Current SPX put pricing through the next rebalance implies the market is assigning less than a 20% probability to a -10% drawdown on the S&P 500, and less than 15% to a retest of the war lows.

Three forces are shaping the road ahead: the euphoria in equities, the conflict in the Strait of Hormuz, and a possible inflation impulse. This note lays out the fund’s strategic and tactical response — across equities and fixed income — to each of them.

The global multi-asset macro fund implementing my research completed its first year of track record on May 5th — a year that included navigating the Trump tariffs and being correctly positioned through the Iran war via an overweight in energy.

First-year performance

• Net return: +13.52% in EUR, +17.18% in USD

• Volatility: 6.8%

• Sharpe ratio: 1.7 (using the current 2% EUR risk-free rate)

• Max drawdown: -4%

Given the fund’s capital-preservation mandate, current market-implied probabilities, and a conservative buffer, I’m working with the following base case through the next rebalance:

• 10% — Middle East conflict escalates

• 20% — Market re-prices a 2022-style high-inflation regime

• 70% — The 2023–present AI-boom regime continues

Every forecast and positioning decision in this note is probability-weighted across these three scenarios — covering equity sectors, regions, factors, and fixed income duration, currency, and credit quality.

Net of this rebalance, we expect the portfolio to deliver +1.83% over the next three months — 74 bps above our benchmark (3% annualized), with only 5 bps of additional volatility and materially better tail-risk management.

Below: the strategic and tactical overweights driving the 74 bps of expected alpha, the duration and credit-quality calls in fixed income, and how the 30% non-base-case tail is hedged.

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This is the largest supply disruption since the 1970s — and most portfolios aren't prepared. Brent crude's deviation from its 252-day moving average has reached a 36-year high following the military closure of the Strait of Hormuz.

What matters now is not the shock itself but how long it lasts: crisis duration is the variable currently driving cross-asset returns.

This note identifies similar historical regimes and quantifies the impact of a quick resolution, 3-month, 6-month, or 12-month closure on US equity sectors, fixed income, and gold.

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The Regime in Context

This is not the first time Brent has entered an extreme deviation regime. The prior clusters are well-defined: Iraq’s invasion of Kuwait in 1990, the OPEC production discipline of late 1999, the 2007–2008 commodity supercycle, and the Russia-Ukraine shock of early 2022. Our transition matrix shows roughly 89% probability of exiting the extreme regime within twelve months — which sounds reassuring until you examine what happens in the remaining tail.

What makes the closure of the Strait of Hormuz different is both its scale — global oil supplies have been reduced by about 11 million barrels per day, more than double the combined shortfalls of the 1970s crises — and the uncertainty around its resolution.

With the strikes on Iran having killed the previous supreme leader and most of his family, a quick resolution without further escalation is difficult to envision. Iran understands that is the US’s Achilles heel. If traders begin pricing in a 3–6 month strait closure, Brent could reach all-time highs — potentially triggering recession pricing as inflation surges and central banks face an impossible choice between rising unemployment and runaway prices.

Although Trump wants to stabilize markets ahead of the midterms, Iran will seek highly favorable terms for the damage sustained, and the US is unlikely to accept them unless oil pressure intensifies further. Markets have yet to experience panic oil buying on supply constraints — I believe that is a necessary condition for any resolution.

What I Found

Two major US equity sectors hit a 0.0% hit rate in the extended scenario — zero simulated paths end positive. One is a sector most allocators treat as a core holding. On the other side, one asset delivers triple-digit expected returns with a 99%+ hit rate — even its bear case is positive.

The most dangerous finding is in credit. Between two adjacent duration scenarios, High Yield’s hit rate collapses from above 60% to below 15% — not a gradual decline, a phase transition. And gold — the consensus crisis hedge — fails beyond a specific duration threshold through a channel most macro investors aren’t pricing.

Part A — Methodology

1. The Indicator

The analysis constructs a Brent crude deviation metric — the percentage gap between Brent’s spot price and its trailing 252-day moving average — computed daily from 1990-12-31 through 2026-03-20 (~9,190 observations). This metric captures how far oil has moved from its own trend, isolating the “shock” component from secular level shifts.

2. Regime Structure

Three regimes are defined using the 50th and 97.5th percentile thresholds of this deviation metric (1.24% and 39.82%):

The Extreme regime distribution is built ex-dot-com — all pre-2001 Extreme windows are excluded to avoid contaminating the oil-shock signal with the unrelated tech bubble collapse. The surviving Extreme windows cluster around the 2004 Iraq supply fears, the 2008 commodity supercycle peak, the 2011 Arab Spring spike, the 2021 post-COVID rebound, the 2022 Russia-Ukraine shock, and the current 2026 Hormuz crisis.

3. Regime Transition Matrix

From the Extreme regime, the 252-day forward transition probabilities are:

This means: historically, when Brent is in an Extreme deviation state, one year later it has reverted to Below Trend 29% of the time, settled into Above Trend 58.6% of the time, and remained Extreme only 12.4% of the time. The strong pull toward Above Trend reflects the fact that oil shocks tend to partially normalize but leave a residual premium — prices come off the peak but don’t fully round-trip to trend within a year.

