When the conflict with Iran shut the Strait in late February, the price of crude did what it always does when there is a conflict in the Middle East: it went straight up.

This week, the channel is (hopefully) reopening.

A tentative framework to end the war and lift the U.S. naval blockade is headed for signing, oil has given back almost the entire war premium, and the relief is already working its way into prices at the pump.

That’s the headline, and the headline is good news. But it’s more complicated than just a headline.

The more useful question isn’t “Is oil going down?”

It’s “What does cheaper oil set in motion — who it helps, what it does to inflation and the Fed, and which part of the energy story doesn’t actually care about the price of a barrel at all.”

What Actually Happened

When the U.S. and Israel struck Iran on February 28, Iran moved to choke off Hormuz, and the U.S. blockaded Iranian ports. Oil reacted exactly as the textbook says it should.

West Texas Intermediate went from about $67 a barrel to a peak near $112 in early April. Brent ran from roughly $73 to about $118.

Call it a 60 percent spike in a matter of weeks, driven almost entirely by fear that the supply route would stay closed.

Then, over the past two weeks, the diplomacy turned. A framework emerged, mediated by Pakistan, to end the war, reopen the Strait, and lift the blockade.

The U.S. Treasury issued a 60-day license allowing Iranian crude to trade again. Tanker traffic started inching back through the channel. And the price did the round trip in reverse.

As of this week, Brent sits below $80 and WTI in the low $70s — down more than a third from the wartime peak and only modestly above where they started before the first missile flew.

The market has, in effect, decided the war is over. The fear is being priced out.

BUT — The Strait Has to Actually Open

I want to be careful here, because “peace deal signed” and “oil route fully normalized” are not the same thing, and the gap between them is where investors can get hurt.

The framework is tentative.

Earlier this month, the talks were abruptly postponed for a few days before getting back on track, and the signing is still ahead of us, not behind us.

A 60-day license is a 60-day license — it’s a bridge, not a permanent settlement.

Implementation across a dozen-plus co-signing governments takes time, and the Strait has been a geopolitical pressure valve for fifty years. It can re-tighten.

So the current outlook is a probability, not a certainty.

The most likely path is that the channel reopens and oil stabilizes somewhere in the $65–80 range, with forecasters like JPMorgan already penciling year-end Brent closer to the mid-$60s.

But there is a case to be made that the deal wobbles and oil prices snap part of the way back.

The Inflation Dividend (this is the part that matters most)

Here’s where it gets interesting, and where last quarter’s pain quietly turns into this quarter’s relief.

Energy doesn’t just sit in its own “box” in the inflation data. It leaks into everything — what it costs to fly a plane, truck a pallet, make a plastic bottle, run a farm.

When oil spiked, it dragged the whole inflation index up with it.

Headline CPI, which was running a tame 2.4 percent before the war, jumped to 4.2 percent by May.

That spike is most of why the Fed’s new chair, Kevin Warsh, spent his first weeks talking about nothing but price stability and took rate cuts off the table.

Now run the scenario backward.

Gasoline prices adjust to crude fast, usually within weeks. As the war premium bleeds out of oil, it bleeds out of the inflation data too — first in the June reading, more visibly in July.

This is the single most important takeaway in the whole piece: the same oil move that made inflation look scary is now poised to make it look tame.

A good chunk of that 4.2 percent was always a war tax, not embedded, sticky, wage-driven inflation. War taxes reverse when the war ends.

There are two real consequences:

The first is for households — the energy tax on the family budget is lifting. This puts money back into the pockets of consumers, without anyone getting a raise.

The second is for the Fed. If headline inflation drifts back toward 3 percent and then lower over the summer, the case for a hostile and rate-hiking central bank gets weaker by the month.

Who Wins When Oil Falls?

When energy gets cheaper, the benefit doesn’t spread evenly. It concentrates in the businesses where fuel is a big, unavoidable line item.

This is the part of the market that was quietly penalized all spring and now gets a tailwind.

Many of these areas were treated as collateral damage during the oil spike.

As the premium unwinds, the same math that hurt them in April starts helping them.

What History Says: The 6 Months After an Oil Scare

This isn’t the first time a geopolitical shock spiked oil and then reversed.

Going back to 1980, the pattern has repeated often enough to be worth studying to see which sector benefited.

Note: The S&P 500’s eleven sectors, as we define them today, didn’t all exist back then.

The official framework (called GICS) only dates to 1999; Real Estate wasn’t split out until 2016, and Communication Services wasn’t reconstituted until 2018.

Here are the major episodes since 1980 in which a geopolitical or supply shock drove oil sharply lower, along with what the broad market did over roughly the following six months.

The most important column in that table isn’t the oil decline. It’s the recession column.

Across roughly seven oil-shock episodes since the mid-1980s, the S&P 500 averaged about a 24 percent gain over the following year, positive in six of seven, with the lone exception being 2008, when oil’s move coincided with a full financial-system breakdown.

What determines the next six to twelve months isn’t the direction oil moved; it’s whether a recession shows up.

And 2022 is the cautionary tale on the other side…

Oil fell hard in the back half of that year, but a Fed in full inflation-fighting mode dragged stocks down anyway.

When the central bank is the dominant force, it can override the oil tailwind entirely — worth remembering with Warsh in the chair today.

Sector Tilt

When the energy tax on households lifts, the money flows to where people spend it (discretionary), to the firms that move goods more cheaply (industrials and transports), and to the cyclical, risk-on corners that lead once recession fear fades (financials, tech).

Energy is the reliable laggard for the obvious reason. The defensive, rate-sensitive sectors — staples, utilities, real estate — usually trail in the rally but cushion the blow if the optimism proves wrong.

Caution: These are historical tendencies, not promises. Every episode had its own crosscurrents; the sample is small, and “on average” hides a lot of variation.

But AI Growth Needs Energy

When oil dropped, energy stocks dropped with it — many oil and gas names fell 10 to 20 percent in a month, leaving a lot of them below where analysts peg fair value.

The instinct is to read that as “oil is falling, so avoid energy.”

Sometimes that’s right. But it flattens an important distinction. When oil weakens, capital spending slows, the over-levered weak hands get washed out, and the survivors — the companies with clean balance sheets and low breakeven costs — come out the other side with less competition and more pricing discipline.

Selloffs driven by a headline rather than by company fundamentals are exactly where a patient investor goes shopping.

Not every beaten-down energy name; the strong ones with real free cash flow and a reason to exist below $70 oil.

I’m not naming tickers to go buy — that’s not what this article is about. The point is the category logic: a price-of-oil selloff and a quality-of-business problem are two different things, and the market routinely confuses them.

And the real interest in the Energy sector is due to the growth expectations for AI, and the business opportunities it can provide for Energy companies.

The Energy Sector Isn’t One Story. It’s Two.

Most people hear “energy” and think “oil price.” But the most powerful force in energy right now has almost nothing to do with the price of a barrel.

It’s electricity - specifically, the staggering amount of it that artificial intelligence requires.

Data centers are on track to consume on the order of 1,000+ terawatt-hours of electricity. (If they were a country, that would rank them among the largest power consumers on earth).

And the demand is growing around 15 percent a year, while the rest of the economy’s energy use barely moves.

After two decades of flat U.S. electricity demand, the growth forecast just bent sharply upward.

This is a structural, multi-year shift, and it does not care whether Hormuz is open or closed.

Crucially, a lot of that new demand is being met with natural gas, not oil.

Gas and oil prices have actually been diverging — oil falling on peace, gas firming on AI-driven power demand.

The reason natural gas demand is rising is due to the fact that the public grid can’t connect new mega-projects fast enough. As a result, hyperscalers are building dedicated natural gas plants right next to the data center.

source: TechCrunch

The economics aren’t close. A natural gas plant plugs in for roughly a tenth of the grid-connection cost of solar or offshore wind, and it can be powering servers in about 18 months, versus the multi-year wait for a grid hookup.

That’s why the winners of this growth aren’t only the oil companies — they’re the natural gas producers, the pipeline and “midstream” operators signing multibillion-dollar deals to power data centers directly, and the equipment makers who build the turbines.

One nuance worth flagging: the regulated electric utilities you’d assume are the obvious beneficiaries have actually lagged, because higher interest rates make their bond-like dividends less attractive.

If rates ease as inflation cools (see the section above), the interest in the Ulitlity sector may rise.

Will AI Keep Powering the Growth in Energy?

The case it continues: the demand is contracted, not speculative.

These are signed, multi-year power agreements tied to data centers that are already under construction.

Electricity, unlike a hot stock, is consumed and paid for every single day. And gas is the path of least resistance — cheapest to connect, fastest to build, available around the clock in a way intermittent renewables aren’t yet.

The case it disappoints: AI is getting more energy-efficient at a remarkable clip.

Better chips and leaner models can do more compute per watt, and if efficiency outruns demand, some of these power forecasts will prove too aggressive — the way fiber-optic capacity was massively overbuilt in 2000. (Remember Lucent?)

Build too many gas plants for demand that arrives slower than promised, and you get stranded assets and disappointed shareholders. The grid will also eventually catch up.

Skeptic’s corner

The deal could break. Everything above assumes the framework holds and the Strait stays open. If diplomacy collapses, oil re-spikes, the inflation relief evaporates, and the sector calculus flips. This is the single biggest risk to the whole thesis, and it’s not remote.

Cheaper oil isn’t always good news. Oil falls for two very different reasons: more supply (bullish for everyone else) or less demand (a warning that the economy is slowing). Most of this move is the supply story — Hormuz reopening. But if part of it is demand softening, then “cheaper gas helps the consumer” is cold comfort against a weakening jobs market. Watch which one it is.

The energy stocks may be cheap for a reason. If oil keeps sliding toward the mid-$60s or lower, today’s “oversold” names can get cheaper still, and weaker balance sheets can crack before the survivors re-rate. Oversold is not the same as safe.

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into the “weight of the evidence.”

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious

The Call

Cautious - The relative rotation graph (RRG) for the broader market indices shows continued rotation in favor of small and mid-caps.

During the recent volatility, the small and mid-cap areas of the market held up much better than their large-cap counterparts.

The S&P 500 has yet to recapture its previous highs:

While small and mid-caps show improving relative strength vs the S&P 500 index, as they continue to rise to new highs:

The strength this past week tells the story for June. Industrials, Financials, and Utilities have led, while year-to-date leaders, Tech and Energy, have taken a pause:

However, taking a closer look at the rotation of the individual sectors within the S&P 500, we can see a rotation back into Tech (led by Semiconductors) is just beginning:

Market watchers will be paying close attention to some key events this week that can affect this rotation:

1. Micron (MU) releases Q3 earnings on Wednesday.

2. Nvidia (NVDA) annual shareholder meeting takes place on Wednesday.

3. PCE inflation data is released. (Watch for volatility as this is the first inflation data point after the FOMC released a more hawkish tone under the leadership of new Fed Chair Kevin Warsh.)

Under The Hood

Sector Watch

Read more

The Federal Reserve did the predictable thing yesterday. It held the federal funds rate at a target range of 3.50% to 3.75% — a midpoint of 3.625% — for the fourth consecutive meeting. That part surprised no one.

