The Fed is on hold. Iran is not. Oil regains highs, despite Trump's efforts. Markets test a critical support level. Read no further, unless you want the gory details.

 

My first downside target has been met. The S&P 500 Index has fallen to the 200-Day Moving Average (DMA). That is the level that has historically separated the bulls from the bears. Below it, we have problems. Above it, the sky's the limit. That's simple enough, I guess, but the question on your mind right now is what happens next?

 

That 200 DMA, while important, is not an exact science. More often than not, the market overshoots that line in the sand just to freak out the most investors. I am thinking that overall, we should pull back further, maybe closer to 10 percent over time rather than the 15 percent some bears are predicting.

 

As for when this conflict in the Middle East will end, I don't know. You could ask the president, since he has said that he will "have a feeling" when enough is enough and the war is over. When that occurs, the markets will rally. The bounce should be breathtaking, and if you are not invested, you will miss it. There won't be an opportunity to chase.

 

There is one caveat to that advice. If you are lucky enough to know someone in the inner circle or have paid (donated) enough to the right people, then you will be given advanced notice. Giving friends, relatives, and donors advance notice has become a standard practice within government over the last year.

 

I am not the only one with a foggy crystal ball. The Federal Reserve Bank has no idea what is in store for the economy or the financial markets either. They met this week but decided to do nothing but wring their hands. Chairman Jerome Powell (the Fed's lame-duck who isn't) said they would be watching and waiting for the next six weeks (the next FOMC meeting) until they see how this Middle Eastern conflict plays out. He intimated that the longer the war lasts, the more difficult the Fed's job becomes.

 

Higher-for-longer energy prices mean inflation strengthens as growth slows. The Fed has raised its inflation forecast for the year, but FOMC members still expect the economy to grow. Unemployment appears balanced. Since the immigration crackdown, job openings and job seekers are nearly zero, creating an unusual equilibrium.

 

On the inflation front, the Producer Price Index for February rose over twice as fast as expected, climbing 0.7 percent from January's 0.6 percent. This increase more than doubled most economists' forecasts, though not mine. About 30 percent of the gain was from higher diesel fuel prices. Read my column on diesel fuel this week. I expected this increase and anticipate that the next inflation numbers will be even higher.

 

The era of markets anticipating future rate cuts has ended, replaced by, at best, no change, and at worst, rate hikes if inflation accelerates. That shifts the narrative and market dynamics.

 

Precious metals and metals overall are a case in point. The sector has responded to the fear of higher interest rates by dropping precipitously. The hot money has bailed out and moved into speculating on energy and the U.S. dollar. I see further downside in all metals and a period of consolidation as interest rates decimate the asset class.

 

A series of measures — including using Strategic Petroleum Reserves, lifting Russian oil sanctions, and removing U.S. regulatory restrictions (The Jones Act) — to boost global liquidity appear to have slowed energy price gains.

 

Given that I am not a war correspondent, nor do I pretend to be, unlike so many talking heads in the financial media, all I can say about the conflict in the Middle East is that it has spread. Significant strikes on gas fields and oil refineries are investors' worst nightmares. That kind of escalation is a significant threat to global growth.

 

At the same time, the narrative has changed. The administration's assurances that we will kick Iran's butt, oil prices will fall, and on to the next victory are beginning to fall flat. Missile and drone strikes have taken precedence over words and presidential posts, with every new explosion sending oil prices higher and stocks lower.

 

Some traders are keying off the price of West Texas Intermediate oil (WTI) to signal which way stocks will go. Above WTI $97.37 a barrel, stocks fall further, while below WTI $92.62 markets rally. That is a wide range.  In between, equity markets are in a chop fest. The VIX (volatility index) indicates the same thing. It is at 25 right now. Below 19, the VIX signals all clear, but above 30, look out below! In between, we have the same chop fest as the oil price indicates. I warned readers to expect volatility, and we have it in spades. It will get worse before it gets better.

 

In keeping with the administration's return to its own brand of 16th-century mercantilism, could the next colony they seek be Cuba? It appears to be a strong bet, but for what purpose?