Four duration-weighted conditional distributions blend the three regime return distributions according to how long Extreme conditions persist over the coming 12 months:

Non-Extreme probability is allocated proportionally to the Below Trend and Above Trend transition shares from the regime’s own 252-day transition matrix.

4. Conditional Distribution Construction

For each of the three regimes, I collect every daily return observed across all 13 dependent assets during the days that regime was active — producing three empirical return pools (Below Trend, Above Trend, and Extreme ex-dot-com). The conditional distribution for a given scenario is constructed by blending these three pools in proportion to the scenario’s assigned regime weights. For the Historical Case, those weights come directly from the 252-day transition matrix row for the Extreme regime (29.0% / 58.6% / 12.4%); for the crisis scenarios, the Extreme weight is manually overridden to reflect the assumed duration (25%, 50%, or 100%), and the remaining probability is redistributed to Below Trend and Above Trend in proportion to their original non-Extreme shares (33.1% / 66.9%). The blend produces a single synthetic return pool of 200,000 daily observations per scenario — effectively a weighted mixture of “what daily returns looked like” under each oil regime.

5. Monte Carlo Simulation

Each scenario’s blended return pool is then bootstrapped via Monte Carlo simulation: 100,000 independent paths are drawn, each 252 trading days long, with daily returns sampled with replacement and compounded to produce a terminal 12-month outcome. The resulting distribution of 100,000 terminal outcomes yields five summary statistics per asset per scenario:

• Expected Return — mean of all simulated terminal outcomes

• Median — 50th percentile terminal outcome

• Bull Case — 90th percentile terminal outcome (optimistic tail)

• Bear Case — 10th percentile terminal outcome (adverse tail)

• Hit Rate — share of simulated paths ending with a positive 12-month return

Part B — Results: 12-Month Expected Returns by Scenario

In this section, I analyse the four scenarios (quick resolution, 3-month, 6-month, and 12-month crisis), each with explicit geopolitical triggers, resolution conditions, and long/short positioning built from regime-conditioned return distributions.

You will also find an Excel notebook with all the results and scenario returns for auditing purposes or own analysis.

Executive Summary

The four scenarios trace a clear degradation path as crisis duration extends.

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This analysis uses iShares Expanded Tech-Software Sector ETF (IGV) to analyse US software sector performance.

Executive Summary

• Drawdown Regime: IGV’s -34.7% trough depth places it in severe bear territory—exceeded only by dot-com, GFC, and 2022. Historical analogs imply 3+ years to full recovery, not quarters.

• Fundamental Drivers: Three structural forces …

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The US-Israeli military campaign against Iran—including the decapitation strike on Supreme Leader Khamenei—has triggered a de facto closure of the Strait of Hormuz via insurance withdrawal. Brent crude has surged 26% this week. This note examines VIX behavior across three historical oil spike episodes to establish reference ranges for volati…

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KOSPI Overview: The Korea Composite Stock Price Index (KOSPI) is the benchmark equity index for South Korea, tracking all common stocks traded on the Korea Exchange. Dominated by semiconductor giants Samsung Electronics and SK Hynix, the index serves as a barometer for global technology demand and Asian export cycles. With a market capi…

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• Oil Shock Scenarios and CPI Impact: The Strait of Hormuz is the world’s most critical energy chokepoint; disruption scenarios range from +30% oil ($86 WTI, +1.05pp CPI) to +121% ($146 WTI, +4.20pp CPI). A full blockade would raise consumer prices roughly as much as in early 2022. Full passthrough takes 6–12 months, but equity markets ty…

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Two Scenarios—Two Distributions:

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MSCI Europe has outperformed the S&P 500 by 7.79 percentage points over the trailing 12 months (USD terms)—the most sustained European leadership since the dot-com unwind. Trump’s tariff regime and European defense spending commitments triggered the rotation, driving a 10.7% P/E re-rating in European equities while US multiples compress…

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Bitcoin is currently down ~45% from its all-time high. This is a deep drawdown, but one that has historically preceded strong recoveries — particularly over 12-month horizons. The short-term is uncertain; the longer-term skews heavily positive.

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• Release Summary: January CPI slowed to 2.4% YoY, below expectations, led by energy declines and continued shelter deceleration—signaling disinflation without demand damage and easing equity discount-rate pressure.

• Regime Analysis: Inflation remains in the Q2 moderate-inflation regime, historically associated with ~13% 1Y S&P 500 TR retur…

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• Release Summary: January unemployment fell to 4.3% from 4.4%, printing below consensus (4.4%). The downside surprise reinforces labor‑market tightness and reduces near‑term policy easing optionality.

• Regime Analysis: At 4.3%, unemployment sits deep in the lowest quartile historically. MSCI World returns in this regime are positive but ca…

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