It was everything around the decision that was the surprise.

This was Kevin Warsh’s first meeting as Chair, and he used it to change how the Fed talks. The post-meeting statement was the shortest in years.

It described inflation as “elevated,” in part because of energy “supply shocks.” And the Summary of Economic Projections turned distinctly hawkish: the median official now sees the funds rate ending 2026 at 3.8%, up from 3.4% in the March projections and a quarter-point above where rates sit today.

Nine of eighteen officials now pencil in at least one hike this year; six see two or more. Forecasts for PCE inflation were revised up even as growth projections came down.

A hold is supposed to be a non-event. This one was read as hawkish, and the market reacted:

Stocks fell across the board and the VIX — the market’s fear gauge — jumped more than 12% in a single session, from 16.4 to 18.4.

That is the market repricing risk in real time. Not because rates moved, but because the Fed stopped telling investors what comes next.

What the Dot Plot Is, and Why a Missing Dot Matters

“Dot Plot” Source: FOMC

Four times a year, each of the Fed’s policymakers marks where they think the federal funds rate should be at the end of the next few years.

Those anonymous marks are plotted on a single chart — one dot per official — and the result is the famous “dot plot.”

The Fed introduced it on January 25, 2012, under Ben Bernanke, as a form of what he called aggressive forward guidance: a way to reassure markets, then pinned near zero, that rates would stay low.

The dot plot was never a promise. It is a snapshot of opinion, and it has often been wrong. But for fourteen years, traders have treated it as a roadmap — pricing bonds, mortgages, and equities off the median dot as if it were policy.

That is exactly the dependence Warsh wants to break.

At his first meeting, Warsh declined to submit his own dot.

Read that again: the Chair of the Federal Reserve did not tell the market where he thinks rates are going.

When the most important vote on the Committee goes blank, the median dot stops being a roadmap and starts being a guess about everyone except the person who matters most. This roadmap just lost its author.

The Case for Going Quiet

This was not unexpected. Warsh has argued for years that the post-2008 Fed talks too much.

In his view, constant guidance locks the Committee into stale forecasts and strips it of the flexibility to respond when the facts change.

At his Senate confirmation hearing, he was blunt: “I don’t believe in forward guidance. I don’t believe that I should be previewing for you what a future decision might be.”

His model is the Greenspan era of “constructive ambiguity” — a Fed that kept its cards close, let markets do the forecasting, and preserved room to maneuver. It is worth remembering how recent the transparency experiment actually is:

• The Fed did not even announce its rate decisions until February 1994.

• Press conferences did not begin until 2011.

• The dot plot arrived in 2012.

For most of its history, the Fed said far less than it does today. Warsh is not inventing something new. He is going back to how the Fed operated for most of the modern era.

Does Transparency Actually Calm Markets?

Here is where the conventional story deserves a harder look. The case for transparency is intuitive: if markets understand the Fed’s intentions, long-term rates adjust smoothly, and policy works better.

Research from the Federal Reserve Bank of San Francisco links the rise of forward guidance to a secular decline in policy uncertainty, particularly when rates were stuck at zero.

But the long-run market record is messier than the theory.

I reviewed S&P 500 daily data across three distinct communication regimes and measured both annualized price return and annualized volatility. The result does not flatter the transparency thesis.

In the opaque era — 1965 to 1993, when the Fed did not even announce its decisions — the S&P 500 returned 6.1% annualized with volatility of 14.2%.

As the Fed grew more transparent from 1994 to 2011, volatility rose to 20.0%. Even in the dot-plot era (2012–25), with the strongest returns of the three (12.5%, powered by zero rates and quantitative easing), volatility ran at 16.8% — still above the quiet years.

The honest reading: communication style is not what drives long-run returns or even average volatility. The economy does.

Recessions, earnings, and credit cycles move markets far more than the length of a Fed statement.

The quietest Fed in the sample presided over the calmest market; the chattiest era contained the global financial crisis and the COVID crash.

Correlation, not causation. This should make anyone skeptical of the claim that more Fed talk equals safer markets.

More Volatility, But of a Specific Kind

So will less transparency mean more volatility? The likely answer is yes — but concentrated, not constant.

The research is consistent on the mechanism: uncertainty tends to spike on announcement days and ease in between.

Strip out forward guidance, and you remove the shock absorber that lets markets pre-position. Re-pricing that used to happen gradually now lands all at once — on meeting days, on jobs reports, on inflation prints.

Yesterday was a preview of what is to come.

A routine announcement that the Fed was holding rates steady produced a 12% jump in the VIX because the market had to reassess the path on the spot, with no guidance to lean on.

Expect more of this: calmer stretches between meetings, sharper reactions when the Fed actually speaks or when the data surprises.

For long-term investors, that is noise. For anyone using leverage or short time horizons, FOMC announcements just got a bit riskier.

The Uncertainty Regime: What Tends to Win, and What Tends to Lose

If the Fed will no longer telegraph its moves, the obvious question is what historically performs when rate uncertainty rises, and policy support gets quiet.

We do not have a clean Greenspan-era factor dataset, so the best modern analog is 2022 — the last time the Fed surprised markets with a faster, less predictable tightening than expected. The dispersion that year was enormous:

In 2022, energy gained 58% while communication services fell 39% and consumer discretionary fell 37%.

Long-duration growth stocks (IWF) lost 30%, more than three times the 9.7% decline in value (IWD).

Defensive sectors — utilities, staples, health care — fell low single digits or held flat.

The pattern is the classic uncertainty regime: short-duration, cash-generating, value-oriented assets hold up; long-duration growth and rate-sensitive corners take the brunt.

Notably, 2026 is already rhyming with that script. Through June 17, value (IWD) is up 13.4% while growth (IWF) has gained just 1.8%. Energy leads at +22.5%. The defensive-versus-speculative split is visible in the year-to-date numbers below:

None of this is a recommendation to buy or sell anything. It is a description of how markets have historically behaved when the Fed pulls back its guiding hand.

Leadership can rotate quickly, and 2026 is not 2022. But the direction of travel — toward dispersion, toward stock- and sector-level differentiation — is the environment a less transparent Fed tends to create.

Skeptic’s Corner

The bear case on this entire thesis is that the market is overreading one meeting.

Warsh withheld a single dot at a single FOMC; he may simply be establishing a tone and could resume fuller communication once his framework review is complete.

Markets adapt quickly — the 1994–2006 Fed was far less transparent than today’s, and equities compounded handsomely through most of it.

The VIX jumping to 18 is hardly a crisis; it sat below its long-run average of roughly 19–20 even after the move.

There is also a real case that less guidance is healthier.

A Fed that stops pretending to know the path may make fewer promises it has to break, and markets that stop front-running the dot plot may price risk more honestly.

And our own regime data cuts against the alarmist read: the most transparent era was not the calmest, and the quietest era was not the most volatile.

If communication style barely moved long-run volatility in the past, we should be humble about claiming it will dominate the next few years. The economy, not the eloquence of the Chair, remains the variable that matters most.

Sources

1. Federal Reserve — FOMC statement and June 2026 Summary of Economic Projections — federalreserve.gov — June 17, 2026

2. Federal Reserve — Summary of Economic Projections timeline (dot plot introduced Jan 25, 2012) — federalreserve.gov

3. CNN Business — “Fed leaves interest rates unchanged but signals higher rates are ahead” — cnn.com — June 17, 2026

4. NPR — “Federal Reserve holds interest rates steady and hints at rate hike later this year” — npr.org — June 17, 2026

5. CNBC — Fed meeting recap (Warsh task forces; SEP detail) — cnbc.com — June 17, 2026

6. Moneywise — “Fed Chair Kevin Warsh says banks are too transparent with the public” — moneywise.com — June 2026

7. Yahoo Finance / 24-7 Wall St. — “Kevin Warsh Ready to Stop Telegraphing Fed Policy” (Warsh confirmation quote) — finance.yahoo.com — June 2026

8. Federal Reserve Bank of San Francisco — Working Paper 2019-12 (transparency, forward guidance and uncertainty) — frbsf.org

9. “Fedspeak” / Greenspan constructive ambiguity; FOMC began announcing decisions February 1994 — en.wikipedia.org

10. Yahoo Finance — historical and current price data: ^GSPC, ^NDX, ^DJI, ^RUT, ^VIX, SPY, IWD, IWF, IWM, RSP, sector SPDRs — finance.yahoo.com; ARTAIS calculations

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

Issue No. 4 · Tuesday · June 16, 2026

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into the “weight of the evidence.”

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process. Plus, what changed from last week.

At a Glance

Market regime: Cautious — Improving, but momentum and intermarket signals are still mixed.

The Call

Cautious/Improving - The S&P 500 index is attempting to recover from its recent pullback on the news of a U.S. and Iran agreement extending their ceasefire for 60 days, with a formal signing ceremony expected this Friday and nuclear talks to follow.

The market is also waiting to hear from new Fed Chair Kevin Warsh this week. On Tuesday, the FOMC two-day meeting starts, with an official statement being released on Wednesday.

Currently, the market is not anticipating any rate changes, but it will be closely watching to see what Warsh’s first statement and outlook will be.

Taking a technical look at the S&P 500 index, momentum has not yet turned positive, and the index is still trading below our short-term trend indicators. (Intermediate and long-term trends are still positive).

The equal-weight version of the S&P 500 Index (RSP), however, is breaking out to new all-time highs. Our short-term trend indicator for RSP never went negative, and momentum continues to rise.

This is an indication of market rotation away from growth into value.

Month to date, sectors like Consumer Staples, Financials, and Real Estate have helped push the equal-weight index (RSP) higher, while the tech-heavy S&P 500 index was declining:

Relative Rotation Graphs (RRG), which help us visualize the relationship between momentum and relative strength, show the rotation away from tech and into sectors like Financials and Health Care over the past month:

This rotation may be short-lived. If I add the two Semiconductor ETFs (SMH and SOXX), we can see Semiconductors are re-strengthening and starting to rotate back into a leadership position:

If this trend continues, semiconductors will help the Tech sector rotate back into strength, possibly at the expense of this month’s value leaders.

Under The Hood

Read more

I wanted to take a deeper dive into the impact that rising oil prices have on inflation. Is it a short-term impact? What does inflation look like when oil is removed? Is there a trickle-down effect?

Let’s take a closer look…

Yesterday morning, the Bureau of Labor Statistics reported that consumer prices (CPI) rose 4.2% over the past year. This morning, it followed up with a producer price index (PPI) report that included a record data series.

Two hot prints in two days, six days before new Fed Chair Kevin Warsh holds his first FOMC meeting.

So is inflation actually as bad as 4.2% sounds? The honest answer is both less and more.

Is Inflation as Bad as the Headlines Say?

Less than it looks, in one important way. The core reading — everything except food and energy — rose just 0.2% in May, below forecasts, and sits at 2.9% year over year. Forecasters were expecting worse.

The gap between 4.2% headline and 2.9% core is the whole story of this report.

When those two numbers diverge that much, it usually means one category is doing the damage rather than prices rising everywhere at once.

