Navigating Markets Through Geopolitical Uncertainty

Written by Shan Gao

The first quarter of 2026 has been unusually eventful, the conflict in the Middle East has driven oil prices higher and share prices lower; an expectation for two Fed cuts this year has shifted to a 50% probability of one rate hike, according to CME FedWatch.

Volatility is elevated as the Iran conflict enters its fourth week, but the overall market reaction has been contained. As of 26 March, the S&P 500 is down 4.7% year‑to‑date and global equities (MSCI ACWI) are down 2.97%. Beneath the surface, sector and factor rotation has been more pronounced.

Why Today’s Oil Shock Differs from the Past

The rise in oil prices is meaningful, but the global economy today is structurally more resilient than during past energy crises. This is not a repeat of the 1970s. Three key differences stand out:

• Household exposure is far lower: energy represents roughly 2% of household spending today, compared with around 6-7% total consumer expenditures in the 1970s based on recent US Department of Energy estimates, limiting the impact on household budgets.
• The US is now a major oil producer: domestic production has increased substantially, and the US has at times been a net exporter since 2019[1], reducing sensitivity to external supply disruptions.
• The global economy is much less oil‑intensive: oil consumption per unit of GDP has fallen by 63% since the 1970s due to advances in efficiency and the rise of the services sector.

Chart 1: Oil Intensity of World Real GDP (Index, 1973 = 100)

Sources: Energy Institute, LSEG, Capital Economics

Collectively, these structural shifts mean that the economic drag from higher oil prices today is far smaller than in earlier decades.

While the current disruption is significant, it is worth remembering that oil prices have reached similar levels several times over the past 15 years—during the Arab Spring and following Russia’s invasion of Ukraine—without triggering recessions. These episodes provide a useful reminder that elevated oil prices do not necessarily derail economic growth.

Reading the Market’s Signals

We continue to monitor key macro indicators for signs of stress. One important gauge is the US 10‑year Treasury yield. Although yields have moved across a wide range since 2002, a “stable zone” of 3.50%–4.75% has emerged in this cycle. When yields remain within this range, markets tend to be balancing inflation and growth risks rather than pricing in a severe downturn. As of 25 March, the 10‑year yield stands at 4.4%, firmly within that zone and consistent with a slowing but still functioning global economy.

Chart 2: 10-Year US Treasury Yield (%)

Source: Board of Governors of the Federal Reserve System, MASECO

The latest readings of global business activity data reflect a similar pattern—some cooling, but not contraction. Composite Purchasing Managers Index (PMI) – an economic indicator that gives an overall view of business activity in an economy) remain above the expansion threshold of 50 in major regions:

• US: 51.4
• Eurozone: 50.5
• UK: 51.0

These readings suggest early signs of disruption but also continued near‑term resilience.

How We Are Positioned

MASECO’s portfolios are globally diversified with a consistent tilt toward companies with high profitability and strong balance sheets—characteristics that have historically been more resilient in periods of stress.

• If oil prices remain elevated, energy, US large caps, and high-quality technology could offer relative defensiveness.
• If the disruption proves short lived, exposures to small caps, value, emerging markets, and international equities may be positioned to lead a recovery.

Our approach is not to predict a single macro or geopolitical outcome, but to build portfolios capable of performing across both the above scenarios. In the current environment, diversification remains essential. Periods of uncertainty are rarely comfortable, but they create opportunities to rebalance, strengthen diversification, and incorporate high‑quality assets at more attractive valuations.

Long‑Term Objectives Over Short‑Term Noise

Geopolitical shocks generate unsettling headlines, but long‑term investment success depends far more on discipline than on reacting to short‑term events. Remaining invested, maintaining balanced portfolios, and avoiding emotionally driven decisions have consistently been the most reliable ways to navigate uncertainty.

We will continue to monitor developments closely and keep you informed. In the meantime, staying focused on long‑term objectives; remaining invested remains the most effective path to preserving and building wealth.

[1] U.S. Energy Information Administration (EIA): https://www.eia.gov/energyexplained/us-energy-facts/imports-and-exports.php