Market Volatility: Strait of Hormuz closed for business
Myles Zyblock
March 6, 2026
Mid-day today, the S&P 500 and global equities were both down by about 1%. The equity drawdown since the beginning of the conflict has been rather mild, at least so far. We find that the typical drawdown for the S&P 500 in the face of geopolitical conflict from WWII onwards has been about 6% spread over 16 trading days. Each conflict through time has had its own set of unique circumstances which makes such generalizations about “typical” behavior somewhat questionable. That said, it is important to keep in mind that 80% of these episodes resolved positively (average gains of 15.8%) for equity investors with a 1-year time horizon.
For financial markets, oil is a central focus given the current battle. The price of brent is up by 7% and WTI has rallied by an even larger 11% as the clock strikes noon EST. It has become concerning to many market watchers that traffic in the Strait of Hormuz, where ~20% of global petroleum liquids transit through it daily, has come to a complete standstill. The latest data shows that no ships – either in an eastward or westward direction - are now operating in the Strait.
The WTI crude oil price has jumped by 33% to $89/bbl since late February. Historically speaking, oil prices have had to rise by somewhere between 75-100% before the U.S. economy finds itself in more serious trouble. While the economy has become less energy intensive and import dependent over time, the longer that this oil price surge persists the more likely we are to see the appearance of stress. Meanwhile, markets are beginning to price for somewhat higher inflation due to the sharp increase in energy costs.
While it is much too soon to be concerned about serious or lasting economic fallout from conflict in the Middle East, the risks are rising for a scenario which contains somewhat higher inflation and lower economic growth. As we continue to stress, a diversified portfolio is one of the best first lines of defense against economic and financial market uncertainty.
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