That’s exactly what the category data shows.

But there’s a “more” side too, and it showed up this morning.

The Producer Price Index measures what businesses pay each other before costs ever reach you.

Inside the PPI data is what is called Stage 1 intermediate demand; the rawest industrial inputs, ie very start of the supply chain. This jumped 3.2% in May alone. That’s a record for the series. Year over year, those input costs are up 12.3%.

Consumer inflation tells you where prices have been. Pipeline inflation hints at where they might go. Right now pipeline inflation is rising.

Where is Inflation Hitting the Hardest?

The May report reads less like an inflation report and more like an oil report with footnotes.

What’s Going Up:

· Gasoline: +40.5% year over year

· Airfares: +26.7% — jet fuel is an airline’s second-biggest cost

· Energy overall: +23.5%, accounting for more than 60% of the monthly increase

What’s Not:

· Shelter: +3.4% and decelerating — the biggest component of CPI is cooling

· Food: +3.1% — elevated but stable

· Used cars: −2.0% — actually falling

The data is indicating that we are dealing with a narrow rise in inflation, not a broad one.

In 2022, price increases were everywhere: goods, services, rent, wages. This time inflation is more focused.

What Happens When You Take Oil Out?

The Bureau of Labor Statistics (BLS) publishes a series called “all items less energy” — the full consumer basket with energy removed.

It’s running at roughly 2.9%. In February, before the war and the Hormuz closure, headline CPI was 2.4%.

So the arithmetic answer is yes: remove oil and inflation drops dramatically, from 4.2% back to the high 2s, within shouting distance of the pre-war trend.

But the arithmetic answer is also a little too convenient, because oil doesn’t politely stay in its own category.

Do Higher Oil Prices Trickle Into Everything Else?

They do. But the better question is “how much and how fast?”.

Economists at the Federal Reserve Board studied exactly this (Conflitti and Luciani, 2017). Their finding: a 10% rise in oil prices adds roughly 0.1 percentage point to core inflation, spread over about two years.

Apply that to today. WTI crude went from about $67 before the conflict to roughly $91 now, with a spike to $113 at the worst of it. Call it a 36% sustained move. The Fed’s own framework says that should eventually push core inflation up by around 0.3 to 0.4 percentage points, slowly across eight quarters.

That’s real, and it’s why the Fed can’t simply ignore oil. But notice what it isn’t: it isn’t 4.2% inflation.

The direct, immediate effect of oil at the pump is enormous. The indirect effect on everything else is much slower.

Two things would change that math, and both deserve watching.

First, that record PPI intermediate-demand number — if input costs keep compounding at that pace, the pass-through estimates start to look dated.

Second, expectations. The slow inflation growth research assumes people keep believing inflation will come back down. The 1970s went wrong when they stopped believing it.

How Have Central Banks Handled Oil Shocks?

This is where history gets opinionated. Four episodes, four verdicts:

1973–74, Arthur Burns: Accommodate. (Wrong.) OPEC quadrupled oil prices, and Burns’s Fed kept policy loose. They reasoned that oil inflation wasn’t the Fed’s fault. Inflation expectations broke loose, and the 1970s became the decade of inflation.

1979–80, Paul Volcker: Hike to 20%. (Right, and brutal.) Cleaning up after Burns required a federal funds rate of 20% and back-to-back recessions. The lesson wasn’t that oil shocks demand 20% rates — it’s that letting expectations unanchor makes the eventual solution catastrophic.

1990, Alan Greenspan: Cut. (Right.) When Iraq invaded Kuwait, and oil doubled, Greenspan read the shock as a tax on growth rather than the start of an inflation spiral. The Fed cut through the spike. Inflation fell on its own as the economy slowed.

2008, Ben Bernanke vs. Jean-Claude Trichet: Hold vs. Hike. Oil hit $147 in July 2008. Bernanke held rates. Trichet’s ECB raised rates that same month — eight weeks before Lehman failed. That hike has been catalogued as one of the great modern policy errors, twice over, since the ECB repeated a version of it in 2011.

And the old debate has restarted. The ECB raised rates 25 basis points today — its first hike since 2023 — while futures markets price roughly a 98% chance the Fed holds next week.

Frankfurt and Washington just picked opposite sides of the 2008 argument again. History already picked a side once. We’re about to find out if it repeats.

Will High Oil Prices Do the Fed’s Job For Them?

This is the most underrated question in the whole debate, and it’s the strongest argument for holding rather than hiking.

Expensive oil is a tax. Every dollar a household spends on $5 gasoline is a dollar not spent on restaurants, travel, or furniture.

Energy is also an input cost for nearly every business, which squeezes margins and capital spending.

Oil shocks have preceded most U.S. recessions since World War II, not because oil causes inflation, but because oil destroys demand.

So a central bank facing an oil spike gets some tightening for free. The 1990 Greenspan episode is the cleanest example: the oil shock itself slowed the economy enough that the Fed’s next move was down, not up, and inflation came back to earth without additional hikes.

That’s the case for patience. If $91 oil persists, it bites growth, and the growth hit eventually pulls inflation down with it. Hiking on top of an oil tax risks doubling the restraint. This was Jean-Claude Trichet’s mistake.

What’s The Likely Path For The Fed?

Next week’s meeting (June 16–17) is Kevin Warsh’s first meeting as FOMC Chair, and he inherits a genuinely split committee.

The April meeting minutes showed an 8–4 vote, the deepest dissent since 1992. Markets have all but settled the near-term question: roughly 98% odds of a hold.

Source: CME Group

My read of the probabilities from here:

Base Case - Hold. Core at 2.9% and decelerating shelter give the Fed room to wait. The Greenspan-Bernanke playbook says look through the spike while watching expectations. Nothing in the core data forces a move in either direction. This is what the market is expecting.

Hike - If Hormuz stays shut and pipeline pressure keeps building, the next move is more likely a hike than a cut. A 12.3% annual rise in raw input costs is tolerable for a quarter. Compounding for a year, it threatens the “narrow inflation” story. The FOMC committee already has four dissenters favoring a rate hike.

The FedWatch tool, which is based on the futures market, has been forecasting an increasing chance of at least one rate hike by the end of this year:

Cut - Fast cuts only if the labor market cracks. That’s the 1990 template: the oil tax bites, growth rolls over, and the Fed’s problem flips from inflation to recession within a couple of quarters. If payrolls turn negative, the 4.2% headline will be forgotten remarkably fast.

What I’d watch, in order: the PPI pipeline series (does the record repeat?), market-based inflation expectations (still anchored, so far), and weekly jobless claims (the earliest crack in the 1990 scenario).

Skeptic’s Corner

Arguments against everything I just wrote:

“Core is 2.9% only because oil hasn’t hit it yet.” Fair. The Fed’s own research says 0.3–0.4 points of pass-through are coming over two years. If shelter stops decelerating at the same time, core could be back above 3.5% by mid-2027 without any new shock.

“The 1990 analogy assumes the shock is temporary.” Greenspan’s look-through worked partly because the Gulf War resolved in months. A Hormuz closure that persists for a year is a different animal — closer to 1973’s structural supply loss than 1990’s brief scare. The longer it lasts, the weaker the look-through case gets.

“Expectations are anchored until suddenly they aren’t.” The Burns error didn’t look like an error in real time. He had respectable arguments. So does today’s consensus for holding. The uncomfortable truth is that anchored expectations are only observable in hindsight.

“A record PPI print is a record for a reason.” I’m treating the stage 1 intermediate demand number as a warning light. A skeptic would call it the headline. If businesses pass those costs through rather than eating them, the narrow-inflation thesis dies quickly.

All fair. My counter is simply that the core data, as of today, hasn’t validated any of them — and policy should respond to evidence, not anticipation of evidence.

For now, the market has made its bet: hold next week, and hope the oil tax does the heavy lifting.

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”), a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

What’s Inside:

1. At a Glance - A “weight of the evidence” look at the current market environment, as well as my Regime map.

2. The Call - A deeper dive into the “weight of the evidence.”

3. Under the Hood - Current market internals, sector breadth, and intermarket analysis.

4. Sector Watch - Which sectors pass/fail the screening process.

5. Current Screen - Which stocks pass the screening process.

6. What I Am Watching - Stocks I am watching that are approaching a passing grade in the screening process.

At a Glance

Market regime: Cautious — Trend constructive, breadth not yet confirming.

The Call

Short-term indicators suggest caution, while longer-term indicators remain intact.

Cautious - Last Friday’s market decline caused the short-term indicators we follow to turn negative.

Momentum and Supertrend indicators both turned negative, indicating the market may be entering a period of caution.

Investors seem to be worrying more about the growth of AI, the approaching mid-term elections, and how new Fed Chair Kevin Warsh will handle the current inflation/stagflation cycle.

Intermediate and long-term indicators are still supporting a continuation of the current bull market.

The S&P 500 index remains above both the daily and weekly Cloud model.

High Yield Credit Spreads Are Still Low

High-yield credit spreads remain low, confirming this is a short-term pullback/consolidation. When HY credit spreads widen, it indicates higher perceived credit risk, which is usually associated with economic distress.

In addition, as I have mentioned before, this time of year is historically weak for the stock market. Typically, the summer before the midterm elections is weak:

Until short-term indicators turn positive, the weight of the evidence indicates investors are taking a “wait and see” approach to the market.

Under The Hood

Read more

In August 2023, Larry Summers posted a chart that made Wall Street uncomfortable. It overlaid the current inflation trajectory onto the CPI path from the mid-1970s, and the two lines tracked each other with unnerving precision.

The decline from the post-COVID peak mirrored the temporary decline after the first oil shock, right before inflation roared back in the late 1970s.

Critics dismissed it as a “chart crime” -- a convenient visual trick that cherry-picked start dates.

Three years later, Summers has updated that chart. The dotted projection line now extends through 2027, and market-implied inflation forecasts are tracking the path of the 1979 spike.

Source: Larry Summers

This is no longer an academic exercise. CPI hit 3.8% year-over-year in April 2026 -- the highest reading since May 2023 (Bureau of Labor Statistics, May 12, 2026).

Energy prices drove over 40% of the monthly increase. The Strait of Hormuz remains partially obstructed. NOAA forecasts a Super El Niño as the most likely outcome for late 2026.

And the Cleveland Fed has published research showing that consumer inflation expectations are functionally more unanchored today than they were at the peak of the 1970s crisis.

The question is no longer whether the parallels exist. It is: Will the parallels hold?

I’ve spent the past several weeks digging into this. What follows is a comprehensive look at 1970s inflation, economists warning about a repeat, the specific catalysts that could trigger a second wave, and how investors were positioned then.

Part I: The 1970s -- How Inflation Came in Waves

The First Wave (1972-1975):

The first inflation wave did not begin with oil. It began with policy.

The Vietnam War had been pumping fiscal stimulus into an overheating economy since the mid-1960s. By 1968, the war was costing roughly $3 billion per month, and the federal budget had expanded to $179 billion.

During this time, the federal deficit jumped from 0.2% of GDP in 1965 to 2.7% by 1968. Consumer prices, which had been rising at 1.3-1.6% annually through 1965, accelerated to 5.8% by 1969.

