolitical crises, Treasury bonds rally as investors seek safety, with falling yields and rising bond prices helping offset stock market volatility. This specific event is different due to the threat of inflation. Rising oil prices feed directly into consumer prices through gasoline, transportation costs, and broader supply chains. Several Federal Reserve officials have already suggested that higher energy prices could reduce the likelihood of near-term rate cuts. As markets move to reflect the potential for higher inflation and fewer rate cuts, bond yields have risen rather than fallen. For diversified portfolios, this means the traditional cushion provided by bonds has been weaker than usual during this event.

4. Will this situation affect gas prices?

If the Strait of Hormuz remains closed for an extended period, higher gasoline prices are likely. The strait handles roughly one-fifth of the world’s oil supply, making it one of the most important energy transit routes globally. Oil prices have already risen more than 10%, while European natural gas prices surged over 50% in the early days of the conflict. A brief disruption lasting a week or two would likely produce only temporary increases at the pump. However, a longer closure could place sustained upward pressure on energy costs and inflation. Adding to the picture, a new 15% global tariff is scheduled to take effect soon, creating a second potential source of inflationary pressure.

5. What We're Watching

Three indicators will help determine whether this situation remains contained or becomes more economically significant.

First, credit spreads. If corporate bond spreads begin widening meaningfully, it would suggest investors are starting to price in real economic damage.

Second, the duration of the Strait of Hormuz closure. The longer the disruption lasts, the greater the risk that higher energy prices become embedded in inflation expectations.

Third, the diplomatic track. Reports of back-channel communication between Iranian and U.S. officials could provide a potential path toward de-escalation.

These indicators will likely drive market behavior in the coming days.

6. What does this mean for portfolios?

Despite five days of significant geopolitical conflict, the direct impact on diversified portfolios has been limited. U.S. equities remain roughly flat, credit markets are stable, and volatility has risen but remains contained. History suggests that most geopolitical shocks are resolved without lasting damage to financial markets. At the same time, this event carries an unusual feature: a direct disruption to global energy supply. If the Strait of Hormuz remains closed for an extended period, the economic consequences could grow.

For now, the most important principle is discipline. Long-term investment outcomes are typically harmed not by volatility itself, but by emotional reactions to it. Our current approach is to remain invested while closely monitoring developments and reassessing if conditions materially change.

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Important Disclosures

Views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Investing involves risk, including risk of loss. Investment advisory services provided by Provident Financial Planning, LLC, a SEC-Registered Investment Advisor.

The information and opinions provided herein are provided as general market commentary only and are subject to change at any time without notice. This commentary may contain forward-looking statements that are subject to various risks and uncertainties. None of the events or outcomes mentioned here may come to pass, and actual results may differ materially from those expressed or implied in these statements.

No mention of a particular security, index, or other instrument in this report constitutes a recommendation to buy, sell, or hold that or any other security, nor does it constitute an opinion on the suitability of any security or index. The report is strictly an informational publication and has been prepared without regard to the particular investments and circumstances of the recipient.

Past performance does not guarantee or indicate future results. Any index performance mentioned is for illustrative purposes only and does not reflect any management fees, transaction costs, or expenses. Indexes are unmanaged, and one cannot invest directly in an index. Index performance does not represent the actual performance that would be achieved by investing in a fund.

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