As we close out the first week of Donald Trump's attack on Iran, markets have succumbed to the relentless rise in oil prices. The higher the energy prices rise, the lower global stock markets will fall.

 

West Texas oil is up more than 25 percent this week compared to last week, not counting Friday morning's move. As I write this, crude is up another 10 percent today to $89.18/bbl. Stocks fell, and gas prices are already rising at the pump. The missiles are still flying, and neither side appears to be backing down.

 

"There will be no deal with Iran except UNCONDITIONAL SURRENDER!" said the president on Friday on Truth Social. Traders initially expected this attack to mirror the first in June 2025: a few days of bombing strategic targets followed by a presidential victory lap. It seemed an ideal buy-the-dip opportunity, but by week's end, profits were scarce.

 

Granted, the administration had warned Americans that this encounter would require "several weeks" to achieve their objectives. The first goal is the strategic destruction of Iran's war-faring and nuclear capabilities. The second objective is to institute a regime change in a country ruled by religious clerics. Critics argue that it is easier said than done.

 

Since the war department refuses to rule out "boots on the ground," the media assumes the worst. Meanwhile, over a dozen nations are caught in the crossfire, leaving images of burning refineries, shattered high-rises, and bodies on the nightly news.

 

Market participants are selling first and worrying about details later. Unexpectedly, traders have sold the year's top performers over laggards. This left many seasoned traders scratching their heads, since the normal playbook for what to buy and sell during geopolitical strife is not working this time around. Usually, market participants pile into U.S. Treasury bonds, precious metals, and other areas that provide some defense during market declines, not this time.

 

Precious metals, typically a haven, have dropped, as have utilities, treasury bonds, consumer durables, and industrials. Technology has fared better. Energy stocks are up, surging with oil prices.

 

Iran has declared a "holy war." If the Strait of Hormuz stays closed, considerable risk looms for global oil shipping (20 percent), fertilizer (30 percent), and LNG flows. Beyond defense stocks, likely sector winners are U.S. refiners and petrochemical firms, while airlines will be hardest hit.

 

Investors fear this conflict could last longer than most expect. The prediction markets do not believe Trump's assurances that it will be a four-week event. The betting leans heavily toward a ceasefire by the end of May (67 percent chance) and toward the conflict ending by June 30 (70 percent chance). If those odds are even close to coming true, then one can assume that oil prices would remain elevated or even rise further. Some are predicting a worst-case price of $120/bbl.

 

The inflation impact under those circumstances would be considerable. In which case, it would be doubtful the Fed would be willing to loosen monetary policy anytime soon. As a result, bond vigilantes are dumping bonds. Yields on Treasury bonds are rising, not falling (the 10-year Treasury at 4.12 percent), and the only real safe place to hide appears to be the U.S. dollar.

 

Regionally, Southeast Asia, a winner along with emerging markets in 2026, will be severely hurt by this war. Japan and South Korea rely most on Middle Eastern oil, while China purchases nearly all of Iran's. Europe is also battered by soaring natural gas prices due to a lack of LNG from the Gulf.

 

Although most investors are focused on the war, the U.S. non-farm payrolls report for February was a shocker as well. The economy shed 92,000 jobs in February, and the unemployment rate rose to 4.4 percent. On-going revisions of the data was disappointing as well. The Bureau of Labor Statistics revised downward December job gains from plus-48,000 to minus-17,000, while January was reduced by 4,000, from plus-130,000 to plus-126,000.

 

As for the markets, my warning of more volatility has proven conservative. If you give me an end date for the cessation of hostilities, I can give you a reasonable idea of where markets can go. In the meantime, there is a real possibility that the S&P 500 Index could  fall to the 200-Day Moving Average which is currently at 6,580. That would represent a 6.5 percent pullback, so we are already halfway there.

 

Iran is on everyone's radar screen. Markets are tumbling. Oil is skyrocketing, and explosions echo throughout our evening news shows. You may be nervous but remember that we have been here before.

 

And while war is a monstrous thing, its impact on your stock market investments is negligible. Last summer, I remember reading a J.P. Morgan research report that listed 36 geopolitical events between 1940 and 2022 that we could call crises. What they found was that in the first three months after an event, markets do underperform.

