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.

 

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.

 

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.

 

The ongoing debate about the high spending by AI companies is intensifying, but a broader thesis is emerging. AI is now casting uncertainty across more industries, unsettling investors and markets alike.

 

Software stocks have been the most obvious area of concern. The sector, and Microsoft in particular, has seen relentless selling. However, other areas, from finance to accounting to insurance, are increasingly being questioned.

 

As a result, this week it has been a game of moving chairs, where suddenly a story appears touting a breakthrough in an accounting or finance tool. Down goes brokerage stocks. Anthropic PBC, an AI research and development startup, recently announced Claude 4.1, an AI chatbot that makes writing tasks easier. OpenAI, their competitor, offers ChatGPT, which is churning out outputs that analysts expect will disrupt industry after industry over the next two years.

 

No one really knows who the winners and losers in this AI threat will ultimately be, but short-term traders are taking advantage of the uproar while roiling the markets. As I warned, February is turning out to be a volatile month in any case.

 

Two macroeconomic events contributed to the market's gyrations this week. The delayed non-farm payroll report for January was an upside surprise, adding 130,000 new jobs versus expectations of only 55,000. Market participants did not like the number because stronger job growth reduces the reasons for the Federal Reserve Bank to lower interest rates.

 

On Friday, the Consumer Price Index for January was slightly weaker than expected, rising 2.4 percent year over year. Markets liked that result since it sort of balanced out the picture for the Fed. Weaker inflation, stronger labor gives the Fed some room to ease, or so the story goes.

 

As for me, I no longer consider the government's data as unbiased. It is an election year, and I expect the administration will tilt the numbers to put them in the best possible light. It happened under the previous president, and it will happen under the next president.

 

To me, the numbers were much ado about nothing. The expectations that the Fed will ease before June are quite low in the betting market. I concur. After the new Fed Chair takes his seat, then monetary policy will ease, and not before. That leaves me focused instead on geopolitics, trade policy, and how much the government can spend to boost the economy.

 

The fear that the U.S. will take military action against Iran as early as this weekend has supported energy prices. Anything can happen, but somehow, I don’t think another strike is in the cards, at least not now.

 

As for the overall market, this week saw the momentum winners of last year get hit one by one. Software, then hardware, financials, real estate, and consumer discretionary all got taken to the woodshed. Even metals and mining stocks experienced steep one-day declines with little or no reason.

 

The hysteria that AI is "coming for Wall Street" will likely continue. In my opinion, anyplace that relies on structured, repetitive workflows will be disrupted. Those that offer a human connection and add value will be enhanced and benefit from AI. But in the meantime, rotation in and out of various sectors will provide opportunity for traders and volatility for long-term holders. We are in a trading range. I expect that will be the playbook for the rest of the month.

 

What goes up must come down, or so they say. The run in artificial intelligence stocks that propelled markets higher over the last two years has ended at least for now. Unfortunately, the area is taking the markets down with it.

 

Investors have certainly enjoyed a great run in all things AI. Plenty of companies have seen their stocks double and even triple in a short period of time. Momentum traders had a field day. When that play began to falter, other areas caught their attention. Traders began to sell AI and moved the proceeds into precious metals.

 

At first, it was just a few brave souls. But as that trade began to work out, more jumped in until it became a stampede. Like the AI trade before it, bidding up precious metals became a global phenomenon. U.S. and Chinese traders took the lead, and before long, the buying frenzy became a 24-hour trade of epic proportions. In January, the prices of precious metals exploded higher.

 

As AI and crypto prices fell, the market for precious metals soared. However, the gold and silver market is much smaller than the technology market. As such, metals soared in price far faster than the AI trade. It was a classic supply-and-demand situation — too many traders chasing too few investments. Until it wasn’t.

 

Over the last week or so, we have seen the momentum trade reverse. It started last Thursday in Asia and has declined steadily since then. This week, spot silver saw a breathtaking two-day bounce, only to fall midweek as Chinese traders sold it, sending silver down 18 percent by the time the U.S. market opened on Thursday morning. On Friday, prices rebounded again.

 

In the meantime, cryptocurrency prices, which have a high correlation to the tech-heavy NASDAQ index, fell as AI stocks deflated. This week, all of crypto's gains since the Trump Pump have been wiped out. Many players in both crypto and AI are now realizing momentum works both ways.

 

You may notice that the above explanation has little or nothing to do with fundamentals. Not a word about economic growth, inflation, Donald Trump, or tariffs and trade. None of that mattered. That is normally a warning that the overall market has reached a speculative peak that cannot continue without some consolidation.

 

So, what now? Does this mean that the bull market is over? Not at all. It just needs to consolidate a bit. To clarify, remember my thesis explaining the Santa Claus rally: the global flow of funds that fueled those gains is now reversing, as it does every year. With less money in the system, there's less fuel for gains — a simple but true relationship. Still, if this pullback continues, there are plenty of sectors worth your attention.

 

I still like emerging markets and overseas stocks in general. Small-cap stocks, in my opinion, will be the main beneficiaries of all this AI spending by the big guns. Google just reported a massive $180 billion spending plan for 2026; double the already massive bet they made last year. Amazon announced an additional $200 billion in AI outlays.

 

These stocks sank on the news, despite Wall Street applauding the confidence management showed in AI's future. But rather than buy Google and wait for a multi-year payback, I prefer to buy small businesses that will ultimately grow and improve productivity despite lacking the capital to expand their labor force.

 

It is a midterm election year, so the government spending and other goodies that Donald Trump is throwing at the market in the months ahead should keep the economy and the stock market buoyant. That should benefit anything small-cap like regional banks and maybe biotech. Materials, industrials, defense, and energy should also gain. The technology sector will still participate; it just won't lead as it has in the past.

 

The S&P 500 has lost all its gains since the beginning of the year at this point. My worries over AI expansion have come home to roost. As for precious metals, although they have been in a bull market for well over two years, I warned investors two weeks ago to take profits across the board in this area. It is not the end of AI, nor is it the end of the bull market in precious metals.

 

I think the worst damage has already been done in gold, but probably not the gold miners. Silver is still in no man's land. The problem is that the volatility in these metals makes them a "no-touch" for most of my readers right now. If you still want to take a stab at it, you know my email.