Posts tagged ‘labor market’
Bombs Away – Iran & Oil Spark an Explosive Month
The stock market felt the blast of geopolitical tension last month as all three major domestic indexes all retreated. In March, the S&P 500 fell -5.1%, the Dow Jones Industrial Average dropped -5.4%, and the NASDAQ slid -4.8%.
While a -5% monthly drop grabs headlines, perspective and context are key. Since the start of 2023, the S&P 500 remains up approximately +70% (excluding dividends). Even after the recent -7% pullback from January’s record highs, the index is still trading +35% above its April 2025 lows.
The Strait Has Created An Oil Gate
The primary catalyst for the market volatility is the escalating conflict involving the U.S., Israel, and Iran. Beyond the tragic human cost, the economic “bomb” has been the disruption of the Strait of Hormuz, which handles the flow of roughly 20% of the world’s oil supply.
Basic economics dictates that when supply is choked, prices skyrocket. We saw exactly that: WTI Crude spiked roughly +54% over the last month, surging from $67 to a peak near $103 per barrel (see chart below).
The “energy tax” from higher oil prices has introduced four major stressors for investors:
- Drained Consumer Wallets: Every extra dollar spent at the pump is a dollar not spent on groceries, healthcare, or retail. Since consumers disproportionately control the U.S. economy, cuts in discretionary spending on things like vacations, cars, and houses has a material negative impact on the nation’s financial output.
- Widespread Industrial Shock: High oil prices inflate costs for almost every physical industry, including airline fuel, trucking logistics, petroleum-based fertilizers, and construction inputs like asphalt and steel.
- Labor Market Cooling: The February jobs report was a wake-up call, showing a loss of -92,000 jobs (well below the expected gain of +130,000). While AI-driven displacement is a factor, the sudden spike in energy overhead has clearly contributed to employers pausing their hiring.
- Recessionary Red Flags: Prediction markets like Polymarket now place the probability of a U.S. recession by the end of 2026 at 34.5%, up significantly from just a few months ago (see chart below).
Source: MacroMicro & Polymarket
Geopolitical Noise vs. Market Reality
While current volatility feels unique, seasoned investors have seen this movie before. It is easy to forget that the S&P 500 slumped -21% last year as markets grappled with the administration’s aggressive tariff strategies, only to see prices roar back once the initial shock subsided. Even with the recent -7% pullback from January’s record highs, the S&P 500 remains +35% higher than the lows of April 2025.
Both the tariff friction and the Iranian conflict could be viewed as “self-inflicted” geopolitical maneuvers. While the long-term economic gains of these high-stakes decisions are still being debated, one short-term reality is certain: the November midterm elections are fast approaching.
History suggests that as elections loom, the administration will prioritize stability and “voter-friendly” economic conditions. We are already seeing a shift in rhetoric that suggests an “off-ramp” for the Iran conflict may be closer than the headlines imply. President Trump is addressing the nation today with an update on the current situation. When political capital is on the line, pragmatic pivots often follow unpopular volatility. What does this mean for investors? This means we are likely closer to the end of this Iranian conflict than we are to the beginning.
The Resilience of History
The last decade has been a relentless cycle of “unprecedented” global unrest. However, as the timeline below illustrates, geopolitical shocks have historically acted as speed bumps, not roadblocks, for long-term equity growth:
- 2026: Maduro Kidnapping (Venezuela)
- 2025: Operation Midnight Hammer (Iran)
- 2024: Collapse of the Assad Regime (Syria) & Moscow Terrorist Attack
- 2024: Houthi Red Sea Attacks
- 2023: Israel-Hamas Conflict
- 2022: Russia-Ukraine Invasion
- 2021: U.S. Withdrawal from Afghanistan
- 2017: North Korean “Fire and Fury”
- 2016: Brexit
- 2015: Paris Terrorist Attacks
The Bottom Line: Since the beginning of 2015, the S&P 500 has more than tripled (+217%). The data is clear: even in the face of horrific global events, the market’s primary engine – corporate innovation and earnings – tends to prevail. In the world of investing, a timeless (if cynical) truth remains: “When missiles fly, it’s time to buy!”
The Fed’s “Wet Towel”
This oil-driven inflation has also doused hopes for aggressive monetary easing. At the start of the year, the appointment of Kevin Warsh as the incoming Fed Chairman (set to succeed Jerome Powell in May) led markets to price in multiple rate cuts. However, the March “dot plot” (see chart below) revealed a much more hawkish reality. The Federal Reserve now projects only one 25-basis-point cut for the remainder of 2026, bringing the target range to 3.25%–3.50%. Seven officials now see zero cuts this year, reflecting a “higher for longer” stance as they battle renewed energy-led inflation.
Source: Charles Schwab
The Sidoxia Strategy: Don’t Fear the Turbulence
History reminds us that while geopolitical shocks are terrifying in the moment, their impact on diversified portfolios is almost always temporary. Since 2015, the S&P 500 has more than tripled (+217%) despite a decade defined by the Russia-Ukraine war, the collapse of the Assad regime, and various “Operation Midnight Hammer” style conflicts.
As we look toward the November midterm elections, we expect political rhetoric to shift toward stabilization. President Trump has already signaled that an “offramp” for the Iranian conflict may be approaching, as high energy prices are rarely a winning campaign strategy. At Sidoxia, we aren’t distracted by the noise of the “bombs.” We continue to focus on fundamental valuations and opportunistically use this volatility to improve our clients’ positioning. In the world of investing, the best time to stay disciplined is exactly when everyone else is looking for the exit.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (Apr. 1, 2026). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in certain exchange traded funds (ETFs), but at the time of publishing had no direct position in any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
Trade & OBBB Deals Sealed, Fed Dread, and AI/Meme Dreams
As the stock market reached new all-time highs, investors had plenty to juggle—both in Washington, D.C., and on Wall Street. The S&P 500 climbed +2.2%, the NASDAQ surged +3.7%, and the Dow Jones Industrial Average edged higher by +0.1% for the month.
