Estimate Time5 min

Portfolio Manager Insights
First Quarter 2026

Key takeaways

  • Recent geopolitical tensions have increased short-term market volatility, but history shows these episodes tend to be temporary, with long-term returns driven by economic growth, earnings, and fundamentals rather than headlines.
  • The most immediate economic risk remains higher oil and gas prices, which could slow growth and pressure inflation if sustained, but diversified portfolios are built with assets intended to help manage these effects.
  • Periods like this reinforce the importance of diversification across U.S. and international stocks, bonds, and other asset classes as a way to reduce volatility while remaining invested in long-term opportunities.
  • Looking ahead, market leadership is broadening beyond U.S. mega-cap technology, with opportunities in international markets, cyclical sectors, and the expanding application of AI across industries supporting a disciplined, long-term investment approach.

Navigating a New Geopolitical Landscape: An Update for Investors

As many of our clients approach or continue through retirement, we understand that geopolitical events may heighten concerns about financial stability. Our goal is to provide clarity and confidence, drawing on decades of experience navigating similar challenges. The recent joint military strikes by the U.S. and Israel in Iran have introduced a new and challenging dimension to the global landscape. These events are unfolding rapidly, and the immediate reactions in the financial markets—from surging oil prices to a flight toward so-called "safe-haven" assets—are understandable. During times like these, we must anchor our decisions not in emotion, but in a clear-eyed assessment of the situation, historical context, and the foundational investment principles. We are carefully reviewing these developments and evaluating their potential implications for your financial strategy.


The Market's Reaction to Geopolitical Conflict: A Historical View

Headlines about military conflict are always unsettling, and the initial market response is often a "knee-jerk" sell-off as investors grapple with uncertainty. However, history provides a valuable lesson: while geopolitical shocks can cause short-term volatility, their impact on long-term investment returns has historically been limited.i

An analysis of U.S. airstrikes in the Middle East and North Africa over the past four decades reveals a consistent pattern: markets tend to react to the initial uncertainty but recover more quickly than many expect. Research shows that following an initial shock, U.S. stocks declined while oil, gold, bonds, and the U.S. dollar rose. However, just eight weeks later, stocks had moved higher ninety-five percent of the time. Oil prices remained elevated only one-third of those instances.ii

Similar market action occurred during more extensive conflicts. For example, following the initial U.S. military operations against Iraq in January 1990, U.S. stocks fell over 5% in two weeks. But by mid-March, stocks were up around 1%. Similarly, stocks dropped nearly 12% following the September 11th attacks, but by early November, pushed into positive territory for the remainder of the year.iii

More often than not, it is the underlying economic fundamentals, such as economic growth and corporate earnings that drive stock prices over the long run.

The Oil Price Wildcard

The most immediate and significant economic consequence of the current conflict is the sharp increase in oil and natural gas prices. Iran's strategic position, particularly its ability to disrupt traffic through the Strait of Hormuz—a chokepoint for roughly 20% of the world's oil supplyiv—is a primary concern.

A sustained period of high oil prices could ripple through the global economy. This means higher gasoline prices for consumers, which can dampen spending in other areas. For businesses, it translates to increased operational and transportation costs. This has the potential to fuel inflation, complicating the job of central banks like our own Federal Reserve, which has been encouraged by cooling inflation figures. Fortunately, the Fed tends to focus on "core" inflation, which excludes volatile food and energy prices, so a temporary spike may not trigger an immediate policy shift. The key variable here is duration; a prolonged conflict that keeps oil prices elevated poses a more significant risk to economic growth.

Should oil prices remain around $100 or above for an extended period, U.S. GDP could slow by 0.5%-1.0% and headline inflation could rise by roughly 0.5%.v For clients in our diversified portfolios, holdings in commodities (such as oil), and Treasury Inflation-Protected Securities (TIPS) are designed to buffer any adverse impacts, as they’ve historically gained during periods of oil spikes.

The Sweeping Promise of Artificial Intelligence

The transformative power of Artificial Intelligence (AI) remains a dominant and powerful theme. The investment boom that defined 2025 is not only continuing but expanding. Capital spending on AI infrastructure is projected to nearly double this year, with the largest cloud and AI providers expected to spend upwards of $700 billion.