 

However, if you look at returns six and 12 months later, it was as if the risk event had never happened. You might know this, but in the heat of battle, many investors let emotions override their objectivity. Don't do it.

 

This conflict, although less than a week old, is playing out just like so many others. There has been a sharp sell-off in stocks and a flight to quality into the U.S. dollar. Energy prices, both for oil and gas, have also spiked, as they did on several prior occasions, most notably in 1973 and at the onset of Russia's invasion of Ukraine in 2022.

 

This time around, however, gold and even U.S. Treasury bonds, which are usually a "go-to" in times of geopolitical strife, have not responded as expected. It is unusual since gold has historically been one of the best-performing hedges against war risk. It may be that gold has already had a spectacular run both in 2025 and thus far in 2026. That may mean traders are hesitant to chase the price higher.

 

This war could curtail both energy shipments and production. Investors fear that rising energy prices may spark a resurgence in inflation. This is one reason the yield on longer-dated U.S. Treasury bonds spiked rather than fell. Higher yields and a stronger dollar — both antithetical to gold and other commodities — could also explain gold's poor performance.

 

Higher energy prices are among the main determinants of inflation, as energy permeates almost every aspect of the economy. The longer and steeper the price of oil and gas climbs, the higher the inflation rate. Herein lies the risk of the present conflict between Iran and the U.S.

 

Normally, as I said, wars in the past have had little to no impact on equity market returns on a one-year horizon; there have been exceptions. The 1973 oil crisis did have a lasting impact on returns. The reason had everything to do with a prolonged oil supply shortfall. That resulted in a two-fold hit to the U.S. economy as growth slowed and inflation rose, producing a period of stagflation.

 

This time around, we have a completely different scenario when discussing the energy markets. Back in 1973, America relied heavily on Middle Eastern oil, while U.S. production was already as high as it could be given the technology available at the time.

 

Today, the U.S. is among the world's leading energy producers, and the worldwide supply of oil and gas is plentiful. Bringing more of these resources online while the conflict continues may temporarily disrupt global markets, but few expect the energy shortfall to linger for many years. Remember 2022, the Russia/Ukraine war also spiked oil prices, but they quickly fell as additional oil supply came online.

 

We are in an era where trade wars, real wars, and repeated supply shocks challenge the world's economies and will continue for at least the next decade. Older generations must relinquish control so new leaders can guide us.

 

Unlike in prior decades, these new threats cannot be managed by an interest rate cut, a little more fiscal spending, or a protest march. Shocks to the system, whether through conflict, political and/or climate change, artificial intelligence, or pandemics, will require new leadership and policies. It is an age where economic and political relationships have been upended, and that, my dear reader, will continue.

 

 

As February ends, most stocks have gone nowhere. March tends to be better, closing higher 64 percent of the time. We can hope things improve, but hope is never a good investment strategy.

 

The carnage in the technology sector continued. While reporting stellar results, Nvidia, the AI semiconductor giant, failed to impress investors. Anemic bounces in other areas, such as software, did little to alter the mood. The market's schizophrenia continues.

 

About the only good thing one can say is that markets have held in there despite the technology sell-off. If you were fortunate or savvy enough to own stocks in emerging markets, precious metals, copper, energy, industrials, or small caps, your performance has been much better.

 

As I wrote last week, the Supreme Court ruling on Trump's tariffs was largely priced into the market. It offered only a day or two of volatility. Since then, the administration has faced more than 2,000 tariff refund lawsuits. Many fear their refunds will be delayed for a long time.

 

Markets soon returned to the threat of AI. "Threat?" you may say, what happened to AI, the linchpin of future productivity that has fueled all the buying over the last two years?

 

The narrative has changed. Today, it is all about fears that breakthroughs in artificial intelligence will affect companies' terminal values. Investors are fretting over whether AI will spell the end for certain industries and companies, or just cause widespread disruption. How much will software companies be worth ten years down the road? That is called a company's terminal value. Putting a number on its long-term worth is nigh on impossible. But that never stopped Wall Street from guessing.

 

This week, IBM's stock price crashed after Anthropic announced that its Claude Code tool could automate the modernization of COBOL systems on IBM mainframes. This business is core to Big Blue, and just the threat had investors dumping the stock. It was the steepest price drop ($31 billion) in more than 25 years for Big Blue.