President Nixon, who was facing reelection in 1972, pressured then Fed Chair Arthur Burns to keep monetary policy accommodative.

Burns complied. The federal funds rate was 3.5% in early 1972 even as inflation was already running above 3%.

Nixon compounded the problem with wage and price controls under the Economic Stabilization Program of August 1971.

While this temporarily suppressed reported inflation, it created massive imbalances in supply chains and commodity markets. When the controls were removed in 1973, a wall of pent-up pricing pressure hit the economy all at once.

Then came the external shock.

In October 1973, OPEC imposed an oil embargo against the United States in retaliation for its support of Israel during the Yom Kippur War. Crude oil prices quadrupled from $3.56 per barrel to $11.58 between October 1973 and March 1974.

The combination was devastating. CPI surged from a 3.2% annual average in 1972 to 11.0% in 1974, a 7.8 percentage point increase in just two years.

This helped tip the economy into recession. Unemployment rose from 4.6% to 9.0%. The word “stagflation” entered the popular vocabulary.

Declaring Victory Too Early (1975-1977)

By 1976, it looked like the worst was over. CPI had declined from its 11% peak to 5.8%. The recession had ended. Oil prices had stabilized. The stock market was recovering.

Fed Chair Burns began easing monetary policy to support the recovery and lowered the federal funds rate from 13% in mid-1974 to below 5% by early 1977.

He treated the inflation episode as a one-time supply shock that had passed -- not as a structural shift in price expectations that required sustained restrictive policy.

This was the critical mistake.

The problem was that inflation had never returned to its pre-shock baseline. CPI bottomed at 5.8% in 1976 — nearly double the 3.2% average of 1972.

Inflation expectations had shifted upward. Workers demanded cost-of-living adjustments. Union contracts included 8-10% annual wage increases.

Businesses had learned they could pass through higher costs without losing customers. The wage-price spiral was already in motion, even as the headline numbers suggested progress.

This is the period Summers argues we are currently in.

CPI peaked at 8.0% in mid-2022 and has since declined - but to 3.8%, not to 2%. The Fed cut rates from 5.50% to 3.50% before inflation returned to target.

The parallel is uncomfortable.

The Second Wave (1978-1980)

The second wave hit harder than the first. CPI, which had never fully cooled below 6%, began re-accelerating in 1978.

Then the Iranian Revolution of January 1979 removed 5.5 million barrels per day from global supply, increasing crude oil prices 186%, from $13.10 to $37.42 per barrel.

Unlike the first wave, the economy had no margin for error. Inflation expectations were already elevated. The wage-price spiral was entrenched.

And the new Fed Chair, G. William Miller (Burns’ successor), proved equally unwilling to inflict the pain that would result from aggressively raising rates.

CPI hit 11.3% in June 1979, then 13.5% by March 1980.

The entire U.S. economy was repricing around the assumption that inflation would persist indefinitely. Mortgage rates hit 18%. The 10-year Treasury yield reached 15.84% in September 1981.

It took Paul Volcker, appointed as the Fed Chair in August 1979, raising the federal funds rate to 20% and deliberately engineering two recessions to finally break the inflation cycle.

Unemployment hit 10.8% in November 1982 -- the highest since the Great Depression. That was the price of the Burns-Miller policy errors.

What Burns Did Wrong

I keep coming back to Burns because his mistakes are so instructive. Five specific failures:

• Political capitulation. He explicitly accommodated Nixon’s reelection demands, keeping rates at 3.5% while inflation ran above 3%.

• Stop-go policy. He tightened when inflation surged, then eased as soon as growth softened. Each cycle left the inflation floor higher than before.

• Negative real rates during the false calm. The fed funds rate fell below the CPI rate for much of 1975-1977. In effect, the Fed was subsidizing inflation while claiming to fight it.

• Credibility destruction. After eight years of stop-go, markets and wage-setters learned to expect that the Fed would always blink.

• Misdiagnosis. He treated inflation as a supply-side phenomenon that monetary policy couldn’t address. His job was to prevent a one-time shock from becoming a sustained wage-price spiral. He failed.

Volcker’s approach was the mirror image.

On October 6, 1979, during a Saturday unscheduled FOMC meeting, he announced the most significant change in Fed operating procedures since the Treasury-Fed Accord of 1951.

Instead of managing the fed funds rate, the Fed would target the volume of bank reserves, explicitly allowing rates to rise as high as necessary.

The “Saturday Night Special” produced two recessions and unemployment of 10.8%, but it worked.

Part II: The Second Wave Thesis

Larry Summers

Summers, the Harvard professor, former Treasury Secretary, and the economist who correctly predicted the post-COVID inflation surge in February 2021 when most dismissed it - has been the most persistent voice.

His April 2026 update to the comparison chart came with a blunt assessment: the neutral interest rate is approximately 4.5%, well above the Fed’s estimate of 3%. If Summers is right, the Fed has been running too accommodative of a policy to fight inflation.

On the fiscal situation, Summers has described things as “fragile” and “on the brink of a crisis,” noting that DOGE failed to produce meaningful spending reductions while global investors are “edging away from Treasury bonds.”

Nouriel Roubini

Roubini doesn’t use the same 1970s-chart framing. His argument is broader: we are entering a prolonged era of “secular stagflation” in which inflation settles 2-3 percentage points above pre-pandemic norms.

His specific near-term forecast from July 2025 (that core CPI would climb to 3.5% by the second half of 2025) was correct.

In March 2026, Roubini warned of “Trumpflation risks” driven by tariffs, immigration restrictions tightening labor supply, large fiscal deficits, and geopolitical energy disruptions.

Roubini has provided the most explicit probability framing: he suggested investors should diversify away from long-duration Treasuries even if they believe there is “only a 20% to 30% chance” of his stagflation scenario playing out.

Mohamed El-Erian

El-Erian frames the risk through the 1977-1979 Carter/Burns lens: “There’s a real question mark as to whether this is a Reagan moment... or is this a Jimmy Carter moment in which the U.S. ends up in stagflation and ultimately recession?”

He notes U.S. financial markets are exhibiting patterns “more typical of developing countries,” including dollar weakness alongside rising yields.

His working probability: roughly a 30% chance of a Carter/stagflation outcome.

Jim Bianco

Bianco’s argument at the May 2026 Strategic Investment Conference was structural: “Six years into the post-COVID environment, the inflation rate is still 3% or higher, and they can’t get inflation below 3%.”

His core observation is that the Fed has effectively validated a new inflation floor. Every time they attempt to tighten, markets break, and they reverse, a pattern that mirrors the Burns-era stop-and-go.

Lacy Hunt

Hunt represents a notable case of a committed deflationist who revised his outlook.

At the May 2026 SIC, Hunt stated: “The current oil shock could lift the CPI by as much as 240 to 300 basis points.”

His pivot centers on two specific policy errors: the Fed’s December 2025 decision to purchase $40 billion in Treasury bills monthly and the Strait of Hormuz disruption. Hunt drew the Arthur Burns parallel explicitly.

The Cleveland Fed’s Dispersion Research

This might be the most underappreciated finding…

The Cleveland Federal Reserve published data in February 2026 showing that when you measure not just the level of consumer inflation expectations but the dispersion (which shows how widely scattered those expectations are), the degree of unanchoring in early 2025 exceeded the 1970s peak.

Consumer one-year-ahead expectations hit 9%, and the distribution was more dispersed than in any period since the University of Michigan survey began.

Part III: Oil -- The Primary Catalyst

The Strait of Hormuz crisis

On February 28, 2026, the U.S. and Israel launched coordinated airstrikes on Iran under Operation Epic Fury. Iran’s closure of the Strait of Hormuz on March 4 effectively removed approximately 20% of global energy supply from the market. Tanker traffic dropped 70% immediately and then fell to near-zero.

The IEA has called this “the biggest oil disruption in history.”

As of early June, Day 94 of the effective closure, only about 10 ships per day are transiting the Strait compared to the pre-war baseline of 95. Iran walked away from ceasefire negotiations on June 1, reversing progress that had briefly pushed oil prices lower.

Brent crude surged from approximately $72 per barrel on February 27 to nearly $120 at its peak in March -- a 67% increase.

Current readings: WTI at $94.60 and Brent at $97.13 as of June 2, 2026. WTI is up approximately 41% since the war began, from its $67.02 close on February 27.

The Stranded Spare Capacity Paradox

OPEC+ has roughly 5 million barrels per day of spare production capacity.

Under normal circumstances, that would be more than enough to offset a supply disruption. The problem is that most of this capacity is stranded behind the Hormuz closure.

Saudi Arabia, the UAE, Kuwait, and Iraq all export through the Strait. Their spare capacity exists on paper but cannot reach the market.

Gavekal Research estimates Gulf exporters can reroute at most 3.5 million bpd through alternative pipelines, leaving a potential shortfall of roughly 15 million bpd in a full closure scenario.

The Inflationary Pass-Through

The Dallas Fed modeled the Hormuz closure scenario and found that WTI at $100/barrel would push annualized U.S. headline inflation 1.3 percentage points above the no-conflict baseline.

The Fed’s general rule of thumb: a 10% increase in oil prices adds approximately 0.4 percentage points to CPI.

This means the approximate 41% increase in WTI oil prices since the war began implies roughly 1.6 percentage points of headline CPI pressure from direct energy alone.

The April CPI report represents the first wave of pass-through. The second wave -- as energy costs ripple through food production, shipping, and services -- arrives in the summer and fall readings.

Economists estimate that oil price increases typically take 3-6 months to fully transmit into CPI.

The Oil Normalization Timeline

History offers some guidance, and the answer is not encouraging:

• After the 1973 embargo, oil prices never returned to pre-embargo levels. Full normalization took approximately 13 years.

• After the 1979 Iranian Revolution, it took until 1986 -- seven years -- for oil to fall meaningfully.

• After the 2022 Russia-Ukraine spike, WTI fell from $120 to $70 within roughly 18 months.

The ADNOC CEO estimates full oil flow restoration will not happen before Q1-Q2 2027.

The concern to me is that, if oil remains above $90/barrel through the third quarter of 2026, the inflationary pass-through becomes increasingly problematic.

Part IV: The Super El Niño Wild Card

What NOAA is Forecasting

NOAA’s Climate Prediction Center forecasts an 82% probability that El Niño will develop by the end of July 2026, with a 67% chance of a strong or very strong event, aka the “Super El Niño”, peaking in November 2026 through January 2027.

For context: the 1997-1998 Super El Niño resulted in an estimated $5.7 trillion in lost global GDP over a five-year period.

The Food Price Pipeline

The food inflation pipeline is already under stress. As of May 19, 2026, 70% of U.S. winter wheat production areas were experiencing drought, along with 26% of corn and 29% of soybeans.

Current commodity prices confirm the early pressure:

• Wheat at $601.75 per bushel, up 12.3% year-over-year

• Soybeans at $1,162.50, up 11.7% year-over-year

• DBA agricultural commodity ETF up 6.3% year-to-date

Food represents approximately 13.5% of the CPI basket. The April CPI showed the food-at-home index rising 0.7% month-over-month -- an annualized rate of 8.4%.

