Market Turns Into Its Own War Zone

U.S.-Iran Escalation: 3 Things to Expect in the Market Now

The Ides of March appropriately passed Sunday without much fanfare. The S&P 500 posted its third-straight losing week with the index dropping 1.6% last week. The S&P 500 is now some 5% below recent highs and trading at its lows for 2026. The decline has been fairly orderly despite the spike in volatility on surging oil prices here in March.

The selloff will likely pick up pace if some relief is not provided on several key fronts. Both the U.S. and Europe are releasing a large chunk from their strategic oil reserves, but that will be only of temporary help with the energy picture. If the Strait of Hormuz remains unnavigable for more than an additional two to three weeks, the impacts to global economies could last several quarters, if not throughout 2026. Regional alliances could be adversely affected for years, if not decades.

And other than declaring victory and de-escalating, it is hard to see how things get resolved in March. Oil is not the only commodity impacted by this choke point. A good chunk of nitrogen and phosphate supplies traverses this passage. This could trigger heightened food inflation across the globe if this situation continues. Metals like aluminum are also affected with Bahrain starting to shut down the largest smelter in the world. And smelters, refineries and chemical plants need to be shut down and started in stages. It is not like throwing a light switch.

The spike up in fuel prices is already impacting airlines, which were not properly hedged for this event. Tourist destinations like Las Vegas and Orlando will face mounting headwinds. And rising energy prices are not the only major problem the U.S. economy faces right now. The deterioration of the private credit markets gained further momentum last week with several major funds gating redemptions.

And this niche is not the only credit area experiencing stress. The environment for multi-family and office property sectors has deteriorated substantially for some time now. And they account for approximately 70% of the roughly $5 trillion in commercial real estate debt outstanding. Just under $900 billion of that debt needs to be refinanced in 2026. Delinquencies also continue to climb on auto, student and credit card debt as well. Higher energy prices have resulted in a move up in mortgage rates, the last thing the moribund housing market needed, after mortgage rates had just moved under six percent for the first time since 2022. It is no wonder that Financials were the worst performing S&P sector last week.

Finally, there is little good news on the job front. Job growth was anemic in 2025 and the February Bureau of Labor Statistics report showed 92,000 jobs were lost last month. Block (XYZ) axed 40% of its entire workforce recently due to AI, or at least, that was the stated reason. Oracle (ORCL) is in the process of determining its own large-scale layoffs to free up capital for its massive AI infrastructure buildout. Meta Platforms (META) is now rumored to be contemplating similar actions. Growing fears of AI disruption, spiking energy prices and continuing uncertainty around tariff policies is a toxic combination for hiring plans.

And all of this is happening against a market backdrop where equities are still trading at extreme valuation levels, viewed from a historical lens. Cash and short-term Treasuries account for roughly a quarter of my portfolio allocation right now. That will move up a bit over 30% when some of my covered-call positions expire in the money this Friday.

And I am not in any hurry to redeploy this ammo back into the market, except very incrementally. I feel the next few weeks could be critical for the market’s direction for the rest of 2026 as if these key areas continue to deteriorate, it is hard to see how equities don’t go significantly lower.

At the time of publication, Jensen had no position in any security mentioned.