Axelrod's Analysis Geopolitical Chaos and Market Mayhem

• Geopolitical instability in the Gulf is driving up oil prices and stoking inflation fears.
• Tech sector faces challenges from AI advancements and rising interest rates.
• Market decline of 20% is possible if oil prices continue to soar.
• Investment strategy hinges on whether the war ends or escalates.

Unfathomable Realities and Market Anxieties

It's a rare event when multiple crises converge simultaneously, each defying easy resolution. Like a bad hand in poker, you can't bluff your way out of it. We're grappling with the seemingly endless conflict and its implications that even a superpower, backed by allies, struggles to contain a nation we once perceived as limited in its capabilities. The market is reacting in predictable and unpredictable ways. As I always say, "What's the point of having f-you money if you can't say f-you". Right now, the market is saying F-you to everyone.

The Oil Conundrum and Rate Hike Fears

Rising Treasury yields reflect growing concerns that disruptions in the Gulf will reignite inflation. This war's pain is spreading beyond the directly affected, impacting nearly everyone. Except, of course, the oil companies. Chevron, ConocoPhillips, and Exxon Mobil are looking mighty fine right now, making you wonder what else to hold. It's a great time for hedge funds, a terrible time for long-only investors, and a miserable time for charitable trusts, restricted by their inability to short stocks or take quick, evasive action. Speaking of the need for quick evasive action, I would add that David Einhorn's Bold Prediction More Rate Cuts Incoming is something everyone should consider given this market dynamic. The fluidity of this situation is unsettling, to say the least.

From Manageable to Unthinkable

We've transitioned from what seemed a manageable situation to an unthinkable one in mere weeks: a few airstrikes to a potential protracted conflict without allies. It's a nightmare scenario reminiscent of past geopolitical encounters where oil prices surged, and the stock market inevitably declined by at least 20%. I've seen this play out before; it's like watching a slow-motion train wreck. Safe havens like bonds, consumer staples, and utilities would normally be tempting, but each has its own set of flaws in this climate.

Navigating the Minefield Raising Cash is Key

As long as the S & P Short Range Oscillator remains above oversold levels, and history suggests a 20% market decline is plausible if oil continues its ascent, it's not too late to raise cash. There's always a chance Iran might relent, ending the war, but I consider oil doubling from pre-war levels more likely. The difficulty, as I see it, is that we no longer know what causes to war to end. Will Trump really just declare that it's over without an agreement that Iran scrap its nuclear program? Is simply reopening the Strait of Hormuz to all maritime traffic a victory? Will Iran really roll over and play dead like that, though? I don't think so.

Tech's Turbulence Unveiled

There's a widespread commentary on the decline of tech, particularly within the "Magnificent Seven." However, nuance is essential. Not all of tech is affected, or the Mag 7 for that matter. The data center trade has managed to cling to its gains. Sure, the red-hot memory and storage names have cooled a bit, given Google's new compression algorithm for AI models, but the declines are minimal compared to their two-year runs. Those stocks are correcting out of fear, not necessarily fundamentals. As I preach, you need to trim stocks experiencing parabolic moves to protect profits. The companies with the worst outlook are the ones betting everything on a quick AI buck. "Money makes your life easier. It lets you be who you want to be." Right now, AI and the markets are making life harder for investors

Inflation's Grip and the Bottom Line

Before the war, we were seeing a nascent rate rally, a must-catch for any portfolio manager. But higher gasoline prices have dashed any hopes of a rate cut. A new Fed chair might change the equation, but until then, every stock market decline will be exacerbated by rising rates. Bottom line is, as long as the war continues, it's tough to justify staying invested in stocks. The cross-currents are too strong, and the risk of repeating the pattern when oil doubles—a 20% decline—is too real. We're not there yet, but I expect we'll fall that far if WTI crude hits $120 a barrel. Either way, a rally will come sooner or later. If it's the former, we will first see 20% down for the S & P. If it's the latter, you will wish you bought starting next week.