The Compounding Problem

Elevated oil prices drive up fertilizer costs (natural gas is the primary input for nitrogen fertilizer), transportation costs, and farm equipment costs simultaneously.

Iran is a major fertilizer exporter, and the war has disrupted those supply chains.

Layer a Super El Niño on top of these existing pressures, and the food inflation channel could add 0.5-1.0 percentage points to headline CPI through 2027.

The food price impulse would hit CPI readings in Q1-Q2 2027 -- precisely when the oil shock pass-through should be at maximum intensity.

Two shocks, converging at the same time.

Part V: The Dollar Factor

In the 1970s, dollar weakness was a critical amplifier of inflation. Nixon’s abandonment of Bretton Woods in August 1971 removed the anchor that had kept currency markets stable.

The dollar depreciated dramatically through the decade.

Today, the dollar is range-bound. The DXY sits at approximately 99.47 as of June 2, 2026 -- virtually unchanged from a year ago. Cambridge Currencies forecasts DXY trading between 93 and 100 for the remainder of 2026.

The Scenarios That Matter

Weak dollar (DXY below 93): A declining dollar would amplify imported inflation precisely when food and energy prices are already elevated.

A 10% DXY decline historically adds approximately 0.5-0.8 percentage points to headline CPI. This is the 1970s replay.

Strong dollar (DXY above 103): A stronger dollar would provide a natural offset to oil and food price pressures by reducing import costs. This is the path that prevents the second wave.

Range-bound (DXY 93-103): The most likely near-term outcome. Oil and food supply shocks will transmit into CPI largely unimpeded by currency effects.

Part VI: Inflation Threat Matrix -- 1970s vs. Today

Here is a factor-by-factor comparison of where things stand:

Seven of twelve factors register as HIGH risk. But the structural wage-price spiral mechanism is significantly weaker today.

This is the single most important difference and the primary reason a full 1970s-magnitude second wave is unlikely.

In my opinion, we are unlikely to see CPI reach 13.5% as it did in 1980. But a re-acceleration to 5-7% - a miniature second wave - is a genuine risk IF the oil shock persists, El Niño materializes as forecast, and the Fed remains on hold.

Part VII: How Likely is There to Be a Second Wave of Inflation?

Based on the data assembled here, I assess the probability distribution for U.S. CPI through the end of 2027:

The weighted-average expected CPI for Q4 2027: approximately 4.5%. Not a repeat of 13.5%, but a definitive failure of the “soft landing” narrative.

I want to be clear about what this is and isn’t.

These are scenario-weighted probabilities based on my reading of the data. They are not calibrated forecasts from a formal model.

But the direction they point is uncomfortable: a roughly 65% probability of CPI exceeding 4.5% on a sustained basis, and a 20% probability of something considerably worse.

Part VIII: What Worked During the Second Wave -- And Will it Work Again?

The 1970s:

Will The Same Themes Work Today?

The short answer: partially, with important modifications.

Gold has already moved. At $4,472 per ounce, gold has risen 70.1% since the end of 2024.

In a mini second wave (CPI 4.5-6%), gold may continue to appreciate, but the easy gains are behind us. In a full second wave (CPI 6%+), gold could reach $5,500-6,000.

Energy equities have already repriced. XLE is up 30.5% year-to-date and 40.8% since the end of 2024.

If oil remains above $85/barrel, energy stocks continue to generate outsized free cash flow. But if a ceasefire is signed and oil drops to $70, the trade reverses.

Commodities broadly remain attractive. DBC is up 34.7% year-to-date. Morgan Stanley’s 2026 outlook emphasizes that commodities provide diversification when stocks and bonds fall together during inflationary periods.

Agricultural commodities face a unique setup. If the Super El Niño materializes, agricultural commodities could see significant price spikes by Q1 2027. DBA, up 6.3% year-to-date, may be early in its move.

TIPS offer direct inflation protection that didn’t exist in the 1970s. In a re-acceleration scenario, TIPS outperform nominal Treasuries as the inflation adjustment compounds.

Long-duration Treasuries remain the asset class to avoid. TLT is essentially flat year-to-date. In any scenario where inflation re-accelerates, long-duration bonds lose value as yields rise.

Part IX: What Investors Should Watch

The next six months will determine whether this cycle rhymes with the 1970s or diverges. Here are the signals to monitor:

• The May CPI report (June 10, 2026). If headline CPI exceeds 4.0%, the re-acceleration narrative gains significant momentum. If core CPI begins rising above 3.0%, the problem extends beyond energy.

• Iran ceasefire status. The single most important variable for oil prices. Iran walked away from negotiations on June 1 -- not a good sign.

• NOAA El Niño updates (monthly). A Niño 3.4 index crossing above +2.0°C confirms Super El Niño status and activates the food price channel.

• University of Michigan inflation expectations. If the one-year-ahead expectation holds above 5% through summer 2026, the unanchoring becomes self-reinforcing.

• Fed communication. Watch for language suggesting rate hikes are on the table. Kevin Warsh takes over with core PCE at 3.3% and rising.

• DXY dollar index. A break below 95 would amplify imported inflation. A break above 103 would provide a natural offset.

• Wage data. If average hourly earnings re-accelerate above 4.5%, the 1970s parallel strengthens significantly.

• Credit spreads and private credit stress. Apollo and Ares have gated redemptions. If the oil shock tips overleveraged borrowers into default, this could force the Fed’s hand in either direction.

Skeptic’s Corner

I want to take the counterargument seriously, because getting this wrong in either direction has real consequences.

The wage mechanism is broken. Without 35% union membership and automatic cost-of-living adjustments, the wage-price spiral that sustained the 1970s second wave cannot operate the same way.

Wage growth at 3-4% is simply not the 8-10% that characterized the 1970s.

This is the most powerful structural argument against a full repeat.

Technology is deflationary. AI and automation are reducing costs in services, logistics, and manufacturing at a pace that has no 1970s equivalent.

The Fed would act. Unlike Burns, the current Fed has demonstrated willingness to inflict economic pain. If CPI re-accelerates above 5%, the Fed would likely hike.

Oil shocks are temporary. Every oil shock in modern history has eventually resolved. The U.S. is now a net energy producer, which partially offsets the Hormuz disruption.

The chart is a “chart crime”. The Summers overlay is a sample of one. The Cato Institute called it “uninformed madness” in 2023, noting that CPI methodology changed substantially between the two periods.

These are legitimate arguments. The second wave is not a certainty. For now it is a risk to be aware of.

Conclusion: Positioning for the Range of Outcomes

The data assembled here does not prove that a second wave is coming.

What it proves is that the conditions that preceded the second wave in the 1970s are present in sufficient quantity to take the risk seriously.

CPI is at 3.8% and re-accelerating. An active oil supply shock with the Strait of Hormuz still partially obstructed on Day 94. A Super El Niño developing with higher than average probability of reaching strong or very strong intensity.

Consumer inflation expectations more unanchored than the 1970s by the Cleveland Fed’s dispersion measure. A Fed that has already eased 200 basis points before reaching its inflation target. And fiscal deficits running at double the 1970s levels.

The 1970s lesson is that the second wave did not arrive because anyone expected it. It arrived because policymakers and markets assumed the first wave was a one-time event, declared victory prematurely, and then were overwhelmed when the next shock hit before the structural vulnerabilities had been addressed.

I am not predicting a repeat of 1980. I am observing that the setup for a re-acceleration is in place, the catalysts are identifiable, and the market is not priced for it. The May CPI report on June 10 will provide the next major data point.

Investors who positioned for inflation in the 1970s -- gold, commodities, energy, real assets -- dramatically outperformed those who assumed the storm had passed.

Those themes are already showing signs of working again in 2026, with energy up 30.5%, broad commodities up 34.7%, and gold up 70% since the end of 2024.

The question is whether to add to these positions or reduce them. That depends on the ceasefire, the El Niño, and the next CPI print. I will be closely watching all three.

Source summary

1. Bureau of Labor Statistics -- Consumer Price Index, April 2026 (released May 12, 2026)

2. Bureau of Labor Statistics -- Historical CPI data, 1968-1983

3. Bureau of Economic Analysis -- Personal Income and Outlays, April 2026 (released May 28, 2026)

4. Cleveland Federal Reserve -- “Consumer Inflation Expectations May Have Been More Unanchored in 2025 Than the Late 1970s,” February 2, 2026

5. Semafor -- “Larry Summers’ New Chart Sounds the Inflation Alarm,” April 6, 2026

6. Energy Information Administration -- Historical crude oil prices, 1970-2026

7. CNBC -- “A Timeline of How the Iran War Shook Oil Prices,” April 21, 2026

8. CNBC -- “Oil Drops 20% from 2026 Peak on Optimism Over U.S.-Iran Ceasefire Talks,” May 29, 2026

9. Dallas Federal Reserve -- “What the Closure of the Strait of Hormuz Means for the Global Economy,” March 20, 2026

10. Capital Economics -- Oil price inflation pass-through estimates, 2026

11. NOAA Climate Prediction Center -- ENSO Diagnostic Discussion, May 2026

12. Fortune -- “A Rare Super El Nino Is Looking More Likely,” May 31, 2026

13. CNBC -- “From War to Weather: A Super El Nino Event Poses Fresh Risks to Global Food Costs,” April 9, 2026

14. Fortune -- “Tariffs, War, and Now a Historic Drought,” April 21, 2026

15. USDA -- Food Price Outlook, March 2026

16. National Drought Mitigation Center -- Drought Monitor, May 19, 2026

17. Federal Reserve -- FOMC Statement, March 18, 2026; FOMC Minutes, April 29, 2026

18. J.P. Morgan Global Research -- Fed Rate Outlook, 2026

19. Bank of America -- Rate Cut Forecast Revision, 2026

20. Cambridge Currencies -- USD Forecast 2026

21. Morgan Stanley Investment Management -- “2026 Commodity Outlook”

22. World Gold Council -- “Why Gold in 2026”

23. Schroders -- Historical gold returns during stagflation

24. NYU Stern (Damodaran) -- Historical Returns on Stocks, Bonds, and Bills

25. S&P Dow Jones Indices -- S&P GSCI historical returns

26. USDA -- Farmland price data, 1970-1980

27. Wharton Real Estate -- Inflation and Real Estate Investments

28. Yahoo Finance -- All current market data as of June 2, 2026

29. IndexBox -- “Inflation’s Second Wave: Are We Reliving the 1970s?,” 2026

30. Al Jazeera -- “How does the current global oil crisis compare with the 1973 oil embargo?,” March 24, 2026

31. SCMP -- “How the Hormuz attacks stoke oil-shock fears,” 2026

32. PIIE -- “The Risk of Higher US Inflation in 2026”

33. Nouriel Roubini / CNBC, Benzinga, ETF.com -- Stagflation forecasts, 2024-2026

34. Mohamed El-Erian / Fortune -- “Trump’s question mark moment,” July 15, 2025

35. Jim Bianco / Advisor Perspectives -- “Shootout at the Inflation Corral,” May 18, 2026

36. Jim Bianco / CNBC -- “Inflation shock, not recession scare,” March 23, 2026

37. Lacy Hunt / AgeWage -- “A Fed-Driven Liquidity Event and Oil Shock,” May 11, 2026

38. Cato Institute -- Summers chart critique, 2023

39. ECB -- “The Quiet Erosion of Central Bank Independence,” May 7, 2026

40. Wikipedia -- 2026 Strait of Hormuz crisis; 1973 oil crisis; 1979 oil crisis

DISCLAIMER

This article is published by John Rothe, CMT, principal of ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The opinions expressed in this newsletter are for informational and educational purposes only and do not constitute investment advice, a recommendation to buy or sell any security, or an offer to provide investment advisory services. All investments involve risk, including the possible loss of principal.

