Continuation of Kevin’s commentary last week…
Option Valuation is Extremely Important
Most Basic Economic Law = Buy Low, Sell High
Factors That Affect Options Prices
Stock Price
Time / Expiration Date
Expected Volatility / Uncertainty
Earnings
DLTR 03/16 est
LULU 03/17 est
DOCU 03/17 est
MU 03/18 est
BABA 03/19 est
FDX 03/19 est
https://www.briefing.com/the-big-picture
The red lines to an off-ramp in the war with Iran
Briefing.com Summary:
*War with Iran is pressuring oil prices, Treasury yields, and volatility, creating new constraints for multiple expansion.
*The stock market has been resilient, but a prolonged disruption in the Strait of Hormuz could quickly elevate inflation and growth risks.
*There are three red lines the administration won’t want to cross in the market, and they can be drawn to oil prices, Treasury yields, and the S&P 500.
Just a week ago we were talking about AI uncertainty capping multiple expansion. A lot has happened since then. Now, we can add a war with Iran to the list of factors capping multiple expansion.
The war itself is a stress factor, especially for military families, but the stress points for the stock market and multiples are higher energy prices, rising interest rates, and volatile price action.
The question at hand is, when will the war end? The answer is unknown, although President Trump has suggested it could last four to five weeks.
All things considered, that seems to be a pretty clear vision in the fog of war. It matches the administration’s stance that it doesn’t intend to get bogged down in “forever wars.” Iran might have something to say about that, yet there are other factors that will drive the administration to its off-ramp.
Necessary, if Not Optimal
The optimal path for the administration is that the air offensive effectively disarms Iran, prompts regime change, and gets oil flowing freely again through the Strait of Hormuz, all within a four- to five-week period, if not sooner.
The off-ramp from a war, though, is sometimes necessary as opposed to optimal. Ukraine seems to be battling that very idea in its war with Russia. We digress.
What we know now is that the war with Iran has driven up oil prices and Treasury yields and has stoked volatility in the stock market. None of those items, individually or collectively, have caused any major dislocations in the U.S. market. With missiles and drones flying in Iran and across the Middle East, the market cap-weighted S&P 500 is down just 0.7% for the week as of this writing.
There has been some dislocation in foreign markets, which are more heavily reliant on oil and gas imports. South Korea’s Kospi was down as much as 19.0% this week before recouping some of its losses; Japan’s Nikkei was down as much as 9.0%; and Germany’s DAX Index was down nearly 7.0%.
If that was the case for the U.S. indices, the administration might be rethinking its timeline for ending the war, as in sooner rather than later.
It is well known that President Trump eyes the standing of the stock market as a proxy for the economy and acceptance of his policies. Alas, the more resilient the stock market behaves in the face of the war with Iran, the more resolve we think the president will show with his military aim.
The stock market, however, doesn’t operate in a vacuum. It is very attentive to changes in interest rates and, in this instance, changes in oil prices. What we can say at this point is that the changes seen there reflect some nervousness about the Iran war, but not real fear. That will change the longer the Strait of Hormuz, through which 20% of the world’s oil supply flows, remains a chokepoint.
The inference is that higher oil prices will fan inflation concerns that lead to higher interest rates, higher costs for consumers and businesses, and reduced probabilities for rate cuts. In brief, they will adversely impact economic growth and earnings growth.
They would likely add to the geopolitical angst, too, considering China is a huge importer of oil.
Pain Points
At this juncture, the war with Iran is nearly a week old. A lot of physical damage has been struck in that time, but not a lot of economic damage as far as the U.S. is concerned. Economic concerns, though, are starting to perk up along with oil prices, which have gone from $67.02/bbl before the start of the war to $80.97/bbl today.
The market can tolerate $80.00/bbl oil. It might not like it, but it can tolerate it. What it won’t like is $100/bbl oil or prices moving quickly toward $100/bbl. Drivers won’t like any of it, because higher oil prices will translate into higher gasoline prices. The timing isn’t good now, right before spring break, but it will be worse if it persists into the summer travel season.
Average gas prices with a 4-handle are not what anyone wants to see. The current average for regular gasoline is $3.25, according to AAA, versus $2.98 a week ago.
Similarly, the market can tolerate higher Treasury yields (and has), but the pace of change will matter, and ultimately so will the level.
The 10-yr note yield sits at 4.14% now, versus 3.96% before the war with Iran started. A continued move to the 4.30% area would cause some turbulence, but it will likely take a move above 4.50% to cause some real upset. An important aside is that any move higher in the 10-yr yield won’t be good for the housing market, which is entering its peak selling season.
The pain point for stocks would be a correction that exceeds 10%. At its current level of 6830, the S&P 500 is down just 2.5% from the all-time high it reached in late January. A 10% correction would take it to the 6300 area, which is below its current 200-day moving average of 6578.
