Iran tensions intensify — further Strait of Hormuz disruptions or direct military exchange — pushing WTI toward $110+. Energy producers see windfall margins, defense contractors benefit from elevated geopolitical risk budgets, and inflation accelerates well past 4.5%, cementing a no-cut Fed stance.

A diplomatic resolution or ceasefire in the Iran conflict removes the geopolitical risk premium from crude, sending WTI back toward $75-80. Inflation pressures ease, rate-cut expectations edge back into the market, and capital rotates away from energy into rate-sensitive and consumer sectors.

CPI accelerates above 5% driven by persistent energy and food cost inflation, forcing the Fed to resume hiking despite a consumer sentiment reading of 49.8 and rising unemployment. Long yields breach 5%, crushing rate-sensitive sectors while rewarding cash-flow-rich structural growth names insulated from borrowing costs.

Energy prices retrace as geopolitical tensions ease, pulling CPI back below 3% by year-end and opening the door for two Fed cuts in H2 2026. Long yields fall back toward 4.0%, sparking a broad re-rating of rate-sensitive sectors and a consumer confidence recovery from deeply depressed 49.8 levels.