Any references to past performance, market data, or historical patterns are not indicative of future results. Forward-looking statements reflect the author’s current analysis and are subject to change without notice.

ARTAIS Capital Management, its principal, and/or its clients may hold positions in securities or asset classes discussed in this publication.

For personalized investment advice, please consult a qualified financial professional who can assess your individual circumstances.

NATURE OF THIS PUBLICATION: This screen represents the complete output of a systematic, rules-based quantitative methodology. It is published for informational and educational purposes only. It is NOT a model portfolio, NOT a recommended holdings list, and NOT personalized investment advice.

CONFLICTS OF INTEREST: ARTAIS Capital Management, its principal, and/or its clients may hold, buy, or sell any security listed in this publication at any time, without notice, and without regard to the publication schedule. Some securities appearing on this screen may also appear in ARTAIS client portfolios. Client portfolio decisions are made independently based on each client’s investment objectives, risk tolerance, time horizon, tax situation, and overall portfolio context. The appearance of a security on this screen does not mean it is held in any specific client account, nor does it mean it is suitable for any particular investor.

SUBSCRIBERS VS. CLIENTS: Paid subscribers receive this research for informational and educational purposes. ARTAIS clients receive personalized portfolio management under a written investment advisory agreement. This publication is not a substitute for individualized investment advice. If you are not an ARTAIS client and wish to receive personalized advice, please consult a qualified financial professional who can assess your individual circumstances.

PERFORMANCE: No performance data for this screen is published, calculated, or implied. Past inclusion of a security on this screen is not indicative of future results. All investments involve risk, including the possible loss of principal.

NO OBLIGATION TO UPDATE: Securities may be added to or removed from this screen at any time based on the methodology’s criteria. ARTAIS has no obligation to notify subscribers of changes between scheduled publications.

LARGE-CAP FOCUS: This screen evaluates securities with market capitalizations generally above $8 billion. This does not imply that large-cap securities are less risky or more suitable than other investments.

Do not buy or sell any security solely based on its appearance on or removal from this screen.

© 2026 ARTAIS Capital Management, LLC. All rights reserved.

It is a momentum-based strategy that screens for stocks that meet long, intermediate, and short-term momentum and trend screens.

This weekly report will highlight macro and sector rotations and the stocks within the ARTAIS universe that meet this screening process.

As a CMT charterholder and someone who has been managing money professionally for the past 30 years, I will also be highlighting charts of interest that help explain what I am seeing in the markets, including a PDF chart pack with my notes on the stocks that pass my screening process (which I will refer to as the actionable list).

In This Issue

• What the current market rotation says about the health of the market

• Notable “big picture” charts

• Why NVDA will play an important part in whether we get a summer rally in the stock market

• The ARTAIS Universe and which stocks are passing my screening process

• Full chart pack for this week, covering my opinion on the stocks that pass the screening process.

Macro Rotation

Over the past week, the broader market has reversed and started to see improvement in momentum. (If you are unfamiliar with Relative Rotation Graphs, aka RRG charts, here is a brief primer.)

Value took the lead, but growth names are quickly catching up. Only the dollar (DXY) is showing weakness.

Notable Charts

NVDA:

NVIDIA has successfully retested support. This is what you want to see if you are bullish on this market.

For the past few weeks, as the S&P 500 index rose higher, NVDA got weaker and weaker. A retest of support is an indication that this is where the market sees value.

This is an important retest, as NVIDIA plays a very important part in index returns.

Currently, the technology sector makes up nearly 40% of the S&P 500 index. In other words, tech has a huge “vote” on whether the market goes up or down.

Source: S&P Global

In fact, the top 10 names in the S&P 500 index are tech or tech-related names:

Mutual funds and ETFs also hold a very large amount of NVDA shares:

Source: Koyfin

As you can see, NVDA plays a very important part not just in the index, but in the portfolio performance of most investors as well.

As a side note, the Energy sector is up nearly 30% year to date, which makes sense given the rise in oil prices amid Middle East tensions.

However, the S&P 500 index only has a 3.1% allocation to the Energy sector. Energy stocks have almost no impact on the direction of the index.

Market Health

Read more

The conversation is still dominated by semiconductors — by NVIDIA earnings calls, AMD product launches, and who has the fastest chip.

But the money is telling a different story. And the numbers behind it are large enough to change how you think about positioning in this market.

For example: A company that makes cooling systems for data centers has outperformed NVIDIA by a ratio of 4 to 1 over the past six months.

Vertiv Holdings returned 94% vs NVIDIA’s 14.89% year to date (as of 5/28/26). Is the market starting to refocus its AI trade on infrastructure over tech?

Don’t Ignore the Buildout

The five largest hyperscalers — Amazon, Alphabet, Microsoft, Meta, and Oracle — are guiding toward a combined $635 billion to $690 billion in capital expenditure for 2026.

Amazon alone is projecting $200 billion. Alphabet is guiding $175 billion to $185 billion. Meta targets $115 billion to $135 billion. Microsoft is tracking toward $120 billion or more. Oracle is targeting $50 billion.

These are not speculative projections. These are company-issued guidance numbers from earnings calls.

Goldman Sachs estimates AI-focused companies may invest more than $500 billion in infrastructure in 2026 alone. Since that estimate was published, the number has only grown.

The acceleration is staggering:

• 2024: ~$250 billion in combined hyperscaler capex

• 2025: ~$400 billion — the largest single-year step-up in corporate history

• 2026: $635–$690 billion guided — another 60%+ increase

Here is what most semiconductor investors are not thinking about: only about 25% of that spending goes to chips. The other 75% goes to the physical infrastructure — data centers, power systems, cooling equipment, networking hardware, and land.

The GPU is the brain. The data center is the body. And the body costs far more to build.

Source: Goldman Sachs, “Why AI Companies May Invest More than $500 Billion in 2026,” January 2026; Futurum Group, “AI Capex 2026: The $690B Infrastructure Sprint”; Company earnings guidance, Q4 2025 and Q1 2026 earnings calls.

The Stocks Nobody's Talking About

Read more

It is a momentum-based strategy that screens for stocks that meet long, intermediate, and short-term momentum and trend screens.

This weekly report will highlight macro and sector rotations and the stocks within the ARTAIS universe that meet this screening process.

As a CMT charterholder and someone who has been managing money professionally for the past 30 years, I will also be highlighting charts of interest that help explain what I am seeing in the markets, including a PDF chart pack with my notes on the stocks that pass my screening process (which I will refer to as the actionable list).

In This Issue

• What the current market rotation says about the health of the market

• Notable “big picture” charts

• The ARTAIS Universe and which stocks are passing my screening process

• Full chart pack for this week, covering my opinion on the stocks that pass the screening process.

Macro Rotation

Read more

This morning, the University of Michigan released its most recent survey on how the consumer is feeling. And it was bad. Really bad.

The Michigan Consumer Sentiment Index fell for the third month in a row. Considering the rising costs of pretty much everything nowadays, this isn’t unexpected.

What is unexpected is that the data is suggesting consumers are feeling worse now than they were during the period of high inflation and the aggressive rate policy of Fed Chair Paul Volcker.

In March of 1980, inflation (as measured by the CPI) peaked at 14.8%. Interest rates continued to climb, with the Fed’s target rate aproaching 20%.

For perspective, the latest CPI reading shows prices rose 3.8% annually. And the current Fed target rate is at 3.50% - 3.75%.

By any measure, today's economy is in a far better position than 1980's. Which is what makes the sentiment reading so strange.

Subscribe now

So here is where it gets interesting…

Consumers today say they feel worse than they did when mortgage rates were 18%, gas lines wrapped around city blocks, and the Fed was hiking into a recession on purpose.

That should be alarming.

The historical record says it is not — and the reason has nothing to do with sentiment itself. It has to do with what the market consistently does in the 12 to 18 months after readings like this one.

The hard part of being a contrarian is not believing the data. It is being willing to act on it while everyone you know thinks you have lost your mind.

In This Issue:

• What happened to the S&P 500 in 1980 — the full move, not just the headline number.

• The two other times since 1978 when sentiment dropped this low, and the forward return from each.

• The sectors that led the recovery after the Fed raised rates to nearly 20%.

• Why every previous low-sentiment episode looked different at the time — and what they all had in common 12 months later.

What Happened In 1980?

Leading up to 1980, inflation was relentless. Eventually, the CPI peaked in March of 1980.

Mortgage costs, energy, and food led inflation higher during this time.

What Did The Markets Do in 1980?

Surprisingly, the markets performed quite well after such an extreme reading.

In 1980, the S&P 500 rose approximately 24% from May to December, finishing the year up 31%.

Industries that performed well during 1980 include healthcare and energy:

What About Other Low Sentiment Years?

While consumer sentiment readings during the 2008-09 Financial Crisis were not as low as they are now, the S&P 500 also showed positive performance over the following 12 months from November 2008’s sentiment low. (Note: the S&P 500 initially continued to drop until March 2009.)

In 2022, consumer sentiment hit its lowest level on record up to that point (until April 2026 took out that low)

Like in 1980 and 2009, stocks rose over the next 12 months.

In Conclusion:

Poor consumer sentiment sounds scary, since the US is a consumer-based economy.

As the data shows, poor sentiment doesn't necessarily mean it's time to get out of the market. Data is often already priced into the market by the time it's released.

BUT - these are very few data points. Keep an eye on the charts, as causes for low consumer sentiment are often different from one episode to the next. (My theory on today’s data vs 1980 is that social media plus the 24-hour news cycle is making consumers more worried than in the past.)

Next week, I will be starting a new report that includes my screening process and the stocks that pass it.

Have a great and safe Memorial Day weekend!

John Rothe

5/22/26

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

From that pre-screened universe, the strategy screens for changes in medium and short-term momentum. A reversal from negative to positive momentum generates the buy “signal” - thus allowing us to focus on “buying low and selling high.”

ARTAIS Buy Signals

Currently, the number of stocks that are showing a buy signal is deteriorating. In the past two weeks, I have seen the number drop while the S&P 500 continues to rise.

Within our ARTAIS universe, only 4% of stocks are on a buy signal.

The 4% is skewed towards tech-related names:

This trend in deterioration is confirmed by the weakening breadth of the S&P 500.

Bearish Divergence

Currently, the S&P 500 is showing a bearish divergence between price and the number of stocks above their respective 50-day and 200-day moving averages.

