In 1962, President John F. Kennedy on something that profoundly influenced his worldview: Barbara Tuchman’s Pulitzer Prize-winning book, “The Defenders of August.”
The book, which chronicles the miscalculations and rigid military thinking that led to the outbreak of World War I, became very useful just a few months later during the Cuban Missile Crisis.
The presence of medium-range missiles in Cuba posed a direct threat to the United States. But Kennedy was determined not to repeat the same mistakes detailed in Tuchman’s book.
He knew that the crisis could escalate if the Soviets were backed into a corner. They needed room to maneuver, and a way to choose de-escalation while saving face.
But as the “fog of war” thickened, it was difficult to determine the other side’s motives.
Ultimately, the Kennedy administration got what it wanted, and the missiles were removed from Cuba. The Russians got something from that as well, which was the removal of American missiles stationed in Türkiye.
The fog of war hangs over the market
Fast forward to this week, and we find ourselves once again in the “fog of war.”
Now, geopolitical risks may not be as high as they were in the Cold War, but the risks and uncertainty of the Iran war have pushed many investors to the sidelines.
As a result, all major indices fell sharply in March. The S&P 500 and Dow Jones indexes ended the month down 5% and 5.4%, respectively, while the Nasdaq fell 4.8%.
On Wednesday evening, President Trump spoke to the nation about the conflict with Iran. He took a tough tone, putting the market on the wrong side of the bed once again.
But on Thursday, rumors emerged that a deal could be reached to reopen the Strait of Hormuz, causing a pushback.
At the time I’m writing this, this is still a rumor. As investors, we cannot overreact to rumors and insinuations.
It is somewhat unclear at this point who is in charge of Iran. But what we do know is that the “fog of war” is likely to persist into April, as a ceasefire remains elusive and tensions in the Middle East remain high.
I suspect stocks will continue to fluctuate as investors react to the latest headlines regarding the Iran war, the Strait of Hormuz, and rising energy costs. Mean reversal algorithms will also continue to play a role in market volatility as well.
But the biggest disruption to the stock market in the future will be inflation.
Inflation strikes again
There is no doubt that the conflict in the Middle East has led to higher prices for energy, fertilizers and food. Even before the conflict, wholesale prices were already rising: the producer price index for February showed food prices rising 2.4% and energy prices jumping 2.3%.
Following the Iran War, all of West Texas Intermediate (WTI) oil was transferredWest Texas Intermediate crude oilBrent crude prices rose above $100 per barrel. To put that into perspective… Brent crude rose nearly 55% in March, marking its largest monthly rise ever. WTI also rose more than 50% in March.
As crude oil prices rise, Americans are feeling the pinch of pumping. Gasoline prices rose above $4 a gallon for the first time since August 2022. That’s an increase of more than a dollar since the start of the Iran war.
Therefore, the March data on food and energy inflation is likely to be the same Hideous.
Some economists now expect US inflation to exceed 4%. In fact, the OECD updated its inflation forecasts this week, forecasting G20 inflation will rise to 4% in 2026, up from the previous estimate of 2.8%. The inflation rate in the United States is expected to rise to 4.2%.
Due to the inflation “bubble” and rising Treasury yields, hopes that the Fed will cut key interest rates have been dashed for the time being.
Why I want you to stay positive
I know now that it’s hard to be motivated after a painful March. In this environment, it is very easy to get discouraged and follow the crowds to the exits.
But here’s what I want you to remember: The stock market is currently oversold. So, when fears of war diminish or a ceasefire is reached, the stock market will resurface in a massive surge.
I view the market decline and subsequent decline as a great buying opportunity Fundamentally outperforming stocks.
The reality is that we are still in an amazing earnings environment, and these are stocks that should rebound impressively in the coming weeks, especially as first-quarter earnings season begins.
Remember, your best defense remains an aggressive attack on a stock with accelerating sales and earnings growth, positive analyst reviews and solid guidance.
Good stocks always bounce – and I look for mine Growth investor Stocks are expected to rebound 20% or more in the coming weeks, especially as the fog of war dissipates and our companies report wave after wave of positive quarterly results.
That’s because my country Growth investor The stock shows an average annual sales growth of 37.3% and an average annual earnings growth of 144%. Ultimately, it’s earnings that drive stock prices – not headlines.
So, if you want to know more about Growth investor, I encourage you to check out our latest research offering By clicking here.
sincerely,
Louis Navellier
editor, Market 360