 

Investors are seeking companies supposedly immune to AI disruption, yet few are truly immune to this trend. Sure, you still need trains, trucks, and airplanes to transport, or picks, shovels, and equipment to extract gold or silver, but creating an investment case based on this thinking makes little sense to me.

 

In every industrial revolution, massive changes have triggered fear. Fear of lost jobs, of a great uprooting of lives, of social disruption. In some cases, traditional processes fall by the wayside or evolve into something new and beneficial. It takes time to parse out these changes. It can't be accomplished in a week or a month.

 

Emotions are running high right now, but calmer heads will prevail. The truth is that the financial community almost always needs a story to justify price movements, no matter how far-fetched. Why not just accept that the entire technology sector, after a three-year run, needs a period of profit-taking and consolidation? In the meantime, sectors that have been ignored until now are having their day in the sun.

 

Cryptocurrencies attempted a bounce this week, but it was short-lived, while gold, silver, copper, etc. have been in a trading range. The biggest winner of the court's tariff turndown has been emerging markets. Given that they were hurt the most by the levees, their bounce back makes sense.

 

As we enter March, I am expecting this volatility to continue. My feeling is that markets need a trigger (up or down) to break this trading range. It could be conflict in the Middle East, or peace. Some hoped the State of the Union address might enliven buyers, and it did for one day, but profit-taking quickly ensued.

 

I advised readers to focus on the 6,900 level on the S&P 500 Index. Above it, positive; below it, negative. This week, we have had four days below and one above. That is called volatility. Expect more of the same.

 

The winter storms of ice and snow that buried much of the U.S. in January and February were large enough to impact the economy. It will be months before the final tallies are in, but many economists expect the price tag to be over $100 billion.

 

That seems like a lot of money. I guess if you take into account the indirect and longer-term costs, like business supply chain disruptions and even medical costs, then maybe. Sure, there was some disruption. On those minus-degree days, we only took the dog out for a few minutes to do its business. And yes, we may have curtailed our trips to the grocery store a little, or to a restaurant, but how does that add up to that much money?

 

I mean, I could understand if we were discussing a series of hurricanes or tornadoes, which have now become commonplace under climate change. The high cost of damage from such disasters is usually attributed to infrastructure. But how can a spate of reduced shopping hurt the economy that much?

 

Well, airline cancellations come to mind. When you cancel as many as 11,400 flights, there is significant lost revenue for both airlines and their passengers. Then there are power outages, which also impact businesses, sometimes for a few days. Trucks also find it more difficult, if not impossible, to make deliveries at least on the actual days of snowfall.

 

One area that could see some significant losses is in vehicle sales. The January 2026 vehicle report seems to bear this out. Last week, the Bureau of Economic Analysis indicated that sales really took a nosedive, hitting a three-year low. That does make sense, since not only would buyers need to drive to the showroom in snowstorms, but they would also want to test-drive a new car before buying it.

 

Most consumers may not realize it, but natural gas prices also surged. The week ending January 30th saw the largest inventory drawdown since the Energy Information Administration began record-keeping in 2010. Wholesale prices rose 81 percent. Since then, the EIA has raised this year's price forecasts by 25 percent.

 

Housing construction also took a hit. As one small example, the guys building a spare room in our condo could not cut the lumber needed outside, so they had to ferry the wood back and forth from their shop. Imagine putting on a new roof or laying cement in 2 feet of snow! Some analysts are now predicting a 3 percent decline in residential investment growth in the first quarter.

 

The early February bomb cyclone that hit the lower East Coast, combined with the ongoing deep freeze that has covered parts of central and south Florida, could cause as much as $15 billion in total damage and economic loss. The citrus groves and other crops were damaged extensively.

 

If I step back and look at the overall impact on most Americans, it seems clear that our heating costs are going up this year. The average family spent almost $1,000 to heat their home last year. We should expect that cost to rise 9 percent. If you use electricity to heat, tack on another 3 percent to that. Fixing water damage from burst pipes can cost as much as $30,000, and many insurance companies won’t pay unless you can prove that your thermostat was set on at least 65 degrees.

 

And then there are the "panic buyers." Even here in New England, grocery stores and supermarkets are often packed in the days before a winter storm. Of course, prices are higher because retailers know they can markup groceries and supplies the most.

