Equity markets in North America fell last week after experiencing heightened volatility as the war on Iran ignited by Israel and the US continued to escalate. The mounting geopolitical tensions drove WTI crude oil prices to briefly spike to US$119 per barrel on Monday before retreating below US$100. Consequently, the TSX Composite and the S&P 500 were led by the energy sector. Not only are investors concerned about rising energy prices, but a prolonged war would also cause inflationary pressure in a variety of other areas discussed below.

Year to date, the S&P 500 top-performing area has been the energy sector. While this is understandable given the situation in Iran, we’ve also witnessed a decisive sector rotation. Investors have shown a preference for less volatile defensive areas as both the consumer staple and utilities sectors have outperformed the broader market.

In Canada, shares of subprime lender Goeasy Ltd. plunged nearly 60% after the company suspended its dividend, withdrawing financial guidance, and announcing $331 million in fourth-quarter charges. With $233 million tied to consumer loans in its LendCare unit, which finances autos and powersports equipment, this specific event carries broader implications as funding partners are expected to tighten terms, demand more protection, and scrutinize similar credit exposures. In the US, Oracle shares jumped 9% following robust earnings that beat estimates. The surge was driven by resilient AI cloud demand and raised fiscal 2027 revenue guidance, with management reassuring markets that they will not take on additional debt in 2026 beyond the US$45 to US$50 billion already announced. In contrast, Adobe shares dropped 7.6% despite beating earnings forecasts, as the departure of its CEO of 18 years fuelled doubts about the company’s AI strategy and ability to fend off new competitors. Private credit companies faced selling pressure after JPMorgan restricted some lending by marking down certain software-related loans in the portfolios of private credit groups that serve as collateral to borrow from the bank. This sparked broader portfolio credit quality fears, dragging down shares of Ares Management, Blue Owl Capital, and KKR & Co. by 4.8%, 4.8%, and 3.2%, respectively.

Overseas, the effective closure of the Strait of Hormuz has halted roughly one-third of the world's seaborne fertilizer alongside vital oil and natural gas supplies, according to the United Nations Trade and Development. There are concerns over global food availability and pricing because fertilizers are critical for crop yields. Any shortage in the global supply of fertilizer will reduce agricultural yields and increase the cost of food. This, in turn, sent the shares of fertilizer companies such as Nutrien, CF Industries, and The Mosaic Company up 10%, 12%, and 11% on the week, respectively. These shortages are also increasing the risk of higher inflation. To try and support oil supply and hopefully offer some price relief, the International Energy Agency (IEA) agreed to a staggered release of 400 million barrels of emergency oil reserves. This is more than double what was released in 2022 after Russia invaded Ukraine, though its impact remains uncertain as it represents less than four days of global oil consumption. Depending on their severity and duration, these supply shocks threaten to exacerbate the global cost of living, redirect discretionary spending, and slow broader economic growth.