We can all see the headlines, and we all have a view on what’s been going on in the Middle East. The simple fact is, we do not know what’s going to happen next, and I’m not going to pontificate about what may or may not happen. That’s not worth much at all. What is worth the time, in my view, is to assess what these events mean for us as investors in the US market, and what is the highest probability scenario for markets going forward.

The first thing to say is that things have certainly changed as it relates to the inflation outlook, as measured by CPI. We are going to get higher CPI readings in the next few months and most likely the next two quarters. This is a mechanical function of the oil price going from $67 per barrel on 27 February to a closing price peak of $99 on 7 April, a rise of 47% in just over five weeks. What’s notable in the most recent CPI report which came out last week, is that much of the CPI data is actually still decelerating, so ex the oil price, inflation would still be low. An unwanted byproduct of the war with Iran. This continued rise in CPI has been reflected in the 10-year bond yield rising and by the prospect of interest rate cuts being priced out of the market, in fact now there is one rate hike priced in. This is a big change from the pre-war outlook, which predicted a rate-cutting cycle for 2026.

So what does this mean for markets? It seems like there is a lot of doom and gloom out there at the moment but there are reasons to be upbeat. Corporate data is still strong, and Q2 earnings season, which starts this week, is likely to be a good one. Corporate guidance will be closely scrutinised for any negative effects of the rising oil price, so having exposure to sectors that are less affected by this, or which benefit from this, is important. The energy sector is likely to be a winner in this scenario, whilst the consumer discretionary sector may suffer, as rising inflation curbs consumers' ability to spend. Companies with pricing power are also likely to perform well in this inflationary backdrop as they can pass costs on relatively easily. We are finding investment opportunities in tech, industrials, healthcare and consumer staples with pricing power attributes, and many of these companies have remained strong during this whole correction. Big themes like AI capex have remained unaffected by the shorter-term gyrations of the stock market, and we continue to favour companies that are benefiting from this theme.

Now is a time to be selective and active in choosing sectors and stocks. Picking companies with the right attributes is key at this point, and we remain focused on finding companies that can not just survive but thrive in 2026 and beyond.