 

The good news depends on the weather. Just this week, Boston, New York and other parts of the Northeast saw record snowfall levels.  If storms and icebox temperatures persist, it will take longer for the economy to recover. If not, and we get a break, most economists expect any lost output could be made up quickly in this first quarter of the year.

 

It was an uneventful week, at least until Friday. Growth remains firm, but inflation remains a concern. The data gave few clues, while geopolitics kept markets in check. And then, on Friday morning, the Supreme Court struck down Trump's tariffs.

 

The response was somewhat muted, although foreign equities did spike higher. Most investors, and I suspect the administration, were expecting that outcome. It is why the president's staff has been working on a Plan B for months now. Tariffs will continue, for sure, but levying them will now take longer since Congress must approve.

 

As for markets overall, call it what you will — consolidation, range-bound, volatile — stocks just couldn't mount a real comeback. The market indexes traded in a tight range while under the hood, the rotation game continued. And then there is Iran.

 

All week, the tension mounted as negotiations between the U.S. and Iran stalled. Both sides upped the stakes by showing their teeth. The U.S. forces on sea and air tightened the noose around its adversary. In response, Iran threatened the Straits of Hormuz, where the lifeblood of industry, oil, flows through and into Europe.

 

Oil rose above $65/bbl. as fears of a shooting war continue to mount. The safety trade of gold and silver hung in there as well. Hovering in a tight range above and below $5,000 an ounce. One might be tempted to dismiss these market jitters as another TACO play by the president. However, after the first bunker-busting go-around with Iran barely seven months ago, the odds are higher that something major could be in the works.

 

My own opinion is that the chances of such a debacle are lower than many fear. That does not rule out another aerial bombardment, but not a ground war or regime change. Middle Eastern nations do not want to see a shooting war in which the U.S., and particularly Israel, comes out on top.

 

The Arab states would prefer the devil they know (the present Iranian leadership) to something worse. An even stronger Israel, an Iranian civil war, or becoming embroiled in a larger regional conflict are scenarios that they would rather avoid.

 

The question is whether they can convince Jared Kushner and Steve Witkoff to let cooler heads prevail. It is noteworthy that both the National Security Council and the State Department were left on the sidelines in Geneva this week. Bypassing these two bodies, which have traditionally conducted such negotiations, says a lot.

 

The Gulf Arab States and Turkey have welcomed both men, despite having no official capacity within the government. Kushner spearheaded the Abraham Accords in his father-in-law's first term between Israel and several Arab countries and has as clients the wealth funds of Saudi Arabia, Qatar, and the United Arab Emirates. Both U.S. negotiators have reputations for prioritizing dealmaking over human rights or democracy-building.

 

In the meantime, the economic data remains robust, though the picture is mixed. Higher numbers for housing permits, capital goods orders, and industrial production indicate some growth ahead. However, U.S. GDP growth disappointed, coming in at 1.4 percent instead of 2.9 percent for the last three months of 2025. The 43-day government shutdown took the blame for that slowdown.

 

Another bummer was the latest FOMC meeting minutes. Most of the 12-member committee worried about inflation and thought the Fed might need to raise rates if inflation stays sticky. If that happens, it could put them in direct conflict with the White House and make the new Fed chairman's job a nightmare. Furthermore, the Fed's key inflation gauge, the Personal Consumption Expenditures Price Index (PCE) for December, also rose more than expected.

 

In the past, the Fed has often thought inflation was contained, only to see it resurge. An inflationary rebound tends to occur when financial conditions quickly loosen, supply pressures persist, and government spending rises. Combined with a tight labor market, these factors can reignite an already-elevated inflation rate.

 

The next two weeks could be high-risk for investors. The Supreme Court decision on AIPA tariffs is behind us, but the State of the Union address, Iran escalation, and Nvidia earnings remain ahead. These events may keep markets volatile, and any one of them could send stocks down quickly.

 

The rotation out of growth and into value will continue. Gold and silver prices are somewhat overvalued but supported by a war risk premium. Quarterly earnings beats are in the range of 75 percent for all reporting companies thus far. However, the price action on announcements suggests to me that, after an initial pop, many stocks are hit by profit-taking.

 

I am using the 6,900 level on the S&P 500 Index as a guide. Under that, the bears take over; over it, the bulls have a chance of running with the ball.