Quick Thoughts: Strait open—investment implications

Following yesterday’s announcement of a temporary ceasefire in Lebanon, the Iranian foreign minister declared today that the Strait of Hormuz is “completely open” for all commercial shipping. In what follows, we highlight the investment implications of today’s announcement.

Unsurprisingly, markets have responded positively to the news. Equity markets are up strongly, crude oil futures prices have tumbled over 10%, bond yields are lower, and the US dollar has softened.

Unquestionably, the re-opening of the Strait is good news. But several words of caution are in order.

• The twin ceasefires (with Iran and in Lebanon) are temporary—lasting peace will require intense and difficult negotiations. And until those are concluded, US President Trump has indicated that the US blockade of Iranian ports will continue.
• Also, the period ahead may be marked by disruptions, reversals and episodic volatility, even if a more durable cessation of hostilities ultimately emerges.
• Finally, damage to energy infrastructure in the Persian Gulf has been significant (estimates of the damages range from 10%–30% of production and distribution of crude oil and natural gas in Saudi Arabia and Qatar) that make take as long as 3-5 years to fully restore. And a risk premium will probably linger, given the knowledge that Iran retains the ability to impair or fully block transit via the Strait of Hormuz using its stocks of drone and missile weaponry.

From an investment perspective, today’s news reinforces the sharp market reversal of the March setbacks. Initially, the low point was reached during “maximum fear,” when implied equity volatility (based on the CBOE Market Volatility [VIX] Index) breached 30% in late March.¹ As we have noted on various occasions, elevated volatility is a reliable signal of a market bottom. Additional upward momentum ensued as the parties to the conflict engaged in dialogue and negotiation, culminating in today’s important breakthrough that permits commercial transit via the Strait of Hormuz.

From here, investors must closely monitor shipping flows. To the extent that tankers and other commercial vessels are transiting the Strait, we believe today’s market moves will likely be validated. But enduring progress requires successful negotiations, which will now become a focal point for markets.

How should investors now position their portfolios? We have stated our view before: Investors should not overreact to volatility in either direction. Long-term objectives, conditioned by expected returns, should remain the foundation of investment strategy.

And as market conditions normalize, it is important to recap our thinking about returns and opportunities:

• Underpinned by strong corporate profits (which was clear to us at the onset of the first quarter 2026 reporting season), we remain steadfast proponents of a broadening of equity returns. The leadership in recent weeks of market recovery has been in US large-capitalization growth, but we believe small caps, energy, infrastructure, Japanese and emerging equity markets are also poised to perform well.
• Within fixed income, we remain cautious on duration—in our analysis, the longer end of yield curves does not offer compelling additional yield to compensate investors for price volatility. Investment-grade and high-yield debt did not sell off sufficiently during the recent market tumult to warrant opportunistic buying, but we believe the coupons on offer are attractive and credit should remain a core holding. Our preferred area of fixed income is emerging market debt (particularly in Brazil), where what we consider attractive real and nominal yields offer opportunity for stronger returns.
• In currency markets, the US dollar has dipped as the worst fears of the Iran conflict have receded. We remain of the view that we are in a generally weak dollar environment (that commenced last year). While the US dollar may not depreciate significantly further, we believe a stable-to-weaker dollar is broadly supportive of emerging market local currency debt and various parts of emerging market equities, supporting our broadening of returns thesis.