This trend is not what you would expect to see in a healthy, rising market.

Typically, I would expect to see more and more stocks rising above their 50 and 200-day moving averages as the broader market strengthens. When the opposite occurs, as it is now, it can become the canary in the coal mine for the market.

Rotation Is Indicating Continued Weakness

Looking at the rotation in the market using a Relative Rotation Graph (RRG), the broader market continues to rotate towards weakness:

Only Healthcare, Consumer Staples, and Energy sectors are showing improvement (note the weakness in Tech, being led by Semiconductors):

Where Is The Opportunity?

Right now, I am watching Healthcare and Consumer Staples. These are typical sectors that outperform the broader market during times of distress.

However, the intermediate trend for most of these names is still negative.

For example: Johnson and Johnson, a Healthcare staple, is trading below the Cloud model, which I use as a filter to distinguish between intermediate uptrends and downtrends:

Johnson & Johnson (JNJ) is trading below the Cloud Model, which I use as a filter between intermediate uptrends and downtrends.

If more and more names in these sectors begin to meet the criteria for a buy signal, it is an indication that the relationship favoring growth over safety has changed and may become a longer-term trend.

Just A Normal Summer? (By Historical Standards)

However, as of now, this looks like a market rotation that I would expect to see during the summer leading up to a midterm election.

Source: Capital Group

After the 18% rally we have seen in the S&P 500 since the end of March, a pullback towards the 7000 level doesn’t seem unreasonable to me (a 6% pullback from the recent high).

While oil, inflation, and rising interest rates take over the headlines, I don’t view the current market as broken (this can change if Fed policy drastically changes under the leadership of new Fed Chair Kevin Warsh), but it is weakening beneath the surface.

A 6% pullback would be healthy - not alarming - and is consistent with what we typically see during a mid-term election year.

I would rather see the market reset and rebuild breadth than continue to grind higher on the back of a handful of mega-cap names.

John Rothe, CMT

5/20/2026

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

The inflation numbers that came out yesterday and today should have your full attention.

Consumer prices rose 3.8% over the past year — nearly double the Fed’s 2% target.

Producer prices, which measure what businesses pay before those costs reach you, jumped 6.0% year-over-year, the largest increase since December 2022.

This is the biggest monthly PPI gain since March 2022.

I want to walk through what’s actually happening, why it matters for your portfolio, and where I see both risk and opportunity from here.

What The Latest Inflation Numbers Actually Mean

Two reports matter here: the Consumer Price Index (CPI) and the Producer Price Index (PPI).

CPI measures items like what you pay at the store, at the pump, and at the airport. April’s CPI came in at 3.8% year-over-year, up from 3.3% in March. That number is moving in the wrong direction.

PPI measures what businesses pay for raw materials, shipping, and energy. April’s PPI hit 6.0% year-over-year, with a 1.4% jump in a single month.

The PPI number matters because when producers’ costs rise, those costs are passed down to consumers. When PPI is rising faster than CPI, it usually means more inflation is on the way, not less.

Core CPI — which strips out food and energy — still came in at 2.8%. So the underlying trend is still unfavorable, even when the rise in oil prices is excluded.

source: ARTAIS Capital, Bureau of Labor Statistics

What Is Causing Inflation To Rise?

Oil Prices have risen about 75% since the start of the year

1. The Iran war and oil. Since the Strait of Hormuz disruption began on February 28, crude oil prices have risen roughly 45%. Brent crude is around $108, WTI around $102. The Strait carries about 27% of the world’s maritime crude trade. Energy accounted for more than 40% of April’s headline CPI increase.

2. Food costs are climbing. Grocery prices are being pushed higher by energy costs, global supply disruptions, and rising input costs. The IMF forecasts global food prices will rise about 6% in 2026.

The rise in commodity prices (“DBC”) year to date

3. Tariffs. The 10% global import duty under Section 122 is raising costs across supply chains. Most businesses are passing those costs on to consumers.

4. Shelter stays sticky. Rent and housing costs continue their slow climb. Unlike energy, shelter inflation doesn’t spike and crash — it slowly grinds higher and takes years to moderate.

Your Paycheck Isn’t Keeping Up

For about two years, from mid-2023 through early 2026, wages were actually growing faster than inflation. Workers were gaining real purchasing power.

Unfortunately for consumers, that trend has reversed.

Real average hourly earnings (your wages after adjusting for inflation) fell 0.2% over the past year. In April alone, they dropped 0.5%.

Your paycheck might be bigger in nominal dollars, but it buys less than it did a year ago.

source: WSJ

Over the full post-pandemic period since January 2021, real hourly earnings are still down 0.7%. Five years later, workers have less purchasing power than when the pandemic started.

Lower-income households are hit hardest because they spend the highest share of their income on food and energy — the two categories rising fastest.

What This Means For Bonds

A quick explanation for readers not familiar with bonds:

Bonds pay you a fixed amount of interest. When inflation rises, that fixed payment buys less, so investors demand higher yields on new bonds. When yields go up, existing bond prices go down.

For example: if you invest in a 3% CD and rates suddenly go to 5%, nobody wants your 3% CD unless they can buy it at a discount. That’s what’s happening across the bond market right now, and why your bond fund is probably going down as interest rates rise.

What does this mean to the average investor who is allocated to a bond mutual fund?

After COVID, inflation rose aggressively:

As inflation rose and the Fed raised rates to combat it, one of the largest bond fund in the world, the Vanguard Total Bond Market Index (VBMFX), fell approximately 24%:

Rising rates can cause large losses to bond fund investors

What This Means For Stocks From A Historical Perspective

The stock market has been surprisingly resilient, with the S&P 500 up roughly 8% year-to-date despite all these headwinds. But under the surface, the winners and losers are sharply divided:

*as of 5/12/26

To help guide us as investors, taking a look back at previous inflation spikes can provide us with some insights into how markets reacted.

The 1970s oil shock: An energy crisis driven by geopolitical conflict. Value stocks returned about 12% annually while growth stocks managed just 4.1%. Commodities dominated.

The 2022 inflation spike: When CPI hit 9%, the S&P 500 fell 18%, almost entirely from P/E compression. Energy was the standout winner.

Sector Performance During 2022

The parallel to today: We have an energy shock, rising food prices, tariffs, and a Fed leadership transition — all at once. We are seeing similar trends emerge as we have in the past.

The New Fed Chair: Kevin Warsh

Kevin Warsh was confirmed by the Senate and will take over as the new Fed Chair, replacing Jerome Powell.

End forward guidance. Under outgoing Fed Chair Powell, the Fed would essentially tell you what it planned to do.

Warsh wants to stop telegraphing rate decisions. Markets will have to react to actual decisions rather than guided expectations. Expect more volatility around future Fed meetings.

Redefine how inflation is measured. Warsh wants to move toward an inflation “range” rather than a hard 2% target. Again, markets have grown to expect transparency from the Fed. Warsh seems to want to lessen the transparency the Fed has provided to the market.

Use AI as cover for cuts. Warsh has called AI a “significant disinflationary force.” If he believes AI will push prices down over time, he can argue that rate cuts are appropriate even with above-target inflation today.

His first FOMC meeting is June 16-17. The real signal will be how Warsh communicates — or doesn’t.

What I Am Watching

Positive catalysts

Iran ceasefire: Oil could fall 30-40% if the Strait reopens. However, Saudi Aramco's CEO Amin Nasser warned that if the Strait stays blocked beyond mid-June, market normalization could slip into 2027.

As of 5/13/26, the Strait of Hormuz is seeing little movement

Warsh rate cut: If the new Fed chair redefines inflation targets and cuts, equities would rally.

Tariff rollback: Section 122 tariffs are legally limited to 150 days. Could expire as early as July. (U.S. Court of International Trade ruled Section 122 tariffs unlawful in a 2-1 decision on May 7, 2026. The Trump administration appealed on May 8.)

Earnings resilience: S&P 500 up 8.55% YTD despite war, inflation, and tariffs.

Negative catalysts

Ceasefire collapse: Earlier this week, Trump rejected Iran’s latest counteroffer as “garbage”.

According to the International Food Policy Research Institute, …“in 2024, up to 30% of global fertilizer trade passed through the Strait of Hormuz from the Persian Gulf to export markets around the world, as well as an estimated 20% of liquefied natural gas (LNG), a key fertilizer feedstock, and 27% of globally traded oil.”

If the conflict escalates, oil, natural gas, and food costs will go higher.

Inflation acceleration: If May CPI (June 10 release) shows further acceleration, rate cut hopes are dead.

Futures markets are already pricing in 30% chance of a rate hike by the end of the year.

This is a dramatic change from a month ago, when the market was pricing in a 26.9% chance of a rate cut.

Consumer spending cracking: Real wages declining plus savings depletion is the formula for demand destruction.

This could have a real impact on the US economy, as nearly 70% of GDP is from consumer spending:

30-year yield above 5%: If it keeps climbing, we could see P/E compression. This is what we saw in 2022 as the 30-year Treasury yield climbed above 5%.

Investors could suddenly earn a safe, guaranteed return from bonds that beats what many stocks are providing. As a result, money starts leaving stocks and moving into bonds.

That selling pressure forces stock prices down until the "earnings yield" on stocks (the flip side of the P/E ratio) becomes attractive again compared to bonds.

In short, high bond yields make stocks look expensive; therefore, expensive stocks have to get cheaper to re-attract investors.

The Bottom Line

Inflation is running nearly double the Fed’s target, producer prices are rising even faster, and real wages are declining. That’s the reality right now.

This is a moment to review your allocations, not to panic. The investors who did best during the 1970s and 2022 weren’t the ones who moved to cash — they were the ones who shifted toward sectors and strategies that perform in inflationary environments.

Stay systematic. Adapt when the data changes. Don’t let the headlines make your decisions.

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

Since the March 30th low, the S&P 500 index has rallied over 13% to reach a new all-time high. However, it may be time for the market to take a bit of a pause to catch its breath.

Equities are looking a bit extended and are showing signs of exhaustion, at least in the short term.

For example, a bearish divergence is forming in the S&P 500 as the number of stocks above their respective 50 and 200-day moving average is declining while the index continues to rise.

In other words, fewer and fewer stocks are rising as the market rises.

Momentum Is Weakening

The RRG (relative rotation graph) for the broader market is also displaying signs of weakness.

Large, Mid, and Small Cap stocks are all rotating towards the “weakening” quadrant, indicating a loss of upside momentum.

9 of the 11 sectors that make up the S&P 500 are also showing signs of weakness, with only the Energy and Consumer Staples sectors showing improvement:

So is it time to sell everything and head for the hills?

Not necessarily. I think a retest of the previous highs (the 7000 level for the S&P 500), followed by a stagnant summer market, is the more likely scenario.

Don’t Forget About The 4-Year Election Cycle

During midterm election years in the US, stocks tend to consolidate as the November election approaches. Considering the current state of politics in the US, I wouldn’t be surprised if investors take a wait-and-see approach to their portfolios.