 

Given the actions and words of our government officials, the next country, or in this case, island nation, it seeks to conquer lies 90 miles from Key West. Cuba sits at the intersection between the Gulf of Mexico and the Atlantic Ocean. Historically, the U.S. considered it a natural barrier controlling vital sea lanes and a dominant landmass that protected or threatened the southern U.S. coast.

 

It may be that its long-term strategic military and economic value remains viable, but the country's economy is in a mess. The Economist, in a recent article, indicated that the Cuban economy was on the verge of collapse. Aside from rum, cigars, and a little tourism, Cuba suffers from decades of economic mismanagement, a lack of structural reforms, and mass migration.

 

Inflation is at 15 percent, the peso is tumbling, tropical diseases are surging, and in cities like Havana, the municipal waste system has ground to a halt. Blackouts are increasingly common. Hospitals are canceling surgeries, and public transportation is scarce. It wasn't always that way.

 

Originally a Spanish colony, Cuba in the 1800s fell under the Monroe Doctrine after Spain formally renounced its claim to Cuba in the Treaty of Paris in 1898, and was largely occupied by the U.S. By then, massive amounts of American capital had already been invested in the country. Beyond a thriving sugar trade, American interests controlled significant percentages of the island's railroads, public utilities, mining, and tobacco. The country essentially became a U.S. protectorate in 1903.

 

The Communist takeover of Cuba and the nationalization of American property in 1959 soured U.S./Cuban relations to the present day. Although there have been several false starts and attempts at reconciliation through the decades, the U.S. doctrine of isolation and embargo has continued to the present day. That policy has brought the Cuban economy to its knees today.

 

Trump's decision to choke off Venezuela's oil to Cuba, which can only meet 40 percent of its own energy demands, was a body blow. The oil crisis hammered the regime's already doomed economic model. In a rare admission of crisis, President Miguel Diaz-Canel scrambled to implement an urgent economic overhaul. The Castro brothers must have spun in their graves as Diaz-Canel called for loosening the state grip, courting foreign investors, and shrinking government control.

 

As the mood in this communist nation soured, the state's iron grip on the economy had already begun to loosen. In 2021, the government allowed the creation of hundreds of small businesses in the private sector with fewer than 100 employees. As such, there are now 11,000 small and medium-sized independent businesses on the island. Just recently, another series of reforms allowed private ownership of a wide range of industries, from food production to construction and beyond.

 

In the case of Cuba, I believe Trump would rather have a deal that would make the island economically dependent on the U.S. Unlike the war in Iran or the late-night raid in Venezuela, I am not looking for an abrupt change nor the sudden overthrow of all state control. Times have changed. Most so-called capitalist economies have evolved into a new model of state capitalism, whether we are talking about China or the U.S.I believe the approach will be different. It would be more of a bailout or bankruptcy reorganization than a regime change.

 

President Trump has used the term "friendly takeover" more than once in talking about Cuba. His Secretary of State Marco Rubio, a longtime Cuba hawk, along with a Florida-based Cuban business community, has been reaching out to the private sector. I have noticed that rather than threaten regime change in the name of democracy or an end to communism, the administration is focusing on commercial, economic, and financial engagement.

 

From the president's point of view, the need for humanitarian assistance is high, and what better way to deliver it than through the private sector? Exactly how a friendly takeover would be accomplished is a question for the market. The island was certainly part of the discussions Trump had with Latin American leaders at a March 7 summit at the Doral Golf Club.

 

For a successful takeover, Cuba's private sector will need the skills and capital of American business, particularly the banking sector. It appears the present government would be amenable to such an approach. It also helps that they know if a carrot doesn't work, Donald Trump is more than ready to use a Big Stick.

 

Twenty percent of the world's energy flows remain bottlenecked by the Straits of Hormuz. As oil prices stay high enough to cripple the global economy and drive inflation, Iran is counting on that leverage to back the world into a corner. And for now, it’s working.

 

It appears that the more real estate the U.S. and Israel destroy with their combined air power, the stronger the resolve by Iran's leaders to ignore Trump's "unconditional surrender." Rather than back down, Iran appears to be determined to not only widen the war to the entire region but also take their response outward to the rest of the world.

