Almost one month on from the initial strikes on 28th February, geopolitical tensions in the Middle East remain elevated, and markets continue to react to rapidly evolving developments. We see the coming days as pivotal in determining whether the situation begins to de-escalate or whether disruption persists for longer.
Recent weeks have seen significant volatility across markets, particularly in oil prices, which have remained elevated. This has fed through into inflation expectations and interest rate outlooks, creating a more challenging backdrop for both equities and bonds in the short term.
While risks have clearly increased, there are still signs that a path toward de-escalation remains possible. Negotiations are ongoing, and although progress has been limited so far, their presence is important. Markets are currently responding to a wide range of possible outcomes, which explains the sharp moves we have seen.
Our Current View
Our central expectation remains that this is a temporary disruption, even if it takes time to resolve. We believe the conflict could continue for a period yet, but with the potential for intensity to ease, allowing energy flows to gradually recover.
In this environment, we would expect slower growth and higher inflation in the near term, rather than a more severe or lasting economic shock. While interest rates may remain higher for longer, we do not currently expect a sustained move higher in rates.
Importantly, markets appear to have already reacted quite strongly, and in some cases may be pricing in a more negative outcome than we expect.
Our Approach
At this stage, we believe the most appropriate course of action is to remain patient and avoid reactive changes. Markets have already adjusted meaningfully, and if tensions begin to ease, there is scope for a recovery in asset prices.
We are reviewing developments closely and reassessing our expectations on a daily basis. The risk of further escalation cannot be ignored, and we are fully prepared to act within the tactical portfolios should the outlook deteriorate materially, particularly if disruption to energy markets becomes more prolonged or structural.
Equally, recent shifts in US rhetoric bring a more positive scenario into clearer view. Should we see credible progress toward a ceasefire or broader resolution, we are ready to respond and position portfolios to benefit from a recovery in sentiment. This could include a redeployment of cash within the tactical OBI portfolios and House Strategy, taking advantage of more attractive valuations following the recent reset in markets.
If the current environment persists, we believe the existing asset allocation remains well balanced, providing resilience against downside risks while retaining the ability to participate in any recovery as clarity improves.
What This Means for Portfolios
Periods like this can feel uncomfortable, particularly given the speed and scale of market moves. However, reacting to short-term volatility can often risk locking in losses while uncertainty remains high.
Our portfolios are designed to manage these environments through:
- Diversification, reducing reliance on any single outcome
- Defensive exposures, helping cushion downside risk
- Cash holdings in tactical portfolios, providing flexibility to act
Within the portfolios, exposure to infrastructure, commodities and defensive absolute return strategies continues to offer support, while US equities have shown resilience given greater energy independence. Encouragingly, UK large caps have also held up relatively well compared to European peers, reflecting the defensive nature of the FTSE 100.
Looking Ahead
The key factor from here is the duration of disruption to energy markets. While uncertainty remains elevated in the near term, our base case continues to be that this is a temporary shock rather than a structural shift.
With markets having already adjusted and valuations reset, we see scope for a more constructive outlook over the remainder of the year as clarity improves.
Please be assured that we are monitoring developments closely and reviewing the situation continuously with our research partners. We stand ready to take action if conditions change materially. However, at this stage, we believe the best course is to remain invested, with portfolios well positioned to weather the current uncertainty while retaining the ability to benefit from any recovery.
If you have any questions, don’t hesitate to contact the team.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment. OCM Wealth Management Limited is authorised and regulated by the Financial Conduct Authority (FCA Registration No: 418826) OCM Asset Management is a trading name of OCM Wealth Management Limited
