Analysis & Outlook: Markets React to U.S./Israel Strikes on Iran

By the Curmudgeon with Victor Sperandeo

Introduction:

Markets reacted rapidly to the U.S.-Israel strikes on Iran over the weekend of February 28-March 1, 2026, which killed Supreme Leader Ayatollah Ali Khamenei and escalated into ongoing conflict with retaliatory missile exchanges.

As expected, Oil and gas prices surged due to supply disruption fears in the Strait of Hormuz, the U.S. dollar rallied as a safe haven amid energy shocks, U.S. Treasuries sold off on inflation worries (no flight to quality here), and the NASDAQ rebounded on dip-buying in tech despite initial fears.

Backgrounder:

The coordinated U.S.-Israel strikes began Saturday, targeting Iranian leadership and infrastructure, prompting Iranian retaliation against U.S. bases and Israel. President Trump indicated the mission—dubbed "Epic Fury"—could last 4-5 weeks, with U.S. casualties rising to six by Monday and potential ground troop deployments. Global energy routes faced disruptions, heightening market volatility.

Currency Markets:

The US Dollar Index (DXY) rallied 0.74% over the weekend to 98.37-98.50, its highest in five weeks, driven by safe-haven demand and Persian Gulf energy infrastructure hits. Escalation risks, including Saudi field bombings, bolstered USD strength against a basket of currencies, as oil trades predominantly in dollars. This aligns with historical patterns where Middle East tensions favor the dollar.

Commodity Markets:

Oil prices spiked sharply: Brent crude rose 9% to over $78 (52-week high), WTI hit $72.79 (+8.6%) reflecting supply fears from Iran's sixth-largest producer status.

April Natural Gas futures on the New York Mercantile Exchange were up +0.121 (+4.23%).

Gas at the pump prices are expected to follow, potentially +13 cents/gallon soon, amid Strait of Hormuz halts (20% global oil transit).

Energy stocks like Exxon and Chevron gained 4-to-5%, iShares US Energy ETF (IYE) was + 1.23 (2.08%) today to close at $60.29.

April COMEX Gold futures 5,335.90 were +88.00 (+1.68%) which was expected as Gold is a hedge against chaos and geopolitical uncertainty.

Bond Markets:

To our surprise there was no flight to quality for U.S. government bonds today. U.S. Treasuries saw their biggest selloff in nine months, with 10-year yields jumping to 4.051% (+0.090 points) and 2-year to 3.485% (+0.108 points). Investors dumped bonds due to oil-driven inflation fears and reduced Fed rate-cut odds (pushed to September), overriding initial flight-to-safety. This raised mortgage rates and borrowing costs economy-wide.

U.S. Equity Markets:

Stocks dipped at the open but then largely recovered. The NASDAQ closed +0.4% (to 22,749), led by NVIDIA (+3%) and Microsoft on AI momentum, dip-buying, and crypto rally (+5.9%). Defense (Lockheed Martin and Northrop Grumman +6%) and energy stocks outperformed, while tech resilience decoupled from broader geopolitical fears.

Comment and Analysis:

Expected U.S. $/oil surges stemmed from safe-haven flows and supply risks, but the U.S. bond selloff reflected inflation trumping safety (higher yields pressure growth stocks yet NASDAQ rallied on sector rotation).

The quick recovery in major stock indices suggests investors are betting that the conflict may remain regionally contained rather than causing a massive global economic supply shock, with some observers calling it a "head-I-win, tails-I-win" scenario, where potential FED rate cuts could offset economic growth concerns.

Markets priced in contained escalation—buying dips in tech/defense—versus prolonged war inflating costs and delaying Fed rate cuts. Volatility spiked as the VIX closed at +1.58 (7.96%) at 21.44.

Markets are bracing for the BLS jobs data to be reported this Friday. Following a sharp downward revision to 2025 U.S. job growth, ADP data and weekly unemployment claims will also be scrutinized to assess the labor market's resilience in early 2026.

Victor’s Conclusions and Market Positioning:

The killing of Iran’s Supreme Leader (and 40 other Shia Islamic leaders) was said like “killing the Pope,” according to several Muslims. This conflict will not end quickly, and it will surely hurt the GOP in the November mid-term elections. The effects will last longer than the current oil price indicates and will cause Gasoline prices to rise with negative economic consequences.

It is a “fait-accompli” that the House of Representatives majority will go to the Democratic party, and most likely the Senate too. This will end Trump’s agenda and add more uncertainty plus chaos in the coming months.

The U.S. stock market will decline -25% in the next several months, as the economic slow-down shows itself. I reiterate that I’m long the 5-year T-Notes and Gold. Shorting is very difficult, so although I’m bearish on equities now it is best to go long notes and bonds in this period rather than short stocks.

End Quote:

Trump is now making Larry Moe and Curly look smart. This famous Moe Howard quote could be applied to Trump:

……………………………………………………………………………………….

Wishing you good health, success, and good luck. Till next time.

The Curmudgeon
ajwdct@gmail.com

Follow the Curmudgeon on Twitter @ajwdct247

Curmudgeon is a retired investment professional. He has been involved in financial markets since 1968 (yes, he cut his teeth on the 1968-1974 bear market), became an SEC Registered Investment Advisor in 1995, and received the Chartered Financial Analyst designation from AIMR (now CFA Institute) in 1996. He managed hedged equity and alternative (non-correlated) investment accounts for clients from 1992-2005.

Victor Sperandeo is a historian, economist and financial innovator who has re-invented himself and the companies he's owned (since 1971) to profit in the ever-changing and arcane world of markets, economies, and government policies. Victor started his Wall Street career in 1966 and began trading for a living in 1968. As President and CEO of Alpha Financial Technologies LLC, Sperandeo oversees the firm's research and development platform, which is used to create innovative solutions for different futures markets, risk parameters and other factors.

Readers are PROHIBITED from duplicating, copying, or reproducing article(s) written by The Curmudgeon and Victor Sperandeo without providing the URL of the original posted article(s).