The One Big Beautiful Bill
What has fueled the rally? A major catalyst was President Trump’s signing of the One Big Beautiful Bill Act (OBBB) on July 4th. The nearly 900-page legislation spans a broad range of economic issues including tax reform, healthcare, energy policy, and national security.
According to the Congressional Budget Office (CBO), the combined impact of tax cuts, new spending, and spending reductions will result in a net cost of $3.4 trillion over 10 years (see chart above). Supporters of the bill argue that this projection underestimates the long-term stimulative effects of tax relief and strategic investments. Whether the deficit widens as the CBO projects, or narrows thanks to a stronger, growing economy, remains to be seen.
Trade Deals Sealed
Since Liberation Day on April 2nd, trade negotiations have progressed unevenly. The administration’s reciprocal tariff hikes were paused through August 1st to allow final agreements to be reached. Following months of tough rhetoric, multiple major trading partners ultimately signed deals before the deadline—including the European Union, Japan, the United Kingdom, Vietnam, and South Korea—thereby avoiding punitive tariffs.
Talks with our two key trading partners, Mexico and Canada, remain ongoing. While Mexico was granted a 90-day extension amid constructive dialogue, Trump slapped a 35% tariff on Canada (from 25%) due to what the White house said was “continued inaction and retaliation.” The tariff pause with China stops on August 12th.
Here’s a list of the new country tariffs released by the president late yesterday: CLICK HERE
Regardless of all the tariff uncertainty, investor sentiment improved last month as the terms of the signed deals were significantly milder than originally feared.
Adding to the optimism:
- Core inflation in June remained modest at 2.8% (Reuters), and
- Tariff revenues collected through July reached $126 billion, beating initial estimates (Politico) – see chart below. Strategist Ed Yardeni forecasts that 2025 tariff revenues could surge to between $400 billion and $500 billion (Barron’s).
Source: Politico
Fed Dread
Of course, when it comes to financial markets, everything can’t just be rainbows and unicorns without something for investors to worry about—and this month, a key concern remains Federal Reserve policy. Critics, including the president, argue that interest rates are too high, with the Federal Funds Rate currently set at 4.25%–4.50% (Yardeni Research) – see chart below.
By comparison:
- The European Central Bank’s Deposit Facility Rate stands at 2.00%, and
- The Bank of Japan’s overnight rate is only 0.50%.
Source: Yardeni Research
Fed Chair Jerome Powell has held off on further cuts, citing the need for more clarity on inflation and labor market data, especially in light of recent tariffs. Ironically, when the Fed last cut rates by -1.00% late last year, the 10-year Treasury yield rose by roughly +1% (see chart above), reflecting fears of rising inflation.
This week, the Fed held rates steady for the fifth consecutive meeting (YouTube). Notably, two FOMC members—Christopher Waller and Michelle Bowman—dissented, voting in favor of a rate cut. It was the first dual dissent by Fed governors in over 30 years—a clear signal of division inside the central bank.
Meme Dreams
With the major indexes at new highs, speculation has returned in full force. Money-losing, struggling companies like Opendoor Technologies, GoPro Inc., and Kohl’s Corp. saw their shares double, triple, or even quadruple over a short span (WSJ) – see chart below. We saw similar trends occur during the GameStop and AMC meme craze in 2021.
Source: The Wall Street Journal
Adding fuel to the fire:
- Cryptocurrency prices are on the rise again.
- Euphorically priced IPOs (Initial Public Offerings) like Figma, Inc. (FIG), which more than tripled in value ($115 per share) on its first trading day above its offering price ($33 per share) valuing the company above $50 billion – more than 30 times next year’s forecasted revenues.
- SPACs (Special Purpose Acquisition Companies)—often criticized for poor governance—are staging a comeback.
Combined, all these trends raise concerns about froth, which investors have experienced at previous peaks.
Climb in AI Stocks Persists
No discussion of this rally would be complete without highlighting the AI mega-cap giants. Companies like Alphabet (Google), Meta (Facebook), Microsoft, and Amazon all recently announced capital expenditures for 2025 that will likely exceed an astounding $350 billion —most of it allocated to AI infrastructure.
Meanwhile, NVIDIA Corp., the AI-chip juggernaut and major beneficiary of all the AI capex, has seen its share price soar +63% in just three months, reaching a staggering $4.4 trillion market value.
Source: Yardeni Research
Valuations High but Fundamentals Remain Strong
While stock valuations remain elevated above historical averages (the S&P 500 red line trades at 22x forward earnings, according to Yardeni) – see chart above, the macro backdrop remains supportive:
- The economy is strong,
- Unemployment is low,
- Corporate profits are growing, and
- Monetary policy may turn more accommodative in coming months.
In this momentum environment, the market should continue its productive juggling, but if the frothy or economic winds worsen, investors should be prepared for a dropped ball.
Wade W. Slome, CFA, CFP®
Plan. Invest. Prosper.
This article is an excerpt from a previously released Sidoxia Capital Management complimentary newsletter (August 1, 2025). Subscribe Here to view all monthly articles.
DISCLOSURE: Sidoxia Capital Management (SCM) and some of its clients hold positions in GOOGL, META, AMZN, MSFT, NVDA, and certain exchange traded funds (ETFs), but at the time of publishing had no direct position in OPEN, GPRO, KSS, GME, AMC, FIG or any other security referenced in this article. No information accessed through the Investing Caffeine (IC) website constitutes investment, financial, legal, tax or other advice nor is to be relied on in making an investment or other decision. Please read disclosure language on IC Contact page.
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