By John Ritter, CFP®, CFS
Clearly, we have seen a return of volatility and negative pressure on the markets over the last week. That pressure has continued on this morning with the markets opening in the red. But why does the conflict in Iran matter to us in the United States? It’s all about one thing – oil.
The following article from J.P. Morgan Asset Management does a great job explaining the WHY behind the market jitters.
2026 Iranian Conflict
One economist we consistently follow is David Kelly, whose work helps frame how major events may influence the broader outlook. This morning, he released an updated view of the economy in light of several recent developments. Below is a summary of where his outlook stood earlier in the year and how it has shifted. The key takeaway: diversification remains essential.
We pay attention to Kelly’s research because it offers a structured, data driven perspective on how the economy may evolve. His analysis helps place new information related to growth, inflation, jobs, or global risks into a clear context. While no forecast is perfect, his work provides a helpful foundation for long term decision making.
Summary of David Kelly’s Updated Outlook
Earlier in the year, Kelly expected steady but moderate economic growth through 2026, with a pickup in activity[SM1] mid year and a slowdown toward the end. He anticipated the unemployment rate would drift slightly lower due to slower growth in the working age population and projected that corporate profits would continue rising, though not at the exceptional pace seen in recent years. Inflation was expected to peak slightly above 3% in the summer before easing back toward 2% by year end. His outlook also assumed certain tariffs would be overturned and replaced with somewhat lighter versions, and that the Federal Reserve would cut interest rates twice in 2026.
Recent data has softened that picture. Growth at the end of last year came in lower than expected, retail and auto sales slowed, and early tax refunds were smaller due to IRS delays. The February jobs report showed a decline in payrolls and a slight rise in unemployment, suggesting cracks in the labor market. Productivity growth remains a bright spot. Meanwhile, the Supreme Court struck down previous tariffs, and the administration replaced them with new ones at somewhat lower levels. Most significantly, the conflict involving the U.S., Israel, and Iran has disrupted oil shipments, pushing up oil and gasoline prices.
As a result, Kelly now expects slightly slower economic growth of around 1.8% in 2026 instead of 2%. The unemployment rate may edge down only modestly. Corporate profits are still projected to grow at a healthy pace thanks to strong productivity and continued investment in artificial intelligence. Inflation may peak near 3.5% midyear before easing to about 1.9% by December. Kelly still anticipates two interest rate cuts in 2026 and additional cuts in 2027. Given the recent market volatility and elevated geopolitical uncertainty, he emphasizes the importance of maintaining broad diversification, especially if global markets begin recovering once the conflict stabilizes.
If you’d like to hear David Kelly’s full update, you can listen to his podcast episode here: David Kelly Podcast
For those people in distribution mode in their portfolio, this is precisely why we maintain cash exposure so we can be patient in times like this. And this is also why we manage very diversified portfolios so that overall risk can be reduced.
There will be a lot of “headline risk” as this conflict plays out, so please reach out if there are questions that arise. As always, we are here to help however we can.
Take care, and we hope you have a great week.
[SM1]Be sure to maintain records of outlooks for supporting evidence to facts.