 

As the week wore on, the European Union's release of 400 million barrels of stockpiled oil on Wednesday barely dented Brent crude's price momentum. Meanwhile, the administration created even more chaos by claiming a tanker had been escorted through the Straits by a Navy ship. Prices went down once again, only to rise again after the energy secretary's tweet was taken down and denied. Ultimately, it turned out there was no escort, and the tanker in question was an Iranian vessel carrying oil destined for its largest customer, China.

 

On Friday, the administration announced it was easing its embargo on the purchase of Russian oil, and France and Italy approached Iran to see what it would take to allow European tankers through the straits. Administration officials also claimed that the U.S. Navy, together with a coalition of other nations' navies, would begin to escort ships through the Strait. That did halt the climb in oil prices at least momentarily.

 

And it wasn't only the price of oil that yo-yoed this week. Global markets responded in kind, trading lower as the self-inflicted chaos of contradictory statements surrounding the U.S. conduct of the war came into question. 

 

To date, a decision on releasing oil from the U.S. Strategic Reserve has still not been made, nor has it been decided when the Navy would escort tankers through the area "if needed." For anyone who has read my February column, "What is gunboat diplomacy without boats?" you know that our Navy just doesn't have the boats to spare for escort duty.

 

And while traders were laser-focused on oil prices, the Consumer Price Index for February came in as expected, with the inflation rate tied to the prior month's increase at 2.4 percent. The PCE came in worse than expected, rising 2.8 percent in January from a year ago. Readers are aware that I expect inflation to pick up starting this month and continue higher for several more months. The longer the price of crude remains in this range, the higher the inflation rate will be.

 

I also expect economic growth to slow in the months ahead for the same reason, while unemployment will also begin to tick up. The latest update to the fourth-quarter 2025 GDP has now fallen to just 0.7 percent. Economists are blaming the poor results on the government shutdown, which is convenient since the lack of government spending shaved 1.16 percent off fourth-quarter growth. Looking ahead, I expect the impact of higher gas prices on Americans will effectively cancel out any stimulus that may have accrued from the tax cuts in the spending bill passed last year.

 

As for labor, one of the consequences of voters' insistence on curbing immigration in last year's presidential elections is that the unemployment rate is rising. As Baby Boomers retire and AI reduces the demand for entry-level jobs in certain sectors, the U.S. labor market is in flux. Sure, there are jobs to be had, but no one wants to fill them. Americans have no interest in picking tomatoes, working as nannies, or painting homes. The moral of that tale is you reap what you sow.

 

On another front, private credit markets are still a troublesome corner of the market, and that issue appears to be widening. From a "nothing to see here" attitude among the nation's big banks, at least two are now marking down their loan portfolios or reducing the availability of credit to private lenders. In an already-skittish market, this doesn't help sentiment.

 

However, despite the bad news background, the overall markets are holding up. I credit that performance to investors' belief that this war will not last much longer. Investors know that one person started this war on a "feeling," according to his press secretary, and on the advice of his son-in-law, and only one person can call it off — Donald Trump.

 

The S&P 500 Index is only off around 4.3 percent from its all-time high and less than 2 percent year-to-date. Let's face it, despite the volatility, that loss is peanuts in the grand scheme of things. The equity markets were oversold coming into Friday, so the bounce was expected and could last into next week if we get through the weekend unscathed.

 

As I wrote last week, I still think we have a date with the 200-Day Moving Average, which isn't too far below (plus-1 percent). Most believe that the stock market acts as the tail that wags Donald Trump, America's Big Dog. I think that anything lower than a 7-10 percent decline would start the political jaw boning machine. I would expect statements like "we have already won," "mission accomplished," etc., etc. At that point, we bounce, the question is how long or how high?

 

I am becoming more selective and defensive in my stock and sector choices. As inflation heats up, I expect bond yields to rise. I still like commodity exposure, but fewer international investments as the dollar rises. I am not altogether convinced that April into May will see a revived stock market. Quite the contrary, but let's save that for another column.

 

The introduction of prediction markets such as Polymarket and Kalshi are exploding in popularity. At the same time crypto currency trading seems to be falling off a cliff. Are the two connected?

 

"Crypto is so yesterday," said one Gen Z trader, in response to my question. Younger investors are turning their attention to platforms where users can trade contracts on the outcome of future events. Today, one can bet on everything from the outcome of the mid-term elections to when the next Fed interest rate cut will occur. Not only can you bet on political or cultural events but increasingly on sports and real-world events.

