In our Market Notes series, our Chief Investment Officer, David Joory, shares his views on the key forces shaping markets and the themes he believes matter most right now. The aim is to bring clarity during fast-moving periods in markets by explaining what is happening, what it may mean for investors, and where opportunities may emerge.
Markets have come under some pressure since the start of March. Even so, the pullback has so far been relatively orderly given the scale of recent events. In our view, oil is the main factor driving markets at present.
Oil prices have risen sharply from mid-$50s per barrel in recent months to around $95 today, driven by renewed geopolitical tensions and concerns about supply disruption. That is a significant move in a short period of time, and it is feeding directly into broader market volatility. When energy prices rise this quickly, investors begin to reassess growth, inflation and company margins all at once.
Currency markets are also reflecting a more cautious backdrop, with the US dollar strengthening against several major currencies.
In precious metals, the recent weakness looks more like a normal correction after a strong run than a fundamental change in trend. Further short-term weakness would not necessarily alter the longer-term picture, and for some investors it may create opportunities to add exposure gradually.
Volatility is likely to remain elevated in the near term. Periods like this can create selective opportunities, particularly in structured products, where higher volatility can improve potential returns or protection terms. However, these opportunities can typically be short-lived and more suited towards a higher risk tolerance, so careful considerations must be given to investment suitability, selection, and timing.
This environment is a useful reminder of the value of diversification. When a single factor such as oil is driving a large share of market moves, concentrated portfolios can be more exposed. A broad mix of asset classes, sectors and risk drivers remains important.
We have also had many client questions about inflation. One concern is that the jump in oil prices, combined with geopolitical disruption, could push inflation higher again. Another view is that AI-driven productivity gains and broader technological progress could lead to a more disinflationary environment over time. At this stage, the honest answer is that we do not yet know which force will prove stronger.
What is notable is that financial markets are not yet signaling a major shift in longer-term US inflation expectations, despite the sharp move in oil. Historically, these gaps do not usually persist indefinitely. Even if the geopolitical situation stabilises, energy shocks often take time to feed through into the wider economy.
History also suggests that inflation shocks can persist for longer than many investors initially expect. Technology can help improve productivity, but it does not by itself guarantee a low-inflation environment. Over time, inflation has tended to be shaped much more by monetary and fiscal policy than by technology alone.
This also raises the question of how commodities fit into portfolios. Broad commodity indices have risen sharply in recent weeks, largely because of their heavy exposure to energy. While over the past two decades, commodities have significantly underperformed other asset classes, we believe a modest allocation can still be worthwhile if inflation proves to be more structural than temporary. That said, investors should remember that broad commodity indices are heavily weighted towards energy. Balancing commodity exposure with precious metals or other sectors can help manage risk.
Importantly, commodities behave differently than equities or bonds during market stress, tending to increase rather than decrease in volatile periods. Thus, they can offer valuable diversification benefits.
In summary, current market conditions are being shaped by higher oil prices, elevated volatility, a stronger US dollar and renewed uncertainty around inflation. The next phase will depend heavily on how geopolitical tensions evolve and whether the oil shock proves temporary or more persistent. In the meantime, we believe the most important message for investors is to remain diversified, stay disciplined, and look selectively for opportunities rather than reacting to short-term market moves.
If you have any questions about the themes discussed in this update, please do not hesitate to get in contact with us: info@bedrockgroup.com.
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