This edition of Market Factors begins with the most important financial topic of the day - the Middle East and energy prices. Analyst Devin McDermott offered advice and valuable facts on the conflict and markets. Section two quantifies the results of a trade I suggested at the beginning of the year and the diversion previews the imminent Formula One season and what i think is the end of an era.
Dado Ruvic/Reuters
Energy
Navigating the oil market
The most useful report regarding the ongoing Iran conflict is from Morgan Stanley oil and gas analyst Devin McDermott, who provides not only advice for investors (or potential investors) in the sector but also a series of important tidbits about previous conflicts in the region.
Mr. McDermott begins by noting that 20 per cent of the world’s oil and LNG consumption moves through the Strait of Hormuz between Iran and the United Arab Emirates. The bulk of the LNG is from Qatar, a new fact for me.
Iran produces 3.3 million barrels of oil per day and exports an average of 1.6 million barrels per day.
The analyst emphasizes that while there has been shipping delays at the Strait of Hormuz, the route has never fully closed. The Americans have local naval stations full of large boats with big guns and missiles to ensure this is the case, previously and now.
A premium of US$10 per barrel was already built into the Brent price ahead of the initial Israel and U.S. bombings, according to Morgan Stanley commodity strategist Martijn Rats’ estimates. For Mr. Rats this implies that “further upside may be significant but short-lived” if the conflict follows the historical precedent of brevity.
The global oil market is currently well supplied, more so since OPEC announced a 206,000 barrels per day production increase, ahead of the 137,000 expected.
At the open of trading Monday, the S&P 500 Energy index was up 27.8 per cent year to date compared with 0.2 per cent for the S&P 500. Domestically, the S&P/TSX Energy index was up 22.5 per cent year to date, which is 14.2 percentage points ahead of the S&P/TSX Composite.
Mr. McDermott recommends that investors stick with what has worked so far this year: high quality integrated producers. He suggests Exxon-Mobil Corp. and Chevron Corp. In Canada he likes Cenovus Energy Inc. He rates Imperial Oil Ltd., Suncor Energy Inc. and Canadian Natural Resources as equal weight/attractive.
Equities
A winning trade
On Jan. 19 I suggested selling the conventional S&P 500 market cap weighted index and buying the S&P 500 equal weighted index. The thought was that the U.S. market would become less concentrated in megacap tech stocks and that neglected sectors would start to outperform.
The trade is working so far. Since that day, the Vanguard S&P 500 Index ETF (VFV-T) in Canadian dollars has dropped 2.0 per cent despite dividends. The Invesco S&P 500 Equal Weighted Index ETF (EQL-T) has increased by 1.1 per cent in the same period.
In annualized terms, which is a bit unfair because the time frame is just over a month and not long enough to verify a sustainable trend, the performance translates to -16.7 for the conventional benchmark ETF and +10.2 per cent for the equal weighted. That would be a dramatic result, making the trend worthy following closely through ETF performance.
This isn’t a victory lap, not least because I didn’t put the trade on in my brokerage account. But it is interesting, and a trade idea that does insulate portfolios from the specific variety of volatility in today’s market.
Mercedes' British driver George Russell drives on the third day of the Formula One pre-season testing at the Bahrain International Circuit in Sakhir on February 13, 2026.GIUSEPPE CACACE/AFP/Getty Images
Diversions
Diversions headline
The Formula One season is set to begin and I think an important planet-friendly era is set to end. We are, I think, headed back to the screaming V-10 engines and away from the current hybrids but with one important caveat.
In the past I believed that Formula One didn’t get enough credit for research and development to make vehicles more efficient. The typical internal combustion engine (ICE) car uses about 15 per cent of the energy of the fuel. Formula One cars have managed to get 50 per cent, using technologies to recapture energy from the brakes and exhaust and using it to recharge batteries.
Inventions like pre-ignition fuel chambers may eventually be adopted for road cars – I know Subaru is trying hard to make a variation happen – and the annual fuel savings would be in the millions of gallons.
The racing this year, however, is going to be weird. About half of the horsepower will be from electric batteries that will run out of juice every lap before being recharged. The drivers will be more strategists than the fighter pilots they used to mirror. The odds of absurd racing situations are very high.
The nostalgia for the old V-10, all-ICE engines is reaching crescendo. To be fair they sounded spectacular. The odds of going back to these howling engines to enhance the spectacle – the series is a publicly traded stock after all – are climbing all the time.
New V-10s would be less toxic than they first appear. This year, all teams must go to fuel made from 100 per cent renewable sources. Non-food biomass, municipal waste like previously enjoyed cooking oil, and hydrogen-based fuel made using renewable electricity are the three biggest inputs for the fuel. It is likely that if the series goes back to V-10s, renewable fuel will stay.
The essentials
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Globe Investor highlights
CIBC’s chief market technician Sid Mokhtari reveals his Top 10 stock picks for March
Canadian value stocks are on the upswing. Norman Rothery looks at a portfolio that capitalizes on the trend
Eric Reguly on why U.S. and Iran could use oil as a weapon in the war - but may not
The Iran war has trapped Treasuries investors in a stagflationary oil dilemma, says Jamie McGeever
Quick hits
I received a few reports outlining how investors can benefit from the U.S.’s shortage of missiles. That’s just … not good karma.
Citi strategist Scott Chronert published what is arguably the most surprising statistic of last week. He noted that the Elite Eight stocks - Nvidia (NVDA), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta Platforms (META), Broadcom (AVGO), Tesla (TSLA)and Apple (AAPL) – are reaching a decade low in terms of average PE to growth ratio.
Former Western University lecturer Mike Moffatt continues to do important work for Canadians looking to understand the economy. His latest, “Is Canada actually doing better than Alabama? That’s the wrong question” is typically great.
See our full earnings and economic calendar here