Income Portfolio Update: A Month to Remember

Premium Flagship Update

March 2026 will be remembered, and not fondly.

Before this month arrived, income investors were navigating a relatively manageable environment: stubborn but contained inflation, a Federal Reserve that had stopped moving rates, and a global economy that was, by most measures, growing at a pace that supported the asset classes we hold. That environment still exists in the data.

What the data does not yet fully reflect is the fact that the United States and Israel have been at war with Iran for the better part of this month, and the Strait of Hormuz, through which roughly 20% of the world's oil and liquefied natural gas normally flows, has been reduced to what amounts to an armed maritime blockade.

The conflict caused immediate volatility in energy markets, with Brent crude oil surging past $120 per barrel, while Gulf Cooperation Council producers collectively cut output by at least 10 million barrels per day as tanker traffic through the Strait collapsed. This is not a garden-variety geopolitical risk premium story.

This is a genuine physical disruption of global energy supply of a magnitude that the International Energy Agency has assessed constitutes the largest supply disruption in the history of the global oil market.

The Federal Reserve held its fire at the March 17-18 meeting, as expected. The FOMC voted 11-1 to keep the benchmark federal funds rate anchored in a range between 3.5% and 3.75%, and officials again signaled they still expect a few rate cuts ahead, with the dot plot pointing to one reduction this year and another in 2027.

Before the war broke out, markets had been pricing two cuts this year. That optimism has collapsed. Markets now price in nearly a 50% chance of a Fed rate hike by December, a sharp reversal from earlier expectations, as disruptions linked to the conflict have pushed energy prices higher and reinforced hawkish expectations.

The macroeconomic baseline, setting the Iran shock aside for a moment, remains in decent shape. The Fed projects GDP growth at 2.4% for the full year, while PCE inflation is now expected to end 2026 at 2.7%, 30 basis points higher than the December projection. The New York Fed's DSGE model revised its 2026 growth projection upward, noting that the economy turned out more resilient than anticipated, with stronger investment as the main driver.

None of that helps much when Brent crude is trading near $100 a barrel and natural gas markets in Europe are in crisis, but it does tell us the underlying economy has not broken.

The equity markets have not taken the Iran war news well. The S&P 500 closed at 6,368, down 1.67% on the session, with the Dow at 45,166 and the Nasdaq off more than 2.15%. The VIX surged to 31.05, a signal that the fear trade is back in business. For income investors, a VIX above 30 is not inherently a problem. It is often an opportunity.