How Elevating U.S.-Iran Tensions Are Impacting Our Holdings

As I mentioned in Friday's Portfolio Video, after falling earlier this week, the Volatility Index (VIX) has bounced back above a figure of 20, indicating uncertainty is back in the market. We’ve also noticed the Fear & Greed Index has slipped a bit deeper into Fear compared to this time last week and on Thursday.

We discussed one of the forces that has lifted uncertainty in the market — Block’s (XYZ) large-scale headcount reduction announcement — but to it we can a step up in U.S.-Iran uncertainty.

In our opening comments on Friday morning we mentioned the U.S. State Department was evacuating "non-emergency" government personnel from the embassy in Israel. Subsequently, it’s been reported that the aircraft carrier USS Gerald R. Ford approached the Middle East on Friday and President Donald Trump shared that he is “not happy” with the way talks between the U.S. and Iran have been going. In the early afternoon, Trump shared that a decision has yet to be reached on whether to attack Iran and that more deliberations were scheduled for later on Friday.

To us, that gives us more reasons to follow developments over the weekend and early next week. While it could be that Trump is once again pressing potential leverage to sway the outcome, we’ll have to wait and see what happens. Remember: Should there be a conflict, the duration of the conflict will shape the extent of its impact. That said, if there is an attack that leads to something more, we should expect oil prices to move higher. That would be a potential tailwind for inflation pressures that Trump doesn’t want as we move closer to the mid-term elections.

Let’s Talk About Our Financial Positions

From a Portfolio perspective, the hardest hits positions on Friday are our financials, especially American Express (AXP) .

Part of the pressure is the renewed AI-related concern for jobs that we discussed earlier on Friday. We saw this same result a few days ago, but AXP shares and those for other credit card companies rebounded following Anthropic’s presentation on Tuesday. Our view on AXP shares continues to hinge on the Platinum Card refresh cycle — how that membership-driven business model benefits and the corresponding benefits more than offset the cost of the Platinum card.

The AI-related pressure we’ve seen on AXP shares has put them back at levels we saw before Amex announced its Platinum Card refresh on September 18. We saw some improvement in net card fee revenue during the December quarter as the initial phase of that refresh cycle lifted average fee per card and the number of cards in force.

Given the different benefits associated with the refresh effort, including monthly digital streaming credits and dining credits, among others, we should see a steady climb in both of those metrics we track closely. Remember: Those fuel Amex’s net card fee revenue, which drives more than 70% of its pre-tax income.

Said a different way, AI-related concern over jobs is likely to have a greater impact on the transaction heavy business models at Mastercard (MA) and Visa (V) shares than at Amex.

For now, we’ll let the knee jerk market reaction to Block’s news wash over AXP shares and, based on what we see in next week’s February jobs data and on the U.S.-Iran front, we may opt to scoop up some AXP shares.

In terms of Morgan Stanley (MS) and Bank of America (BAC) , concerns about the private credit market are taking their toll, but we agree with JPMorgan Chase (JPM) CEO Jamie Dimon, who said this earlier this week during an update from the company:

"…the reality is in this environment, as the world gets more volatile, as you get towards the end of the cycle, this outcome should be expected… I think at this point, it feels a bit isolated to a handful of situations... So at this point, there's still a lot of capital in the private credit ecosystem. We see lots of deployment. We see lots of people chasing opportunities. So this hasn't changed that overall ecosystem, but we're watching it closely."

When we look at the recent drops in MS and BAC shares near 13%, it appears that here too, the market is potentially overestimating the impact. That said, we’ll want to see what develops, or more appropriately, what doesn’t develop between now and the RBC Capital Markets Global Financial Institutions Conference on March 10.

Bank of America will be one of those presenting, and we will be on it like white on rice.

More Pro Portfolio

At the time of publication, TheStreet Pro Portfolio was long AXP, MS and BAC.