State Street Global Advisors issued a stark warning that the market fallout from the ongoing war in Iran will likely eclipse the tariff-driven volatility of 2025, even if the fighting resolves swiftly. 

‘Short Shocks, Longer Echoes'

In a March note to clients titled "Short Shocks, Longer Echoes,"  the asset manager argues that investors should brace for a slower and more uneven recovery this time—without the quick policy pivot that helped stabilize markets last year.

The 2025 tariff reversal sparked a furious rally in high-beta names while high-quality defensive plays lagged. But State Street cautions that historical parallels will mislead market participants. 

"Although there may be some common characteristics in these two environments," analysts wrote, "it is not wise to draw direct inference for returns." 

Unlike last year's short-lived tariff shock, the current conflict has no clear off-ramp, no diplomatic deal on the table and no evident pivot from U.S. policymakers—leaving markets exposed to sustained disruption in oil flows and energy costs.

The firm noted that even a relatively swift resolution would not prevent long-lasting economic scarring. The key uncertainty, they said, is the duration of the conflict, which will determine how deeply supply chain and inflation expectations are hit. 

Prolonged disruption in crude exports from the Strait of Hormuz, compounded by expanding sanctions, could reignite cost pressures across manufacturing and transport sectors—undermining profit margins despite stronger nominal revenues.

WTI crude oil futures topped $115 before pulling back slightly on Monday morning, while the United States Oil Fund (NYSE:USO) moved higher, now up 100% in 2026 alone. 

Exchange-traded funds mirrored the uncertainty: SPDR S&P 500 ETF Trust (NYSE:SPY) slipped in Monday's early trading, while the tech-heavy Invesco QQQ Trust (NASDAQ:QQQ) remained volatile—reflecting investors' struggle to gauge how sustained inflation could pressure rate-sensitive growth valuations.

State Street's analysts highlighted potential headwinds for corporate confidence and earnings visibility, warning that "even if markets were to recover back to previous levels, the path from here is unlikely to be smooth and there will be lasting impacts."  

The Takeaway

The firm urged investors to emphasize discipline and diversification, positioning across quality balance sheets and avoiding overexposure to growth equities leveraged to consumer sentiment or energy inputs.

With no pivot, no deal, and no clear path to easing hostilities, the firm suggests 2026 could resemble the aftermath of a regional oil shock rather than a trade scare—marking a turning point for both inflation-sensitive sectors and global capital flows. 

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