Briefing.com Analyst Insight
The U.S. isn’t ready to end its military campaign in Iran, and Iran isn’t ready to surrender. This war is going to persist. Whether it ends in the administration’s advertised timeframe remains to be seen.
We think oil prices and interest rates will have something to say about that. The more oil prices and interest rates rise, the more stocks will fall.
The numbers to watch for an off-ramp that is necessary, if not optimal, are $100/bbl oil, a 10-yr note yield of 4.50%, and an S&P 500 that trades below 6300. These, we think, will be red lines the administration won’t want to cross in the war with Iran, unless there is a clear and present danger of an attack on the United States.
For now, then, there is scope to continue the military campaign, but the clock and market pricing are ticking.
—Patrick J. O’Hare, Briefing.com
Where will our markets end this week?
Lower
DJIA – Bearish
SPX – Bearish
COMP – Bearish
Where Will the SPX end March 2026?
03-02-2026 -2.0%
Econ Reports:
Mon: Retail Sales, Industrial Production, Housing Market Index
Tue Housing Starts & Permits (delayed), Pending Home Sales Index
Wed: MBA, PPI, EIA Petroleum Status Report, FOMC Announcement
& Fed Chair Press Conference
Thur: Jobless Claims, New Home Sales, Business Inventories, Wholesale Inventories, EIA Natural Gas Report
Fri: Quadruple Witching, Jerome Powell Speaks
How am I looking to trade?
Protection and still holding onto cash we raised end of last year/beginning of this year.
www.myhurleyinvestment.com = Blogsite
info@hurleyinvestments.com = Email
Questions???
Hedge funds ‘aggressively’ short financial stocks, says Goldman
LONDON, March 16 (Reuters) – Global hedge funds sold shares of bank, insurance, fin-tech and trading companies in the week to March 13, making financials the most sold stock sector this year, said Goldman Sachs (GS.N), opens new tab in a note to clients seen by Reuters on Monday.
Hedge funds “aggressively shorted” global financial stocks last week and the sector was net sold internationally, the note said.
Treasuries Volatility Gauge At Nine-Month High on War Effect
By Ruth Carson
Volatility in US Treasuries jumped to a nine-month high as the Iran war fanned inflation concerns and upended traders’ expectations on the Federal Reserve’s policy path.
The ICE BofA Move Index, often referred to as the “fear gauge” of the bond market, climbed to levels last seen in June as elevated oil prices stoke inflation fears, hurting the real return on Treasuries and limiting their haven appeal.
US President Donald Trump and Iran are both striking defiant tones on the war, creating uncertainty about the length of the conflict. Yields on 30-year Treasuries — securities sensitive to inflation and government spending dynamics — have climbed to the highest in a month, while traders have dialed back bets on any Fed interest-rate cuts in 2026.
“As bond investors, we have to start thinking in terms of stagflation, which always creates a huge amount of uncertainty,” said Jack McIntyre, portfolio manager at Brandywine Global Investment Management. “Therefore I need to be compensated from a volatility standpoint.”
US core PCE numbers — the Fed’s preferred price gauge — will be published later and may provide further clues on the outlook for monetary policy. Economists polled by Bloomberg expect a 0.4% month-on-month increase and a 3.1% jump in the year to January.
Ian Lyngen, head of US rates strategy at BMO Capital Markets says an increase of that magnitude would be especially concerning given that “the report represents January data and doesn’t incorporate the inflationary risks associated with the current run-up in oil and gas prices.”
Bonds from the US to Japan and Australia have dropped since the Iran war began two weeks ago as investors focus on what higher oil prices would mean for the global economy. Treasuries have set the tone for government debt across the world, with yields marching upward as investors bet central banks may have to hike rates sooner rather than later to combat inflation.
Trump has also renewed his call for Fed Chairman Jerome Powell to cut rates, adding to risks to the outlook for US monetary policy and volatility. Two-year US yields have risen to their highest levels since August, while one-year US inflation swaps have climbed 3% — a signal that investors expect stronger price pressures ahead.
“Given the range of uncertainties we are confronted by, I think volatility is going to remain elevated for a considerable period of time ahead,” Vishwanath Tirupattur, chief fixed-income strategist at Morgan Stanley, said on Bloomberg Television.
What Bloomberg Strategists Say…
“If the situation continues to worsen, inflation concerns will further add to expectations that the Fed will keep rates higher for longer”
Alyce Andres, Markets Live strategist
The volatility and inflation worries are now showing up in returns. Bloomberg’s gauge of Treasuries has almost wiped out its gains for this year.
And as the war extends, BlackRock Investment Institute sees risks of a stagflationary shock, while Loomis, Sayles & Co. has warned of risks to the US deficit, further weighing on bonds. Such factors might stoke additional gains in the MOVE Index.
“Any prolonged geopolitical tensions and limited visibility around the outlook may add incremental pressure to the US fiscal position, thereby creating further concerns,” said Marcella Chow, global market strategist at JPMorgan Asset Management.
