Broader participation in stocks that marked the start of the year quickly reversed in March, with major indices falling more than five percent. Over the past few weeks, military operations in Iran created the prospect for terminally higher commodity prices and inflation. We experienced a similar scenario in 2022 when an unexpected war in Ukraine led to growth stocks selling off as rates and commodity prices spiked. But unlike that period, we currently do not have the Covid Fiscal Stimulus boosting growth and incomes.

Given recent events, there is a good chance that there is a new higher floor for oil prices, but in our view, it should not be enough to derail the United States’ economic engine. But the market’s reaction during the quarter was puzzling, and to our surprise, the expected defensive sectors such as healthcare, financials, and consumer staples did not act as the historical “safe havens,” and prices were hit hard. Overall, we view this as temporary. Corporate earnings and economic fundamentals over the next twelve months should prevail over the current shorter term geopolitical shocks.