Stocks closed sharply lower yesterday with all of the major indexes down by -1.5% or more.

Increased attacks by Iran on neighboring countries, as well as ships transiting the Strait of Hormuz, has the market on edge.

At least 3 ships have been struck by projectiles in the Strait this week (2 by sea drones and 1 aerial drone). Drones have also been used to carry out land attacks on other Gulf countries. And, they are proving more difficult to deal with than missiles.

It's also leading some to worry that the conflict in Iran will go on for longer than expected. We are at the 2-week mark today. But estimates have ranged of a 4-6 week campaign. In the meantime, Iran's new leader has said the Strait will remain closed until the war is over.

Oil was up another 10% yesterday. Since the conflict broke out, crude oil is up roughly 43%. And YTD, it's up about 68%. Gasoline, of course is on the rise. And so is jet fuel.

Rising jet fuel prices is hurting margins for airlines. And the continued partial government shutdown, which enters day 28 today, has created long lines at the airport, since TSA (which is a part of the Department of Homeland Security or DHS) remains unfunded. While 95% of TSA staff must work, albeit without pay (temporarily), it has led to sick-outs, which are causing delays. Bad for airlines, and travelers.

President Trump on Wednesday evening said the U.S. would be releasing 172 million barrels of oil from the Strategic Petroleum Reserves (SPR), as part of a coordinated effort by the G7 countries (and others) to tap as many as 400 million barrels of stored oil. The President said the U.S. release would begin next week and the drawdown would be spread out over 120 days.

That should provide some short-term relief. But, of course, does not address the shipping crisis that exists in the Gulf region.

In other news, yesterday's Housing Starts and Permits report showed Starts at 1.487 million units (annualized) vs. last month's 1.387M and views for 1.340M. Permits came in at 1.376M vs. last month's 1.455M and estimates for 1.410M.

The International Trade in Goods and Services report showed the trade deficit improve to -$54.5 billion vs. last month's -$72.9B and the consensus for -$67.9B.

And Weekly Jobless Claims came fell -1,000 at 213,000 vs. last month's 214,000.

Today we'll get Durable Goods Orders, the second estimate for Q4'25 GDP (consensus is 1.4%), Consumer Sentiment, and the Job Openings and Labor Turnover Survey report (or JOLTS for short).

We'll also get another look at inflation with the Personal Consumption Expenditures (PCE) index. The headline number is expected to come in at 0.3% m/m vs. last month's 0.4%. The y/y rate is expected to remain unchanged at 2.9%, same as last month. The core rate (ex-food & energy) is forecast to come in at 0.4% m/m, in line with last month, while the y/y rate is also expected to remain unchanged at 3.0%, in line with last month's pace.

Middle East headlines are likely to keep driving price action.

But it's important to remember that geopolitical conflicts and events usually only have a short-term impact on the markets. In fact, over the last 40 years of geopolitical shocks, markets usually bounce back quite fast. And historically, they are typically higher 12 months later. Same goes for 6 months. Even the 3-month outlook leans positive.

So keep your eyes on the big picture.

Best,