By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
Our previous commentary began with the observation that the worst of the Iran conflict could be behind us, as evidenced by oil prices falling from over $100/barrel to under $70/barrel over the second quarter. While it still might be true that the worst is behind us, the hope of de-escalation may have been premature. Retaliatory strikes have continued despite attempts at diplomacy, and oil prices rose back above $90/barrel in July.
Interestingly, the US stock market seems to be shrugging off the re-escalations. The S&P 500 was essentially flat over the month of July, and its movements were more closely tied to headlines around AI infrastructure. If the war keeps dragging on there will surely be continued supply chain disruptions that stoke inflation, so why does the market not seem too concerned?
One consideration is that strong earnings and government stimulus have provided an economic cushion that has propped up companies and consumers through the war. Earnings growth has to peak at some point and stimulus from tax refunds has likely been nearly exhausted, but it is possible that they could insulate the economy from an energy shock for a few more months.
Another consideration is that oil producers in the Gulf nations are already advancing projects to avoid the Strait of Hormuz. There are currently at least seven pipelines either planned or under construction to redirect oil supply to the Mediterranean, the Red Sea, and the Gulf of Oman (see chart below showing conceptual pipeline routes being proposed). These projects will take time and money, and some could still be vulnerable to attacks, but analysts from Goldman Sachs estimate that in less than two years over half of Gulf oil exports could bypass the Strait of Hormuz. Source of image below: The Associated Press
Many commodities other than oil also pass through the Strait, but equity markets are not pricing this in as a lasting concern. Time will tell if the market is right or wrong, but we can’t help but notice that it would be in Iran’s best interest to continue escalating the conflict and disrupting energy production as long as they can. Because prolonged war and inflationary pressures are politically unpopular, Iran would gain more leverage the closer they can push the conflict to our midterm elections.
Although equities have not been reacting strongly to re-escalations, it is worth noting that long-term bond yields have been steadily rising. The 10-Year Treasury Rate ended July at 4.75%, and the 30-Year Treasury yield surpassed 5.2% for the first time since 2006, indicating rising fears in the bond market about persistent inflation and/or a deteriorating fiscal outlook.
The S&P 500 was down 0.06% in July as the market went back and forth on how to digest big tech earnings and interest rate policy. The Federal Open Market Committee, now under Kevin Warsh, chose to keep the Federal Funds rate at 3.5-3.75% while signaling that the central bank would not hesitate to act on inflation when necessary, whether through rate policy or shrinking the balance sheet. Expecting higher rates in the future, the Bloomberg US Aggregate Bond Index fell 1.3% in July.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
Source of three charts below: YCharts Inc.
August 2026 Commentary: The Market’s View on Iran
By Daniel McGarvey, CFA on behalf of Stonebridge Financial Group advisors
Our previous commentary began with the observation that the worst of the Iran conflict could be behind us, as evidenced by oil prices falling from over $100/barrel to under $70/barrel over the second quarter. While it still might be true that the worst is behind us, the hope of de-escalation may have been premature. Retaliatory strikes have continued despite attempts at diplomacy, and oil prices rose back above $90/barrel in July.
Interestingly, the US stock market seems to be shrugging off the re-escalations. The S&P 500 was essentially flat over the month of July, and its movements were more closely tied to headlines around AI infrastructure. If the war keeps dragging on there will surely be continued supply chain disruptions that stoke inflation, so why does the market not seem too concerned?
One consideration is that strong earnings and government stimulus have provided an economic cushion that has propped up companies and consumers through the war. Earnings growth has to peak at some point and stimulus from tax refunds has likely been nearly exhausted, but it is possible that they could insulate the economy from an energy shock for a few more months.
Another consideration is that oil producers in the Gulf nations are already advancing projects to avoid the Strait of Hormuz. There are currently at least seven pipelines either planned or under construction to redirect oil supply to the Mediterranean, the Red Sea, and the Gulf of Oman (see chart below showing conceptual pipeline routes being proposed). These projects will take time and money, and some could still be vulnerable to attacks, but analysts from Goldman Sachs estimate that in less than two years over half of Gulf oil exports could bypass the Strait of Hormuz. Source of image below: The Associated Press
Many commodities other than oil also pass through the Strait, but equity markets are not pricing this in as a lasting concern. Time will tell if the market is right or wrong, but we can’t help but notice that it would be in Iran’s best interest to continue escalating the conflict and disrupting energy production as long as they can. Because prolonged war and inflationary pressures are politically unpopular, Iran would gain more leverage the closer they can push the conflict to our midterm elections.
Although equities have not been reacting strongly to re-escalations, it is worth noting that long-term bond yields have been steadily rising. The 10-Year Treasury Rate ended July at 4.75%, and the 30-Year Treasury yield surpassed 5.2% for the first time since 2006, indicating rising fears in the bond market about persistent inflation and/or a deteriorating fiscal outlook.
The S&P 500 was down 0.06% in July as the market went back and forth on how to digest big tech earnings and interest rate policy. The Federal Open Market Committee, now under Kevin Warsh, chose to keep the Federal Funds rate at 3.5-3.75% while signaling that the central bank would not hesitate to act on inflation when necessary, whether through rate policy or shrinking the balance sheet. Expecting higher rates in the future, the Bloomberg US Aggregate Bond Index fell 1.3% in July.
Material discussed is meant for general/informational purposes only and it is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary therefore, the information should be relied upon when coordinated with individual professional advice. Past performance is no guarantee of future results. Diversification does not ensure against loss. The opinions and forecasts expressed are those of the author, and may not actually come to pass. This information is subject to change at any time, based on market and other conditions.
Source of three charts below: YCharts Inc.
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