There are moments in markets when the tone overwhelms the facts. This is one of them. The headlines are loud, war in the Middle East, oil, inflation, recession, and they are pushing investors toward conclusions the data does not yet fully support.
Before the recent escalation, the backdrop through February had been broadly constructive across asset classes. U.S. equities were pushing to record levels, with the S&P 500 peaking at 6,978, supported in part by expectations of monetary easing. That expectation had been one of the forces lifting markets, with the Dow Jones Industrial Average crossing 50,000 earlier this year.
Beneath the surface, performance was not narrowly concentrated, both large and small-cap equities participated, and leadership had begun to broaden beyond pure growth exposure. International developed and emerging markets were also positive. Fixed income had begun to stabilize, with short and intermediate-term government bonds modestly higher as inflation drifted lower. The environment was consistent with a soft-landing narrative.
A Shift in the Data
That backdrop shifted quickly over the past 30 days. The S&P 500 has declined roughly 5.5% from its peak, a drop of approximately 450 points. But the move has not been uniform. Materials have fallen roughly 10.5%, healthcare about 8.5%, consumer staples 7.9%, and industrials and real estate near 6.6%. By contrast, information technology, communication services, and financials have held up better, down closer to 2–3%. Energy is the exception, rising approximately 8.6%.
That shift in expectations has not been confined to U.S. markets. Global equities have moved just as quickly. The MSCI All Country World ex-U.S. index, as proxied through ETF trackers, has declined 10-11% over the past 30 days, falling from the high $140s into the mid-$130s before stabilizing. Developed international markets have shown similar weakness, down roughly 11–12%, while emerging markets have also declined by approximately 10%. The move has been broad-based, not regional. And yet, despite that sharp drawdown, many of these markets remain roughly flat on a year-to-date basis, underscoring how quickly conditions have shifted, but also how recent the shock has been.
Commodities and Inflation Signals
Commodities tell a different story. Crude oil has surged roughly 30–35%, pushing toward $90–$100 per barrel, while agricultural prices, including sugar and grains, have moved sharply higher. At the same time, traditional safe havens have not behaved cleanly, with gold down roughly 12% and silver closer to 20% over the same period.
Expectations have adjusted quickly. The move in oil has revived inflation concerns and flipped expectations for interest rates. The 10-year Treasury yield has risen to approximately 4.39%, up from around 3.95% prior to the conflict, with longer-term yields reaching eight-month highs. Market-based inflation expectations now point to roughly 2.9% over the next 12 months before easing again thereafter.
But the conclusion is not automatic. Higher oil prices alone do not determine monetary policy. For the Federal Reserve to lift rates meaningfully, higher energy costs would need to spread beyond oil itself, into transportation, industrial inputs, and ultimately wages and broader inflation expectations. Without that transmission, energy acts more like a tax. It slows parts of the economy rather than overheating it.
An Economy Already Under Pressure
The economic backdrop was not entirely stable even before the Iran conflict began. Growth at the end of 2025 was weaker than initially reported, with real GDP revised down to a 0.7% annual pace from an earlier estimate of 1.4%, reflecting softer consumer spending, exports, and business investment than previously understood. At the same time, inflation pressures had not fully subsided. The Federal Reserve’s preferred gauge showed consumer prices still rising at a moderate pace in January, and there are growing concerns that inflation could move higher in the near term.
Taken together, the data suggest the U.S. economy entered this period on less stable footing than headline figures had implied. The conflict did not create those vulnerabilities, it arrived as they were already emerging.
That is the tension now confronting markets, slowing growth alongside renewed inflation pressure. The escalation involving Iran has amplified it, driving energy prices higher and reversing rate expectations that had been moving toward easing. Those with longer memories recognize the pattern. Oil shocks have preceded economic downturns before, 1973, 1980, 1990, and 2008.
A Complex Geopolitical Structure
Layered on top of this is a geopolitical backdrop that is more complex—and more persistent—than markets are currently equipped to price with precision.
As outlined in work from the Council on Foreign Relations and the Center for Strategic and International Studies, Iran does not function as a conventional counterparty. Rather than operating as a single, centralized actor, it is better understood as a distributed regional network.
