The US and Israel teamed up to launch a large scale attack on Iran over the weekend killing many hundreds including the country’s Supreme Leader Ali Khamenei. The entire Middle East moved onto a war footing as the Iranians retaliated by firing missiles across the region.

Energy prices naturally skyrocketed in response and stocks gapped severely lower in Asia and Europe on Monday. US markets initially followed suit at the open, but in a pretty orderly fashion with the prevailing consensus expectation of a limited conflict that will end relatively quickly with Trump eager to declare a swift victory. By mid-afternoon, the losses had been fully recovered and the stock indexes finished the session lightly higher, but the recent steep fall in interest rates came to a screeching halt and reversed course.

While Wall Street shrugged off war worries on Monday, Asian and European markets seemed far more concerned as energy prices continued to surge and local stocks and bonds were hammered again on Tuesday.

Emerging reports that America’s hand had been forced by Israel at the weekend cast some doubt on Trump’s ability to control the scale and duration of the conflict and US stocks and bonds re-joined the pity party, tumbling to finish the day deep in the red, although off their lows from earlier in the session after some bottom-fishers began to show up.

Wednesday was another frightful day for Asian markets which continued to crumble with South Korea, previously the world’s best performing stock market in 2026, getting particularly brutalized, suffering the worst one-day crash in its history and down ~20% in just two trading days.

European markets were much more upbeat and by the time Wall Street opened, the dip buyers were large and in charge, carrying the US indexes nicely higher and back to where they were before the bombings began.

Asia rebounded hard on Thursday, with South Korea erasing all of Wednesday’s horrendous losses within minutes of opening. The bargain-hunting frenzy on Wall Street evaporated, however, after reports emerged of interventionist plans for the government to take control of all AI-related export licensing and labor market data and still-soaring oil/gas prices dampened Fed Funds Rate cut hopes. US stocks dived sharply lower again and interest rates continued to march higher.

A horrifying Jobs Report on Friday showed 92k jobs lost in February, raising the unemployment rate to 4.4% and January’s Retail Sales disappointed vs. expectations. Combined with escalating war-related inflation fears, this all gave off a strong whiff of stagflation. The S&P 500 closed the day and the week in the red and all of its 2026 gains are now up in smoke with traders reluctant to go into a potentially unstable weekend with higher-risk long positions on their books.

Some other things I’m thinking about ..

* While investors should brace for short term volatility, the Middle East conflict in its current state is still not likely to be a bearish game-changer for equities. The military operation does not fundamentally change the economic backdrop for US companies, with the caveat that the Strait of Hormuz is the key variable in this whole saga since markets tend to view conflicts like this through the prism of energy prices. If traffic remains largely halted for several weeks, that will further spike the price of oil/gas and thereby pressure stocks. Absent that scenario, the medium term direction of stock markets is still going to be determined by AI sentiment, economic growth/inflation and Fed Funds Rate cut expectations.

* Five days into the Iran war, the price of gold was below where it was when the first bombs dropped on Tehran. In 2022, as inflation reached its peak of over 9%, the price of gold moved lower. With inflation well below its historical average of 3% in 2025, the price of gold rocketed. It’s high time to toss into the garbage the widespread, simplistic idea that you always need to immediately run to gold as an automatic guaranteed “safe haven” hedge as soon as geopolitics blows up or when inflation spikes. The data simply does not back up these commonly-accepted myths.

* More than $500 million had been staked on Polymarket about the timing of a US strike against Iran by the time it happened on February 28th. Six of the players who reaped combined profits in the millions by correctly anticipating the day of the attack were newly-created user accounts (including one called “magamyman”) that had never placed any other wagers on the platform before. Suspicions about insider trading on prediction markets have grown almost as rapidly as their trading volumes.

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ARTICLE OF THE WEEK ..

The amount of 401(k) millionaires just hit a new high. Fidelity reported that the average balance held on their NetBenefits platform rose 11% to $146,100. A reminder that this is the average, NOT the median, which is much, much lower. Bigger balances are doing a lot of the heavy lifting here.

