Dire Straits... Why Worry?

Many of you know that my wife Robyn had surgery on her foot just before Christmas, on December 19th. After the surgery, she had many weeks of no-weight bearing rest, followed by several weeks of light activity. Now don’t tell her I’m complaining (she gets enough of it at home already), but as many of you have experienced, major surgeries or illnesses add a lot of stress to everyday home life. The normal routine of shared labor and responsibility must shift, leading to less than pristine performance, while on top of that sleep suffers, emotions run rampant, and at first, it seems like things only get worse.

But eventually, and faster than it may feel, a new equilibrium is reached. Everyone catches their stride, and the house is back to functioning at an acceptable level. And then, hopefully following a full recovery, the old routine replaces the temporary one, and the whole ordeal is only occasionally remembered or discussed. I believe our household has just reached that stage. I also just got the last (I hope!) and largest medical bill, four months post-surgery. I am taking this as a good sign. Plus, the weather is getting warmer, which is much better for Robyn’s metal and repaired joints.
 
While that may be a simplified analogy to what our country and the world is experiencing due to the attack on Iran and disruption in the Strait of Hormuz, I do feel it is a fitting one. We don’t get a lot of clear information about where the overall negotiations are now or where they are heading, but the disruption has already lasted longer than anyone wants. We know that increased prices for oil are bad for consumers and producers and can negatively impact healthy economic functioning. But just like with our disrupted home scenario, the world has begun running in an adaptive way. Even if things are not running at peak performance, they are running at acceptable levels, and this should give us a bit of hope until full relief is secured, which is still the top expectation from major authorities and analysts. Negotiations will lead to a new business as usual and the world will move forward.
 
I will share some of the current figures reflecting the effects of the spike in oil prices on the U.S. and world, as well as what expectations are for those figures going forward, even with the assumption of continuing disruption. Negative pressure is working against continuing strong momentum, especially here in America, which has led to less than perfect performance, but positive performance, nonetheless.
 
Here are some simple reports of updates to expected economic figures. The price of Brent crude oil spiked briefly to $128 per barrel from the $72 level it started at before the attack on Iran, but it has now settled to $96. Projections are for a return to $65 a barrel by the 4th quarter after production stabilization and a reopening of the strait. FactSet’s profit growth expectations for corporations of the S&P 500, even after adjustments for Iran and oil prices, are still 18% for 2026. Current modified expectations for U.S. GDP growth for 2026 (including oil price expectations) is at 2.2%, while the average GDP growth rate since 2000 has been 2.1%. The I.M.F. has adjusted its 2026 global GDP growth expectation to 3.1% from their previous expectation of 3.3%.
 
Although gas price increases are uncomfortable for many people around the world, and increased energy costs will continue to affect production of goods and services, the overall issues are not as dire as the media has been presenting to us, assuming the chaos in Iran does not last too many more months into the future.
 
I think many of us who have savings invested in the markets look at the current situation and hope it doesn’t “break the market” or negatively affect our investments. But as you’ve heard hundreds of times, markets are forward looking. They react initially to shocks but usually clear up well before any perceived problem gets fully fixed. I’m not saying that the equity, bond, and commodity markets have already called an end to the issues in Iran, but again, the markets are forward looking, and at least today they seem to agree that Iran is not going to break things at a fundamental level. If there was a consensus perception by the major market commentators that oil prices will remain too high for too long, leading to actual economic hardship around the world, we would not have market levels that have returned to all-time highs so soon.
 
In summary, even with the current level of oil price increases, and even with continued expectations of increased oil prices, the punditry is not calling for an apocalypse. On that note, I hope you are all gearing up for some summertime fun. I’d like to recommend the song Why Worry, by Dire Straits, as a fitting backdrop to tone down the stresses of vacation planning. If you’re so inclined, crank it up and give it a listen.
 
As always, we look forward to your calls and visits anytime.
 
Sincerely,
 
Justin Anderson