Commodities Lead Major Asset Classes By Wide Margin This Year

The war in Iran has roiled the outlook for financial markets and the global economy, but commodities are clearly benefiting from the turmoil as prices rise for energy and other raw materials.

The shift in leadership for the major asset classes has turned sharply in favor of a broad measure of commodities, based on a set of ETFs through yesterday’s close (Mar. 11). The WisdomTree Enhanced Commodity Strategy Fund (GCC) is up 15.3% year to date, far ahead of the rest of the field.

Running at a distant second place this year: foreign stocks in developed countries ex-US (VEA), which is up 5.4% in 2026. VEA had been the year’s top performer, but in line with equities just about everywhere, the war has triggered selling in risk assets. To date the retreat has been moderate, but the extent of the damage to the risk appetite remains unclear as long as the war continues.

Commodities are the exception. Energy is the main beneficiary of the fighting, which has disrupted oil exports from the Gulf region. The interruption of energy flows has spilled over into other areas that are affecting supply chains in some agricultural sectors, for example.

Various metals are also in the crosshairs. “The Gulf is a major supplier of aluminum, and disruptions could tighten supply chains for advanced manufacturing,” said Tony Pelli, practice director of supply chain security and resilience at BSI Consulting, a global risk management firm. “Aluminum prices are already rising, and further disruption could increase input costs for automotive, aerospace, and construction manufacturing in the US and Europe.”

Soaring energy prices will likely fall once the war ends, but as of this writing the odds still appear low that the conflict will cease in the immediate future. Meanwhile, energy markets continue to price in a worst-case scenario. Oil prices rose in early trading on Thursday despite a coordinated announcement the day before from world leaders to release 400 million barrels of oil from their strategic reserves.

Economists are struggling to estimate the breadth and depth of the war’s effects on the global economy, but you don’t need sophisticated models to recognize that the negative consequences will continue until the hostilities end.

“If this disruption goes on longer, we will see faster drawdowns [of existing oil supplies],” said Amin Nasser, head of state-owned oil giant Saudi Aramco. “There would be catastrophic consequences for the world’s oil market, and even more drastic consequences for the global economy.”

There’s never a good time for war, but the current crisis comes at a time of pre-existing macro challenges for the US economy. Economists at Wells Fargo sum up the situation in a research note published on Wednesday:

Independent of the oil price spike, employment growth has effectively stalled over the past year, with payroll levels treading water amid weak hiring outside a handful of industries (Figure 2). At the same time, real personal income excluding transfer payments—a metric closely watched by the National Bureau of Economic Research recession dating committee—has lost momentum as wage growth has slowed and inflation has remained sticky. A renewed rise in energy prices would likely push inflation back above 3% in the near term, mechanically eroding real income and placing additional strain on households, particularly the lower- and middle-income households that tend to allocate a greater share of spending to fuel costs.

The good news is that the repair and recovery will likely start as soon as the conflict winds down. Unfortunately, that point doesn’t appear imminent.  

“If the hostilities wrap up in relatively short order, we see little reason for investors to expect a lasting market impact,” predict strategists at Alliance Bernstein. “That’s largely because the economic impact wouldn’t be lasting either. But geopolitical conflicts are complex and unpredictable. If things drag out, the situation—and our assessment of the impact—could change. Time will tell.”