Key insights
- Geopolitical tensions in the Strait of Hormuz could negatively impact the US equity market. Rising oil prices may lead to higher inflation and potentially trigger a recession. Helium shortages could disrupt semiconductor production and AI infrastructure development. Sulfur supply disruptions could further pressure consumer prices. The article advises long-term investors to stick to their fundamental plan and consider investing in an S&P 500 ETF.
As I write this on Monday afternoon, April 20, the U.S. is still at war with Iran, and the Strait of Hormuz is still largely closed. If the conflict continues, this will likely impact investor portfolios going forward.
Since the war started, oil prices have shot up, as nearly 20% of the world's oil flows through the strait. This will lead to continued high prices at the pump and likely higher airline fares. With the U.S. already taking a hit from higher prices due to tariffs, it could potentially cause a recession.
On top of that, Qatar supplies over 30% of the world's helium, which is also now cut off. Helium also degrades over time when it is shipped, as liquid helium boils off, so taking a longer route to avoid the Strait would still reduce volumes.
Helium is used in the cooling process to make advanced semiconductor chips, like graphics processing units (GPUs), so this very well could impact the artificial intelligence (AI) infrastructure build-out. Right now, Taiwan Semiconductor Manufacturing has helium reserves, but this will only last several more months.
In addition, about 50% of sulfur also passes through the waterway. Sulfur is used in everything from medicines to fertilizers and mining. This could cause prices to rise in these areas, continuing to pressure the consumer.
The market has been very volatile, with stocks moving up and down based on the latest headlines about the progress of the war and when it may end. However, long-term investors shouldn't try to trade the headlines.
First and foremost, investors should stick to a fundamental plan that does not deviate based on the current market conditions. In my view, most individual investors would be best served by having a portfolio whose core position is in an exchange-traded fund (ETF) that tracks the S&P 500, like the Vanguard S&P 500 ETF (VOO +1.03%). Most professional investors fail to outperform the S&P 500 over a 10-year period, which is why this is a great core investment to build a portfolio around. The Vanguard S&P 500 has a great track record and is an easy way to get instant diversification.
From there, you can then add individual stocks or other ETFs to supplement this core position. Also, if you're under retirement age, the other big part of your investment strategy should be dollar-cost averaging into your core ETF holdings at least once a month. This is a proven strategy that will help you build wealth over time.
From there, if you can scrape together some extra money without selling any core positions, I'd do so. A recession is still a real possibility if the war continues into the summer, and as such, it would be great to have some cash on the sidelines to be a buyer on any major dip. However, I wouldn't be selling off any core positions or stopping dollar-cost averaging to do this.