War Progress Builds — But 3 Big Questions Remain

Chessboard, Stocks, Market

Oil is inching higher on Tuesday morning as some U.S. allies resist President Trump's efforts to build a coalition to reopen the Strait of Hormuz. Trump is also signaling that a planned trip to China will be delayed by a month or so, which suggests he does not expect the war to resolve immediately. Neither development is particularly encouraging, but they are not surprising either.

The military picture, however, is more positive than the headlines suggest. Israeli forces have eliminated Iran's security chief, who many believed was acting as the de facto leader of the country's war effort. Even Al Jazeera is reporting that every aspect of Iran's ability to project regional power is being successfully degraded.

Iranian ballistic missile launches have fallen by more than 90% from roughly 350 on February 28 to approximately 25 by March 14. Drone launches have dropped from 800 on day one to about 75 on day fifteen. Those are numbers of a country that is barely holding on.

The war is being won. That progress is reflected in the positive market action we saw on Monday. It will remain a bumpy path, as Tuesday's early oil move back higher illustrates, but the trajectory is becoming clearer.

3 Questions the Market Is Wrestling With

Iran and oil are not the only issues that matter here. There are two others that will determine how sustainable any market recovery proves to be.

The first is the health of the AI sector. Investors were hoping that Nvidia's (NVDA) strong guidance at the GTC developer conference on Monday would help restore confidence in AI spending.

The $1 trillion revenue projection through 2027 produced a tepid response and some sell-the-news action instead. The problem is that investors are not yet convinced that the enormous capital spending driving Nvidia's growth will ultimately be profitable. The fear is that the hyperscalers are spending aggressively out of competitive pressure rather than because the economics clearly justify it.

The report that Meta Platforms (META) is considering laying off roughly 20% of its staff to cut costs is an illustration of that concern. The providers of chips and infrastructure are the clear winners in this environment. It is the software producers and hyperscalers that face the bigger questions.

The second issue is inflation and economic growth. The Federal Reserve will announce its policy decision on Wednesday followed by a Jerome Powell press conference. No one expects any change in interest rates but the dot plot and Powell's commentary on the inflation trajectory will get intense scrutiny given what is happening with energy prices.

Economic growth still appears to be on reasonably firm footing but the rate cuts investors want will remain out of reach as long as inflation is a live concern.

Where We Stand

Action is mixed on Tuesday morning, but investors are beginning to show some signs of FOMO as positive war developments accumulate. There will be setbacks along the way and the end game is still not fully visible. But the direction of the military progress is becoming harder to ignore and the potential for a sharp positive market reaction is building.

I continue to look for good technical setups and am starting to be a bit more aggressive with buying as charts develop. The preparation work over the past two weeks is starting to yield results.

At the time of publication, Rev Shark had no positions in any securities mentioned.