Written by: Ric Palombi, CFA, Senior Portfolio Manager, International Equities and Alternative Income, NBF and Kevin Dehod, CIM®, Senior Wealth Advisor & Portfolio Manager
Periods of geopolitical conflict are defined less by observable facts and more by the fear of the unknown – often creating a “fog” over the short- and medium-term economic outlook. In these periods, investors aren’t pricing fundamentals as much as they’re pricing probabilities. That usually means higher volatility in the short-term as future probabilities are re-priced not just day-to-day, but sometimes even minute-to-minute.
Over the last 26 years of stewarding portfolios, our team has learned that the best return we can offer our clients during periods of unrest is to focus on what we can control: our investment behaviour and how we allocate capital according to our investment process & philosophy.
What markets are telling us right now
Initial assessment
So far, market signals suggest investors are expecting a contained, relatively short-lived conflict in Iran:
- The U.S. dollar is stronger, but not showing signs of panic
- U.S. Treasuries are weakening (bond yields are rising), which would be unusual if markets were truly in “risk-off” mode
- Oil prices are higher, but still well below worst-case scenarios
- Gold hasn’t seen strong safe haven demand
Taken together, this points to markets expecting higher inflation and resilient growth—not a prolonged geopolitical shock.
The market’s base case
Based on current pricing, markets appear to be assuming:
- A short-duration, contained conflict
- No prolonged disruption to global energy supplies
- Limited retaliation beyond symbolic or asymmetric responses
- No significant involvement of U.S. troops on the ground in Iran
- Some form of diplomacy or ceasefire within weeks rather than months
In short, markets are pricing resolution risk, not a prolonged crisis.
How we’re thinking about it
Scenario 1: Contained escalation (what markets are pricing today)
If things stay broadly contained:
- Oil likely stabilizes (WTI in the $65-$70 range) with a modest geopolitical premium
- Equity markets may rotate, but P/E ratios do not meaningfully contract (adjustment, not a sell‑off)
- Volatility spikes briefly, then fades (VIX index hit 35 on March 9, 2026)
- Interest rates remain driven by inflation and growth, not fear
From a portfolio standpoint, this kind of environment often creates opportunities to rebalance into volatility-driven stock and bond dislocations—while staying disciplined and process-driven.
Scenario 2: Regional spillover
If the conflict spreads more broadly—through Hezbollah involvement, prolonged disruptions in the Strait of Hormuz, or attacks on Gulf infrastructure and other Gulf nations—the picture changes:
- Oil prices could spike sharply (WTI hit $116 on the morning of March 9, 2026)
- Inflation expectations would rise, with global central banks moving from cutting interest rates to possibly raising them
- Equities would re-rate lower on recession fears and higher interest rates
This would likely mean more volatility and downside risk relative to the base case. In this scenario, the goal posts shift but our investment playbook stays the same.
How we’re managing portfolios
What we’re keeping an eye on
As we work through this, a few questions are helping guide our thinking:
- Does oil stabilize, or do we see price levels in the forward curve for oil go higher?
- Do interest rates keep moving higher despite the geopolitical noise?
- Does gold eventually start acting like a true safe haven?
- Do credit markets stay steady, or show signs of stress and credit spreads begin to blow out?
- Does volatility and the VIX index fade as markets digest the news, or does the VIX hit new crisis highs?
We do not claim an informational edge in predicting geopolitics, and outcomes remain binary. When outcomes are this uncertain, trying to guess them usually does more harm than good. Instead, we stay flexible and disciplined — making changes only when market conditions justify it.
History shows that markets have absorbed shocks like this many times before. The chart below shows the performance of the U.S. stock market – as measured by the S&P 500 Index – one year after geopolitical shocks of the past.
Looking at historical precedent, there is the possibility that markets remain in negative territory 12 months from now, depending on the specific circumstances and economic reality of each event – as was the case in the aftermath of the 9/11 attacks or Russia’s invasion of Ukraine. What is also clear, though, is that in 7 out of 9 major events in history, the U.S. market was higher one year later, not lower. And if you extend your time frame to two years after each event, markets have regained all their losses 100% of the time.
Figure 1: S&P 500 after major geopolitical events
Source: FactSet Research Systems, Standard & Poor’s
The big picture
- Expect short-term volatility and noise
- Our investment playbook, strategy, and approach have been refined & strengthened through multiple macro shocks over the last 20+ years
- Our disciplined investment process—not macro forecasting—is our edge
- We’re comfortable admitting we don’t know how the macro environment will unfold—and the rest of global investors are in the exact same boat
What we’re doing
This isn’t a moment for large, reactive shifts. However, we are taking action where volatility has significantly improved our risk/reward calculation and prices have disconnected from underlying value in a way that creates compelling opportunity. We are also seeing sharp moves in certain stocks and sectors, and are using periods of upward price action to selectively trim positions.
For example, in the International Equity pool, we have added to Adyen (a Dutch payment platform) and Lanxess (a German chemical company). In Canada, we trimmed our positions in Methanex, Precision Drilling and added to our gold weight. Lastly, in the Diversified Fixed Income pool, we significantly reduced our cash position by adding to high quality corporate bonds as yield spreads have widened out over the last two weeks.
Conclusion: Process over prediction
We remain guided by our investment process and experience as we navigate the fog surrounding current geopolitical events. Markets will continue to react on a minute-by-minute basis as news flow and political actions dominate the short-term.
By continuously evaluating risks and probabilities—and focusing on the variables within our control—we seek to preserve flexibility, manage risk, and position portfolios to take advantage of opportunities as they emerge. Staying anchored to process rather than prediction allows us to build an enduring investment edge for our clients and set up the portfolios for long-term outperformance.
National Bank Financial – Wealth Management (NBFWM) is a division of National Bank Financial Inc. (NBF), as well as a trademark owned by National Bank of Canada (NBC) that is used under license by NBF. NBF is a member of the Canadian Investment Regulatory Organization (CIRO) and the Canadian Investor Protection Fund (CIPF), and is a wholly-owned subsidiary of NBC, a public company listed on the Toronto Stock Exchange (TSX: NA).
The opinions expressed do not necessarily reflect those of NBF. The particulars contained herein were obtained from sources we believe to be reliable, but are not guaranteed by us and may be incomplete. The opinions expressed consider a number of factors including our analysis and interpretation of these particulars, such as historical data, and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein. Unit values and returns will fluctuate and past performance is not necessarily indicative of future performance.
The securities or sectors mentioned herein are not suitable for all types of investors. Please consult your Wealth Advisor to verify whether the securities or sectors suit your investor’s profile as well as to obtain complete information, including the main risk factors, regarding those securities or sectors.