By Thierry Hasse, Chief Investment Officer
Elevage Partners | March 9, 2026
As March is unfolding, the questions on investors’ minds are not the questions they were asking in February. A month ago, the conversation in markets was about the adoption of artificial intelligence, the timing of Federal Reserve rate adjustments, and whether the labor market was softening fast enough to justify a cut. In the span of a few days, following the coordinated U.S.-Israeli campaign striking Iran’s senior political and military leadership then broadening to military infrastructure and energy facilities, the previous headlines (while still important topics) have been overtaken with one more urgent question: what does expanding, open warfare in the Middle East mean for the global economy?
Oil Moved First and Hardest
The direction of this move was predictable. Its velocity was not. Even portfolios that understood the risk were caught off guard by how quickly prices moved.
Equity Markets: The Damage Was Not Evenly Distributed
Global equities fell sharply last week, but the severity was concentrated in the markets most exposed to Middle Eastern energy. South Korea’s KOSPI declined 20% over just two trading sessions, one of the worst two-day drops in the index’s history, as investors repriced the vulnerability of an economy built around energy imports that flow through the Strait. Japan, Taiwan, and the broader Southeast Asian markets followed with similarly severe moves, and circuit breakers were triggered on multiple exchanges. European indices fell between 5% and 9%.
U.S. markets held up better than most. The Dow Jones ended the week down 3% and the S&P 500 lost 2%, negative but relatively contained relative to what was unfolding globally (Source: CNBC). Domestic energy production provided a meaningful buffer.
For our clients, the week underscored why we maintain meaningful exposure to defense and energy-related companies. Both sectors served as stabilizers, which is precisely the role they are intended to play when geopolitical risk moves from theoretical to real.
The Fed is in an Impossible Position
Last week’s economic data made an already difficult situation more complex. February nonfarm payrolls contracted by 92,000, well below the consensus expectation of a 50,000 gain and a sharp reversal from January’s already-revised figure of 126,000. The unemployment rate rose to 4.4% (Source: Bureau of Labor Statistics). Under normal circumstances, that would give the Fed ample reason to signal rate cuts ahead.
But conditions are not normal. Surging energy prices create inflationary pressure that runs directly counter to the case for easing. The Fed now finds itself caught between a weakening labor market that argues for relief and an energy shock that argues for restraint. Officials offered little beyond the familiar promise to “monitor developments closely.” Honest, perhaps, but unsatisfying given what markets needed to hear.
In our view, the Fed will remain on hold until there is meaningful clarity on both the trajectory of the conflict and its inflation pass-through. That pause may extend longer than markets are currently pricing.
What This Means for You
The central question is not whether this conflict creates economic disruption. It clearly will. The question is whether it remains a severe but contained regional shock, or evolves into something that reshapes the global energy supply for years to come. We don’t know the answer yet. No one does.
What we do know is that our portfolios were built with this kind of environment in mind. The emphasis on defense, energy infrastructure, and companies tied to essential government spending reflects our long-held view that geopolitical risk and structural fiscal spending are durable forces. That positioning doesn’t eliminate volatility. Nothing does. But it means we are not scrambling to reposition in the middle of a crisis.
Every conflict has an off-ramp. The question is timing and political will. When a credible path toward de-escalation emerges, history suggests markets respond quickly and sharply to the upside. Being positioned to participate in that recovery matters as much as managing the downside.
More to come as events develop. If you have questions about your specific situation in the meantime, please call or email us. That is exactly what we are here for.