February proved to be a tumultuous month for markets. Fears of AI dominance gripped the markets, as many pundits skepticized over its long-term impacts and potential implications on the economy. Under the surface, markets fragmented with individual stock volatility at its highest levels in many years. As with most headlines, it is likely this narrative is overblown, as we think about these implications in a practical manner. For example, the software sector has been feeling the most heat from this potential AI disruption. Individual software stocks have been trading as if their businesses would become obsolete – in a real-world scenario this would mean we will no longer be using Microsoft Office because we will all individually code, build and create our own applications that will create better Excels, better PowerPoint software, and better applications than Word. This is just one example of the overreaction that has plagued many individual sectors under the surface, and it has bled into other industries such as trucking, property management, and insurance brokers among many others. Fortunately for prudent investors, diversified portfolios held up well, despite the turmoil under the surface.
The first few trading days of March have been riddled with volatility in reaction to Operation Epic Fury, in which the U.S. joined forces with the Israeli military to eliminate key Iranian personnel, including the Supreme Leader Ayatollah Ali Khamenei. Markets are digesting the uncertainty of the evolution of the conflict, specifically in relation to the impact on oil prices. President Trump has addressed the nation citing his expectations for the conflict to last up to six weeks, but there will be many unknowns as tensions continue to escalate and Iran retaliates. As hostilities continue, the focus of economic circles will likely shift to the impact of higher oil prices on inflation and interest rates, but it is much too early to predict how this will play out. In many cases, events such as these will continue to cause short-term market volatility as the news flows stay ever-changing and developments happen quickly. Over the long-term, we do know that in many cases markets tend to find bottoms within days or weeks of conflicts, and, infamously, these periods can lead to economic expansion as we rebuild on the other side.
Data sourced from Janney's "March Investment Perspectives" and Military Escalation in Iran
