A couple of weeks ago, when this Iran conflict first began escalating, I said it ranked about four out of ten on my long-term worry list. Now that things have flared up, do I still stand by that ranking?

In short, yes.

The key word is “long” versus “short” term worry. I believe — and hope — that what we are dealing with is the latter.

Going into the weekend, prediction markets like Polymarket were pricing roughly a 20% chance of an attack. That probability jumped quickly on Friday — and then the attack happened on Saturday.

Yesterday, I wrote a quick flash update outlining what happened over the weekend and how sentiment was extremely negative at the open. Markets were deep in the red. But as the day progressed, sentiment improved dramatically, and indices moved from sharply negative to mostly positive by the close. It was a clear example of how quickly emotion can swing.

That piece can be found here.

I’m writing this update because sentiment shifted again overnight. Investors are now pricing in the possibility that this conflict becomes prolonged. And if it does, the real macro risk isn’t the conflict itself — it’s supply chains and inflation.

The first wave of military strikes hit the “low-hanging fruit” — key strategic targets — and by most accounts appeared tactically successful. However, the fact that Iran can still counterattack suggests additional waves may follow. With each wave, targets become harder to hit and the marginal impact declines, increasing the risk of duration.

If this drags on:
• Energy prices could rise
• The Strait of Hormuz becomes a real concern
• Inflation expectations could reaccelerate
• Central banks may delay rate cuts
• Liquidity tightens

That’s what markets are reacting to right now.  It is assuming all these events are a foregone conclusion when they are not.

What’s interesting is how emotional this feels. Canada is a commodity-heavy market, yet gold and energy sold off alongside everything else. That suggests broad risk-off positioning rather than purely fundamental selling.

When markets get emotional, panic occurs and they often overshoot.

As I write this (8:30 a.m.), global markets are deep in the red but well off the morning lows. We’re seeing a tug of war between panic sellers and bargain hunters. Who knows where the day will finish? That’s the nature of this type of market — it’s emotional.

During times like this, optimism sounds like a sales pitch. Pessimism sounds like someone trying to help you. That explains why doom sells headlines — it feels analytical and cautious. But over long periods, optimism aligned with growth tends to win.

Or put more simply: pessimism sounds smart. Optimism makes money.

My base case remains that there is enormous political and financial pressure to contain this quickly. If that proves correct, inflation fears fade, central banks return to an easing bias, liquidity improves, and risk assets recover.

Over the long term, I remain far more focused on the structural forces reshaping the global economy — AI, productivity transformation, capital spending cycles, and the broader macro liquidity trend. These are secular drivers that compound over years.

This conflict matters in the short term. It drives volatility and sentiment. Nobody knows exactly when it will end — but it will end, and likely sooner than most expect.

If I’m wrong and it drags on, as I mentioned in yesterday’s commentary, our portfolios have safeguards in place.

In conclusion, this feels more like a cyclical disruption than a structural shift.