Over time, influence has extended across Lebanon, Iraq, Syria, Gaza, and other parts of the region through a combination of formal military structures and affiliated non-state groups. At the center of that system is the Islamic Revolutionary Guard Corps, which maintains both domestic authority and external reach through its broader organizational framework and associated units.
This structure has important implications for how pressure transmits through the system. Analysis from the Carnegie Endowment for International Peace and CSIS has emphasized that pressure applied to distributed networks tends to produce adaptation rather than linear weakening. Activity can disperse, reorganize, and re-emerge in different areas. Even when elements are constrained, the broader system can retain the capacity for intermittent action, and intermittency alone can be sufficient to shift expectations. Isolated events, introduced unpredictably, can be enough to reprice risk.
There is also a difference in time horizon that is frequently noted in research from institutions such as the Chatham House and the Carnegie Endowment. These systems do not operate on market cycles or quarterly frameworks. Their timelines are longer, and their tolerance for disruption is different from that of financial markets. Periods of reduced activity are not necessarily indicative of resolution; they can reflect phases of adjustment within the system.
From a policy standpoint, analysis from the Brookings Institution and others has generally framed the approach toward Iran around limiting regional influence, reinforcing alliances, and maintaining balance within the region. At the same time, the relationship between external pressure and internal outcomes is not consistent. External pressure does not reliably translate into internal political change, and in some cases can lead to further adaptation within existing structures.
As a result, there is no clearly defined path to resolution. Work from the International Crisis Group has consistently highlighted that conflicts of this structure tend to lack clean endpoints. De-escalation, when it occurs, is often partial or temporary rather than definitive. This leaves open the possibility of an extended period in which tensions fluctuate without fully resolving, and where the risk of renewed escalation remains a persistent feature of the environment.
Market Behavior
Markets do not price that well. They tend to oscillate, periods of calm followed by abrupt adjustments. That dynamic is already visible in the dispersion across sectors. The areas that have absorbed the deepest recent declines have also delivered some of the strongest returns over a slightly longer window, while the sectors that held up best have not extended their advantage. Leadership has not transitioned. It has been unstable.
What It Means for Investors
Where does that leave investors?
It leaves them in a position that is uncomfortable, but not unfamiliar. Markets are reacting quickly to a developing geopolitical situation, and the instinct is to respond in kind, to adjust, to reposition, to try to anticipate what comes next.
But history is not particularly supportive of that approach.
Periods of military conflict and geopolitical stress have consistently produced short-term volatility. What has been more consistent is what follows. Over three months, one year, and longer horizons, global equity markets have generally moved past these events, often before there is any clear resolution on the ground.
The pattern is not that markets wait for clarity. It is that they adjust ahead of it.
That matters, because it speaks directly to behavior. Investors are human. Events like this carry weight, they are uncertain, they feel consequential, and they invite action. But allowing that emotion to drive meaningful changes in asset allocation has not historically been rewarded.
The evidence points in a different direction.
Staying aligned with a disciplined investment framework, one built around time horizon, diversification, and real-world needs, has proven far more durable than attempting to reposition around events that are unpredictable in both timing and outcome.
At Cardiff Park, we think about portfolios differently. Asset allocation is not built around an abstract benchmark or a risk score. It is built around your balance sheet, your assets, your liabilities, your obligations, and the timing of those obligations in the real world.
That framework does not eliminate uncertainty. But it does give structure to how you move through it.
If we haven’t revisited that framework with you in some time, or if you have questions about how your current allocation fits with what’s happening now, we should talk.
Reach out any time to discuss your portfolio, your allocation, and how it aligns with your broader financial plan.
Regards,
John Gorlow
President
Cardiff Park Advisors
888.332.2238 Toll Free
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Past performance is no guarantee of future results. Index returns are for illustrative purposes and do not reflect actual fund performance. You cannot invest directly in an index. The opinions expressed are those of Cardiff Park Advisory and are subject to change without notice. This material is for informational purposes only and should not be considered investment advice.
Sources: Barchart, Bloomberg, FactSet. Market data reflects the most recent available period.