 

I suspect that economic conditions  may be behind Gen Z's shifting preferences. The average salary for a Gen Z is under $40,000. Speculating in Bitcoin has become an expensive proposition with the price around $63,000 per coin. It has traded as high as $124,000. That is a far cry from the days of $15,000 or less.

 

That doesn't mean the younger generations are completely abandoning cryptocurrencies but are instead changing the way they speculate. In addition, the narrative has changed. The number of HODLs ("hold on for dear life") have declined as dreams of  a $1 million Bitcoin seem less feasible. Prediction markets offer a simpler, cheaper and more scalable alternative.

 

You can still bet on the future price of crypto, along with individual stocks, bonds, gold, or whatever. "Why buy Bitcoin when you can buy a cheap contract that offers you the same chance to profit?" argues another Gen Z trader. The simplicity of the prediction market structure is also appealing. There are no research reports, promises of gains or losses based on scenarios or schedules. The price you pay reflects a bet on a simple yes or no, to happen or not to happen. It appeals to a generation increasingly skeptical of project promises.

 

However, the prediction market uses cryptocurrency infrastructure to underpin its platform. Custody, settlement and payment processes run on block chain technology. With the support of stablecoins. Bitcoin contracts are still one of the most active speculative markets.  

 

Another encouraging development is that prediction market platforms are regulated by the Commodity Futures Reading Commission. As such all prices are set by buyers and sellers and not by "the house." In many ways, prediction market contracts are like trading futures contracts. You are essentially buying or selling a financial derivative when you invest in prediction contracts.

 

In 2025, this prediction markets saw trading volume expand to more than $27.9 billion. Open interest, which is the total value locked in contracts broke $1 billion. These contracts are both liquid and easy to trade. One can pay for them in both crypto currencies and regular currencies.

 

Supporters argue that these platforms represent a new frontier for fintech. Their platforms innovation has combined the blending of capital markets, crypto, prediction-economics and sports betting into one. The rapid growth in this new avenue of investment, speculation, or just plain gambling depending upon your view, has attracted outside investment. Several institutional players believe this new technology has enormous potential. The retail brokerage firm Robin Hood, as well as Coinbase Global, are entering the market. No surprise there, but some of the largest exchanges and financial institutions in the world are also embracing these betting platforms.

 

In October 2025, The New York Stock Exchange parent company, Intercontinental Exchange (ICE), purchased a $2 billion stake in prediction leader Polymarket. The S&P Down Jones Indices also announced a partnership with another fintech company, Dinari, to create a crypto-focused index. DraftKings and Flutter Entertainment, two sports betting operators, entered the prediction markets in December 2025. Flutter joined hands with the CME Group, to launch FanDuel Predicts in five U.S. states and plans to go nationwide this year.

 

Supporters argue that these platforms use innovation financial technology tools that allow traders to better discover efficient pricing of event risk. Yet prediction markets today are sitting astride several industry fault lines. Including sports on their platforms, for example, are encroaching on already established regulatory domains.

 

Many states are in an uproar as a result, predicting that these new markets make it easier for coaches, players, or referees to bet on matches they may be able to influence. The wave of recent betting scandals in 2025 makes regulator's fears that much more immediate. Rather than new investment alternatives, many regulators see them as an easy avenue toward further corruption.

 

This week two congress representatives Blake Moore, R-Utah, and Salud Carbajal, D-Calif., jumped into the fray by introducing legislation that would prohibit the listing of contracts for sale related to terrorism, assassination, war, gaming (sports or athletic competitions ), or illegal activity. Betting on certain outcomes in the U.S./Iran conflict may have sparked this bipartisan effort to reign in the prediction markets when it comes to what they deem to be threats to public safety and national security risks.

 

In my opinion, trying to stem the flow of this new prediction market arena in the age of AI is futile. Over the next 10 years, the sector is projected to reach a market size of $95 billion, with a growth rate of 47 percent.  Even an old codger like me, is already monitoring the betting on any number of events from war in Iran to the earnings on Nvidia. I suggest you do the same.

 

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.