Importantly, we're seeing a broadening of this AI investment. While building data centers is still a priority, the investment focus is increasingly shifting to the application of AI in industries like healthcare and finance, as well as the physical infrastructure—like the electric grid—needed to power this revolution. This expansion is creating a wider set of investment opportunities beyond the well-known tech giants.

Staying the Course

While the current geopolitical situation requires our full attention, it does not demand a departure from our long-term strategy. History teaches us that while markets react to conflict, they ultimately reward discipline and a focus on fundamental growth. The high valuations in parts of the U.S. stock market underscore the need for earnings to grow, and the trends in AI and international markets point to encouraging opportunities.

Our commitment remains to navigate these turbulent waters by adhering to the time-tested principles of diversification and a long-term perspective. By preparing for a variety of outcomes, rather than trying to predict the future, we build resilient portfolios designed to adapt to market conditions and potentially participate in growth opportunities. We will continue to watch trends closely, ready to make prudent adjustments to guide your investments toward your financial goals.

Are you on track for retirement?

Review your retirement savings plan and see how small changes could improve your outlook.

More to explore

“Global conflicts and markets" Fidelity Viewpoints March 2, 2026 ii Goldman Sachs Wealth Management, “Iran and Middle East Escalation: Geopolitics and Outlook for Financial Markets,” March 3, 2026. iii Bloomberg, U.S. Stocks: S&P 500, 1/16/90 to 3/19/90 and 9/10/01 to 11/2/01 iv Amid regional conflict, the Strait of Hormuz remains critical oil chokepoint - U.S. Energy Information Administration (EIA) v Goldman Sachs Wealth Management, “Iran and Middle East Escalation: Geopolitics and Outlook for Financial Markets,” March 3, 2026. vi Bloomberg and Strategic Advisers, Diversified portfolio—42% Dow Jones U.S. Total Stock Market Index, 18% MSCI All Country World Index ex USA Index (Net MA) (International Stocks), 35% Bloomberg US Aggregate Bond Index, 5% Bloomberg 3-Month Treasury Bill Index, 1/1/25 to 12/31/25. Views expressed are as of April 2, 2026, and are subject to change at any time based on market and other conditions. Data is unaudited. Information may not be representative of current or future holdings. Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money. Past performance is no guarantee of future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. The views expressed in the foregoing commentary were prepared by Strategic Advisers LLC (Strategic Advisers), based on information obtained from sources believed to be reliable but not guaranteed. Unless otherwise noted, the opinions provided are those of the authors and not necessarily those of Fidelity Investments. This commentary is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The information and opinions presented are current only as of the date of writing, without regard to the date on which you may access this information. All opinions and estimates are subject to change at any time without notice. In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so holding them until maturity to avoid losses caused by price volatility is not possible. The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk. Indexes are unmanaged. It is not possible to invest directly in an index. The Business Cycle Framework depicts the general pattern of economic cycles throughout history, though each cycle is different; specific commentary on the current stage is provided in the main body of the text. In general, the typical business cycle demonstrates the following: During the typical early-cycle phase, the economy bottoms out and picks up steam until it exits recession, then begins the recovery as activity accelerates. Inflationary pressures are typically low, monetary policy is accommodative, and the yield curve is steep. Economically sensitive asset classes such as stocks tend to experience their best performance of the cycle. During the typical mid-cycle phase, the economy exits recovery and enters into expansion, characterized by broader and more self-sustaining economic momentum but a more moderate pace of growth. Inflationary pressures typically begin to rise, monetary policy becomes tighter, and the yield curve experiences some flattening. Economically sensitive asset classes tend to continue benefiting from a growing economy, but their relative advantage narrows. During the typical late-cycle phase, the economic expansion matures, inflationary pressures continue to rise, and the yield curve may eventually become flat or inverted. Eventually, the economy contracts and enters recession, with monetary policy shifting from tightening to easing. Less economically sensitive asset categories tend to hold up better, particularly right before and upon entering recession. This material may not be reproduced or redistributed without the express written permission of Strategic Advisers LLC. Advisory services provided for a fee through Strategic Advisers LLC (Strategic Advisers), a registered investment adviser and a Fidelity Investments company. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. Strategic Advisers, FBS, and NFS are Fidelity Investments companies. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917 © 2026 FMR LLC. All rights reserved. 1251190.1.1