I’m often asked why the markets continue to hit new highs, especially considering the ongoing turmoil in the Middle East. It’s a fair question, and the answer lies in how markets digest information. At their core, markets are data-driven; when data outperforms expectations, stocks tend to rally, and when data falls short, markets usually react negatively. Right now, it’s corporate earnings—particularly those linked to the AI infrastructure boom—that are setting the tone, far more than geopolitical risks.

Some of the world’s largest tech companies—Google, Meta, Microsoft, and Amazon—are on track to spend over $700 billion in the coming year building out their AI infrastructure. This aggressive investment has led to a shortage of key components, boosting prices and profits for suppliers. However, it does raise an important question: Will these companies see enough return on this massive outlay? Will they keep spending if the returns don’t materialize as hoped? Only time will tell, but for now, the excitement around stellar earnings is drawing investors in.

You might wonder, with all this positive momentum from earnings, shouldn’t negative geopolitical news—like higher oil prices—be pulling markets in the opposite direction? When the U.S. attacked Iran, we saw markets respond negatively to spiking oil prices and concerns that closing the Strait of Hormuz could have a lasting impact on the global economy. What has shifted is investor sentiment: there’s a strong belief, bolstered by White House statements, that the conflict is almost resolved and that the Strait will soon reopen. The global oil market seems to agree.

Typically, oil for future delivery costs more than oil today (a condition called contango), reflecting storage costs and uncertainty. Currently, though, the spot price of oil (about $100) is higher than prices for delivery in December 2026 (around $77). This scenario— backwardation—signals that markets expect today’s tight supply to ease in the future as the conflict resolves. But if negotiations between the U.S. and Iran fall through, or if a deal unravels, today’s price may prove accurate and future prices too optimistic. That would likely trigger a negative reaction in equity and bond markets, shifting focus back to geopolitics.

It’s worth noting the unprecedented scale of the current disruption. The 1973 oil embargo took about 4.5 million barrels per day—or roughly 7% of global supply—off the market. The current closure is removing about 20 million barrels daily, or 20% of global supply. It could take months to move trapped ships and restore normal flow, with inventories dwindling and higher oil prices likely filtering through to many goods. Even if there is a quick and lasting resolution, oil prices may always have a risk premium due to geopolitical risk. The world is focused on oil but the disruption in fertilizer markets will impact food prices 3 to 6 months from now. Higher food and energy prices can lead to negative economic consequences for many individuals and economies. President Trump has advanced many initiatives, only to later unwind them. Unwinding the implications of attacking Iran will be harder to do and the impact will be felt in the economy for quite some time.

Our investment approach hasn’t wavered: we expect inflation to trend higher than what we’ve seen over the past 15 years, driven by government spending and deglobalization. That’s why we advocate a larger allocation to real assets—gold, commodities, infrastructure, and inflation-protected bonds—to help protect against inflation. We also anticipate the U.S. dollar will gradually weaken as countries repatriate capital to invest in their own economies. Meanwhile, global conflict is likely to continue, with increased government spending on defense. The full impact of AI is still unfolding, but it’s clear that disruption is on the horizon in many industries.

These guiding principles keep us steady, resisting the urge to overreact to every headline or market hiccup.

On a personal note, Kris and I are heading off on vacation for a couple of weeks. Usually, we travel after Mother’s Day so we can celebrate with both of our moms, but this year the timing worked out a bit differently—so we’ll be away before the holiday. Our kids are also off on their own adventures, so Kris won’t see them either. Our dog will be staying with the breeder, and, funnily enough, Lenny’s mom will be there too. There’s some comfort in knowing at least one member of the family will get to spend Mother’s Day with their mom— even if it’s our dog!

Thanks for reading, and I look forward to catching up when I return.

Ashit.Dattani

Investment Advisor, Portfolio Manager