.. AND I QUOTE ..

“In a fog of war, markets tend to trade probabilities rather than shifting facts.”

Phil Serafino, Bloomberg.

LAST WEEK BY THE NUMBERS:

Last week’s S&P 500 market color courtesy of finviz.com

Last week’s best performing US sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) ⬆︎ 1.2% for the week

Last week’s worst performing US sector: Materials (two biggest holdings: Linde, Newmont) ⬇︎ 6.7% for the week

* SPY, a US Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies. Its price fell 2.0% last week, is down 1.4% so far this year and ended the week 3.7% below its all-time record closing high (01/27/2026).

* IWM, a US Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks. Its price fell 4.0% last week, is up 6.2% so far this year and ended the week 7.6% below its all-time record closing high (01/22/2026).

* VXUS, a Global Non-US ETF, tracks the MSCI ACWI Ex-US index, made up of over 8,500 of the largest names from a universe of stocks issued by companies from around the world excluding the United States, in both developed and emerging markets. Its price fell 7.0% last week, is up 3.4% so far this year and ended the week 7.5% below its all-time record closing high (02/25/2026).

INTEREST RATES:

* FED FUNDS RATE * ⬌ 3.625% (unchanged from a week ago)

* PRIME RATE ** ⬌ 6.75% (unchanged from a week ago)

* 3 MONTH TREASURY ⬆︎ 3.69% (3.67% a week ago)

* 2 YEAR TREASURY ⬆︎ 3.56% (3.38% a week ago)

* 5 YEAR TREASURY ⬆︎ 3.72% (3.51% a week ago)

* 10 YEAR TREASURY *** ⬆︎ 4.15% (3.97% a week ago)

* 20 YEAR TREASURY ⬆︎ 4.74% (4.57% a week ago)

* 30 YEAR TREASURY ⬆︎ 4.77% (4.64% a week ago)

Data courtesy of the Federal Reserve and the Department of the Treasury as of the market close on Friday

* Decided upon by the Federal Reserve Open Market Committee at periodic meetings 8x a year. Used as a basis for overnight interbank loans and for determining high yield savings interest rates.

** Wall Street Journal Prime Rate as of Friday’s close. Tending to move in lockstep with the Fed Funds Rate, this measure is used as a basis for determining certain consumer loan interest rates such as credit cards, auto loans, personal loans, home equity loans/lines of credit and securities-based lending.

*** Used as a basis for determining mortgage interest rates.

AVERAGE 30-YEAR FIXED MORTGAGE RATE:

* ⬆︎ 6.00%

One week ago: 5.98%, one month ago: 6.10%, one year ago: 6.63%

Data courtesy of the Freddie Mac Primary Mortgage Market Survey

INTEREST RATE EXPECTATIONS:

Where will the Fed Funds interest rate be after the next rate-setting meeting on March 18th?

* Unchanged from now .. ⬆︎ 96% probability (95% a week ago)

* 0.25% lower than now .. ⬇︎4% probability (5% a week ago)

With seven more rate-setting meetings in 2026, what is the most commonly-expected number of remaining 0.25% Fed Funds interest rate cuts this year?

* ⬌ Two (unchanged from a week ago)

Data courtesy of CME FedWatch Tool as of the market close on Friday.

All data based on the Fed Funds interest rate (currently 3.625%).

PERCENT OF S&P 500 STOCKS ABOVE THEIR OWN 200-DAY MOVING AVERAGE:

* ⬇︎ 56%

One week ago: 65%, one month ago: 67%, one year ago: 47%

Data courtesy of MacroMicro as of Friday’s market close

This widely-used technical measure of market breadth is considered to be a very robust indicator of the overall health of the S&P 500 index.

A high percentage (above 70%) generally suggests broad market strength and a bullish trend, while a low percentage (below 30%) may indicate market weakness and a bearish trend.

FEAR & GREED INDEX:

“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffett.

Data courtesy of CNN Business as of Friday’s market close

The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.

Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.

Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.

A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.

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