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Summary

• Four scenarios for the Iran conflict are defined as a managed off-ramp (50% probability), shadow war (25% probability), severe tail (15% probability), or regime change (10% probability).
• Coercive diplomacy combines military, economic, & maritime pressure with negotiation to shape terms, though the current off-ramp remains fragile.
• Oil forward curves show a deepened inversion since the war began, with WTI prices rising from $67 to $78.
• Natural gas prices fell from $2.85 to $2.67 since the war began, while market volatility as measured by the VIX Index dropped 23.7%.
• The S&P 500 gained 12.6% since the war began, with the Bloomberg Magnificent 7 up 11.8% over the same period.
• One-year breakeven inflation expectations stand at 1.7%, while consumer inflation expectations for 5-10 years are 3.3%.
• The July 2026 Fed meeting resulted in a hawkish hold at 3.50%-3.75% on a 9-3 vote, with three dissenters preferring a hike.
• Fed funds futures now price in two rate hikes through 2027, reversing prior expectations of two cuts.
• 2026 GDP growth is expected at 2.2%, with economic projections revised upward for 2026 earnings to 32.1%.
• The Congressional Budget Office estimates a $1.8 trillion deficit for 2025, pushing total debt to over $40 trillion.
• The S&P 500 P/E ratio is 24% above its 10-year average on a cap-weighted basis, while equal-weighted valuations appear more reasonable.
• Consensus forecasts expect hyperscaler free cash flow to more than double by 2028 as current AI capex translates into future payoffs.
• Small cap quality stocks have underperformed relative to the Bloomberg 2,000 index.
• Historical data shows the S&P 500 median return was 0.6% one week after geopolitical shocks, 2.0% after one month, & 10.7% after 12 months.
• The current Iran conflict starting February 27, 2026, saw a -2.0% return in one week & a -7.4% return in one month.