WAR – Do The Opposite Of Your Emotions

The U.S. and Israel have attacked Iran. Every Dick and Jane has now become an expert on war, tactics and the Middle East. While I majored in political science and really enjoy the subject, I know I am no expert. We can all argue our opinions. Several folks asked if I support the actions and its market impact. First, regardless, I always support our country and our troops, especially when they are in harms way. I also find it horrific to watch citizens of other countries be brutally slaughtered by their own government. My moral compass does not allow that to be unchecked anywhere on earth.

Like some, many, most people, while I want to protect innocent Iranian citizens from further demise, I also know that what’s next isn’t remotely apparent. How, when and why would the U.S. stop its campaign? How would anarchy be prevented? How do we avoid another Iraq or Afghanistan? To me, it’s clear that Iran will lose the war in a big way although they will inflict harm and destruction in the region. When I think about the worst acceptable case, it is that the new Ayatollah agrees to nuclear disarmament in return for the war ending. The U.S. basically achieves its so far stated goals, but the Iranian people lose.

Turning to the markets, after 38 years in the business, I have seen my fair share of military actions. The most obvious reaction is usually obviously wrong. People scramble to buy oil, sell stocks, buy gold, buy bonds and buy the dollar. My inclination is to pause and either do nothing or do the opposite. Whatever the media harps on the most, I tend to go opposite.

Pre-market trading has our stock market down more than 1% and oil spiking 8%. Frankly, stocks should have been down more and oil should be up more. I favor waiting at least 30 minutes and doing the opposite all around. The oil trade is most likely short-lived because IF there is regime change in Iran, like we saw in Venezuela, Iran will be become a major oil player again with hundreds of millions of barrels legally coming to market. That is bearish energy over the long-term. Obviously, a short-term supply shock should Hormuz be impacted is likely.

Oil is below. My 2026 Fearless Forecast had oil rallying this year. I sense that this spike is a selling opportunity, but not the end of the trade. Unless our economy weakens, oil should head towards the mid to upper 70s.

Think about all of the things that have been thrown at the stock market in just two months. The S&P 500 is just a few percent from all-time highs. I will say this as I continue to be bullish, if and when stocks close at new highs, there should be a mad scramble for bears to throw in the towel which should further fuel the next leg of the rally to the peak I forecast in Q2.

Someone emailed me that I should buy defense stocks. One of the ETFs is below. For full disclosure, we own a fairly decent size position in our sector strategy. And no, we won’t be buying more on the news. If anything, I would use any spike to pare back the position if it became too large. The good work here was done weeks and/or months ago.

The U.S. dollar is below, an asset I forecast to rally in 2026. War is bullish for the dollar as is a strong economy. In the short-term, I don’t think the dollar will surge from here.

You already know my spiel. Investing based on geopolitics is a losing proposition. While I am sure many people knew about the attack before the weekend, it still too difficult to gauge market reaction, at least for me. It’s no different than Nvidia’s earnings which I thought would blow out. Yet, I had no idea how the stock would react.

Volatility should remain elevated with overnight risk being high. I would be a buyer of weakness on any and all assets that fit my screen of things to own for the next run to new highs.

On Friday we bought AGG, more MQQQ, more XBI, more XLV, more ITA, more XME, more XLC, xmore XHB, more IYR, and more UWM. We sold some HYG.