The war in the Middle East has not ended. Neither has its economic fallout — and Charles Schwab's Liz Ann Sonders and Collin Martin are clear-eyed about why investors should stop expecting otherwise.
In a recent episode of On Investing1, Schwab's Chief Investment Strategist and Fixed Income Strategist sat down to work through the compounding pressures now bearing on markets: oil prices, Treasury yields, inflation, credit conditions, and a corporate earnings picture that looks, on the surface, more resilient than it has any right to be.
The Oil Misconception Running Through Main Street
Both Sonders and Martin open the conversation with an observation that cuts to the heart of investor confusion right now: a widespread and persistent misunderstanding about what it means for the U.S. to be a "net exporter" of oil.
Sonders recounts an exchange at LaGuardia Airport with a fellow traveler who looked at her Bloomberg charts and concluded that the war in the Middle East shouldn't affect American consumers at all. "Oil is, even domestically, still priced based on global forces," she says plainly. The irony she notes is striking: West Texas Intermediate, the domestic benchmark, was at the time of recording trading at a premium to Brent crude, the global benchmark. "We don't sell ourselves oil at a domestic discount. Our economy is at the mercy of higher energy prices."
Martin recounts hearing a nearly identical question from someone at his gym two weeks prior. The frequency of that particular misconception is itself data — it reflects a public and, to some degree, investor base that is underestimating the war's reach.
The Supply Damage That Won't Repair Overnight
Even optimistic scenarios — a negotiated end to the conflict, a reopening of the Strait of Hormuz — do not resolve the economic damage already done. Sonders is pointed on this: "Even if the war ends, we're not at the end of the economic implications."
The destruction of an LNG facility in Qatar, which Sonders notes has taken out approximately 17% of production, carries a recovery timeline of "three to five years" by Qatar's own admission. Storage facilities have filled up. Production has been shut down. The pipeline — literal and figurative — does not simply restart. The implication for inflation, for energy-dependent businesses, and for global supply chains is that the war's economic shadow extends well past any ceasefire.
Treasury Yields: Elevated, But Not Extraordinary
Martin's framing of the bond market is notable for its composure. The 10-year Treasury yield ranged roughly 40 basis points from trough to peak through March — a move that sounds alarming until compared to the 2022–2023 era of Fed rate-hike volatility and surging inflation, when swings were significantly larger.
His year-opening view — 10-year yields hovering above 4%, with upside around 4.5% and downside near 3.75% — remains intact. The three drivers behind that thesis: sticky inflation, fiscal and debt pressures accelerated by the cost of war, and rising global yields from Europe and Japan that create competing investment alternatives. "When you start to see higher yields kind of across the globe, that can put some sort of a floor underneath ours, as investors potentially see different opportunities elsewhere," Martin explains.
The European Central Bank is expected to hike, given Europe's greater dependence on oil imports. The Federal Reserve, by contrast, is expected to hold and eventually cut — but not soon. "We think that the next move will likely be lower, but they'll probably be on pause for a little bit," Martin says. The floor of 4% holds unless a recession materializes, and despite all the headwinds, Martin's read is that the economy entered this period on solid enough footing that a recession is not the base case.
Earnings Estimates: A Concentrated, Not Broad, Story
Perhaps the most analytically useful exchange in the conversation concerned the apparent paradox of rising earnings estimates in the face of so much uncertainty. Martin flags the disconnect and puts the question directly to Sonders. Her answer is a study in disaggregation.
The upward revisions are not evenly distributed. Energy and materials sectors are revising up for obvious reasons — oil prices and higher commodity prices accrue directly to their earnings lines. But the bulk of the positive revisions is concentrated in technology, and even there, the story narrows further. "It's Micron and Nvidia," Sonders says, "who have accounted for a fairly high percentage of that increase to tech estimates." This is not a broad market repricing higher. It is a heavily concentrated move within two stocks within one sector.
Sonders also flags the timing dimension. First-quarter earnings season is approaching, and analysts may be holding their 2026 estimate revisions until they hear directly from companies. A year ago, the onset of Liberation Day tariff uncertainty triggered widespread guidance withdrawals. The coming earnings season may produce something similar: companies flagging the war's impact on input costs, particularly energy, and either withdrawing guidance or giving wide-band ranges that reflect genuine uncertainty.
Credit: Resilient, With One Asterisk
Martin's read of the credit market offers a useful counterweight to the more cautious equity narrative. Investment-grade and high-yield spreads both widened in March and have since partially retraced. The credit market is not flashing distress.
More tellingly, March marked the fourth-largest month of U.S. dollar investment-grade issuance on record. Martin draws two possible interpretations. The optimistic read: robust demand signals that investors are comfortable lending to corporations in an uncertain environment. The more cautious read mirrors the 2020 dynamic, when companies rushed to issue debt — at Fed-supported attractive rates — as a liquidity buffer against an uncertain future. "Businesses are saying, 'We're very uncertain right now, yields are still somewhat attractive… maybe we want to issue debt, kind of boost up our liquidity, cash on our balance sheets to maybe prepare for a bumpy ride.'"
Both readings, Martin acknowledges, can be true simultaneously.
Inflation: Sticky From Multiple Directions
Sonders' closing question to Martin on inflation and tariffs draws a notably structured response. On goods: tariff-related inflation showed up in the data — core goods prices swung from negative 1–2% year-over-year to positive 1–2% — but didn't break through at the headline level given the narrow consumption basket affected. The potential concern now is that businesses who delayed passing along cost increases may begin doing so.
On services: not as strong a labor market as before, but not weak. Services inflation is expected to moderate, and Martin views that as a genuine positive.
The oil price spike offsets any tariff-related relief. Core PCE — the Fed's preferred measure — came in at 3.1% in January, above 3% and moving in the wrong direction. "Inflation, unfortunately, probably isn't going to go down anytime soon," Martin says, "and it's probably going to hover north of 2.5%."
Key Takeaways for Advisors and Investors
The oil-equity inverse relationship is structural right now, not a passing correlation. Expect continued index-level volatility to track oil price headlines.
The 10-year Treasury yield range of 4%–4.5% is the operative planning framework. Getting below 4% requires a recession — not the base case, but not dismissible either.
Earnings estimate increases are narrow and concentrated. Investors should resist reading broad market optimism into revisions that trace back to two semiconductor names and energy sector tailwinds.
Credit markets are functioning, but the record March issuance warrants watching. Liquidity-buffering behavior in corporate treasuries could be an early signal of anticipated stress.
The inflation picture is multi-layered. Oil prices, tariff pass-throughs, and above-3% core PCE have collectively pushed the Fed's timeline for easing further out. Services disinflation is the one genuine relief valve.
The war's supply-side damage has a multi-year shelf life regardless of when hostilities end. Planning around a quick reversion to pre-war supply conditions is not a defensible assumption.
Source:
1 Liz Ann Sonders and Collin Martin, "On Investing," Charles Schwab, April 2026.
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