For those unfamiliar with the Presidential Cycle, the theory is based on the stock market's historical performance over a 4-year election cycle. Historically, midterm election years (2026) tend to perform the worst, while the pre-election year (2027) tends to perform the best:

The good news for investors: markets have historically rallied in the fourth quarter of midterm years, and the year that follows tends to be even stronger:

In short, this is a moment for patience, not panic. The combination of weakening internals, sector rotation toward defensives, and the historical headwinds of a midterm election year suggests the market may need time to consolidate before its next leg higher.

For now, staying selective and letting the data drive the decisions remains the most sensible way to navigate the months ahead.

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

One morning, Trump signals a diplomatic breakthrough with Iran. The next, he threatens to escalate.

Tariffs are on, then off, then modified. Ceasefire terms are announced, then walked back, then quietly renegotiated.

Washington is running on improvisation. And yet — the stock market has largely stopped reacting.

Are Investors Starting to Look Past Iran?

Bloomberg ran a headline this morning: “Stock Investors Look Past Iran War Despite Shaky Ceasefire.”

On February 28th, the U.S. and Israel launched 900 airstrikes on Iran. The Supreme Leader was killed. The Strait of Hormuz shut down. Oil jumped 55%. The S&P 500 index dropped nearly 8%.

And now? Back to pre-war levels as of yesterday:

The market seems to have stopped caring about Iran.

I spent the past few days pulling together every credible study I could find on how long geopolitical shocks actually move markets.

I wanted a real answer to a simple question: how long does the market actually care?

A research note from RBC stated:

“In 20 major post-Second World War military interventions and hostilities that we evaluated, the S&P 500 fell six percent, on average, from the initial market impact to the trough level.

In 19 of the 20 events, the market took an average of only 28 days to return to where it had been prior to those events.”

Further published institutional research found that:

• On average, Morningstar found that the S&P 500 took 16 days to bottom following past geopolitical shocks.

• LPL Financial studied 26 events over 80 years and found an average of 39 days for the S&P 500 to recover.

• After approximately 40 days, the geopolitical risk premium on equities became statistically indistinguishable from noise, according to the European Central Bank.

The current Iran conflict? 30 trading days from event to recovery. Right in the historical range.

However…

Every study I reviewed makes the same caveat: energy supply disruptions are the exception to the “markets recover quickly” rule.

The reason - energy disruptions have historically been followed by a recession.

James Hamilton at UC San Diego found that 10 of 11 U.S. recessions since 1945 were preceded by oil price spikes.

(Previously, I went into detail about recoveries during a recession here: Five Weeks of Red: What History Says Comes Next)

So on one hand, the market is following the historical post-geopolitical recovery “playbook” almost perfectly.

On the other hand, this conflict involves a sustained disruption to roughly 20% of global oil transit, which is structurally different from every post-WWII geopolitical shock except the 1973 embargo and the 1990 Gulf War.

What Do the Charts Say?

1. Improving momentum

Relative rotation graphs (RRG) are showing increasing momentum and relative strength across numerous areas of the market. Small, mid, and large-cap indices are all improving.

2. The price relationship between oil and the stock market has also changed.

   At the start of the conflict, oil prices went up, and stocks went down.

Now, the relationship (correlation) has changed - indicating that investors are not as worried about the impact current oil prices are having on the S&P 500 index:

3. High-Yield Credit spreads are going back down.

High-Yield Credit spreads are the difference between the yield of a riskier asset class (in this case, high-yield bonds) and a safer benchmark, like US bonds.

As the difference, or spread, gets wider, it is an indication that investors are viewing high-yield bonds as riskier than before. If investors are viewing these bonds as riskier, it may be because they are becoming more worried that economic conditions are starting to deteriorate.

Upcoming Catalysts

While the charts show a stock market that is starting to regain its footing, it is a good idea to keep an eye on potential, upcoming, and near-term catalysts (both good and bad).

1. Earnings season is the first test

Q1 earnings growth is expected at +13.2% year-over-year, the strongest expectation going into any earnings season since Q2 2022. Nine of eleven sectors are projected to be positive, led by Information Technology at +45%. (FactSet, April 2026.)

The real test comes in late April, when Microsoft, Alphabet, Meta, Amazon, and Apple report. These five companies are roughly 25% of the S&P 500.

2. The Fed is Trapped

The Federal Open Market Committee (FOMC) is scheduled to hold a two-day meeting on April 28–29, 2026, and is expected to keep rates unchanged.

What will matter is the language the Fed uses. The market is waiting to hear if the Fed revises, or provides additional insight, on how it plans to handle rising inflation, combined with today’s delicate economy.

The March CPI report showed headline inflation at 3.3% year-over-year. The month-over-month increase was 0.9%, the largest since 1967.

Gasoline jumped 21.2% in a single month and accounted for three-quarters of the increase. (Bureau of Labor Statistics, April 10, 2026.)

3.3% headline inflation with oil above $95 is not a backdrop that invites rate cuts. The March FOMC minutes revealed a willingness to consider rate increases, the most hawkish signal since the hiking cycle ended.

The problem with raising interest rates to combat inflation is that it will further weaken the economy.

Already, consumer sentiment is at a record low:

3. April 30th - Will Q1 GDP Show We Are In A Recession?

The advance estimate of first-quarter GDP arrives on April 30, just two days after the FOMC decision. Q4 2025 was revised down to 0.5%. A negative Q1 print would mean two consecutive quarters of near-zero or negative growth.

4. The Iran Ceasefire

The market has priced in a ceasefire. But the ceasefire is fragile.

Oil is roughly 37-40% above pre-war levels. The Strait of Hormuz, which handles about 20% of global oil transit, remains tightly controlled.

If the ceasefire holds and the Strait reopens, oil prices settle, inflation pressure fades, and the Fed gets room to cut. This is what the market is hoping for.

If talks collapse permanently and the naval blockade escalates, we may see oil surge above $120. At that level, the market may need to start pricing in a recession.

5. Private Credit:

This is the one that keeps me up at night. The private credit market is $1.8 trillion in outstanding loans, and it is showing stress that most retail investors have no idea about.

The U.S. private credit default rate has risen to 5.8% (Fitch Ratings), with direct lending defaults projected to reach 8%.

Why worry about private credit?

JPMorgan estimates that 30% of the $1.8 trillion in private credit loans are to software companies. The same companies that are most at risk from AI disruption.

So the $700 billion in AI capital spending that is supposed to be the bull case for tech may actually be the bear case for private credit.

A Goldman Sachs survey found that 63% of institutional fund managers cite private credit as the most likely source of a systemic event.

For now, as I showed above, credit spreads are normalizing, but it is something that I will be keeping a close eye on.

To Sum Up

The market is not ignoring the risks. It is making a bet.

The bet is that the ceasefire holds, the Strait reopens, oil retreats, inflation cools, and the Fed finds room to breathe.

History says geopolitical shocks fade.

But history also says that when a geopolitical shock comes attached to an energy disruption — the kind that hits 20% of global oil supply — the aftermath tends to look less like a recovery and more like the opening chapter of a recession.

I believe the reason investors are leaning towards an optimistic outcome is due to the mid-term elections.

Voters’ main concerns center around rising costs. An extended conflict that puts oil above $120 per barrel would likely result in significantly higher costs.

I’m willing to bet that Trump is facing tremendous pressure from Republican candidates who are up for reelection this Fall.

The market may have found its most unlikely source of stability: a President who needs gas prices to be lower before November.

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

Five Weeks of Declines

The S&P 500 has fallen for five consecutive weeks since late February. This is the longest weekly losing streak since May 2022, when the index fell seven straight weeks during the inflation-driven bear market.

This decline is being driven by the Iran-U.S. conflict, which shut the Strait of Hormuz and pushed Brent crude towards $115 per barrel, injecting a supply shock into an economy that was already showing cracks.

Five weeks of declines in a row may feel ominous. But what does the historical record actually say?

This Has Happened Before: 31 Times Since 1950

Since 1950, the S&P 500 has experienced 31 completed streaks of five or more consecutive down weeks. That works out to roughly once every 2.4 years. The current decline is actually milder than the historical average of 9.5% for these episodes.

So, what happens during the weeks and months after declines like this?

S&P 500: 5+ Consecutive Down Weeks (1951-2022)

Forward Returns from End of Losing Streak

Complete historical data: all 31 episodes of 5+ consecutive down weeks with forward returns. Source: Yahoo Finance (S&P 500 weekly adjusted close). Recession dates per NBER. ARTAIS Capital Management.

One month later, the average return was +2.4%. Markets stabilize quickly; roughly 68% of instances were positive.

Three months later, the average was +4.3%.

One year later, the average return was +10.1%, with 71% of instances positive and a median return of +10.1%.

The range of outcomes, however, is enormous. The best one-year return was +52.2% (April 1997). The worst was -28.9% (November 1973).

The difference between the best and worst case scenarios? Recessions.

The Recession Question Changes Everything

The single most important variable for forward returns after a five-week losing streak is whether the economy tips into recession.

When these streaks occurred outside of recessions (1962, 1987, 1997, 2004, 2011, 2022), the average one-year forward return was +12.3%, with 81% of episodes producing positive returns. The median was +10.1%. These were buying opportunities.

When they coincided with or preceded recessions (1969, 1973, 2000, 2008), the picture darkened. The average one-year return dropped to +7.9%, but that number is misleading.

The data gets inflated by two massive V-shaped recoveries in 1980 (approximately +34.8%) and 1982 (approximately +41.3%), both of which occurred when the Fed had enormous room to cut rates and did so aggressively.

The worst outcomes (November 1973 at -28.9%, July 2008 at -27.5%, June 1969 at -23.6%) all shared something with today: an external shock combined with a late-cycle economy where the Fed had limited flexibility to cut rates.

What Are The Chances The US Falls Into A Recession?

Oil prices matter here.

In 1990-91, Iraq’s invasion of Kuwait sent oil prices up 112%. The S&P fell 19.9% but recovered within four months after the conflict was resolved.

In 1973-75, the Arab oil embargo sent crude up over 300%, the S&P dropped 48.2%, and it took over seven years to recover to previous highs.

The difference? In 1990, the Fed had room to cut, and the price shock was temporary. In 1973, inflation was already running hot, the Fed had limited flexibility to cut rates, and the supply disruption lasted much longer.

Currently, I am seeing elements of both, which is why the recession question is so contested right now.

I have been tracking the major Wall Street recession probability estimates since the Iran conflict began on February 28. The range is wide, and every revision has gone in one direction: up.

The Bull Case: Why This Could Be 1990, Not 1973

Oil

Iran de-escalation or Strait of Hormuz reopening. Every oil-shock recovery in the past 50 years began with supply normalization.

In 1991, oil fell 30% within weeks of the Gulf War ceasefire. Diplomatic channels remain active. If a ceasefire materializes, the oil premium unwinds rapidly, and with it the recession probability estimates.

Economic and Market Data

While the data is mixed (which is exactly what you would expect at this stage of the debate), there are some good signs.

ISM is still in expansion territory. Manufacturing PMI at 52.4 (February) and Services at 56.1 (February) remain solidly in expansion.

Initial claims for unemployment are still anchored at roughly 210,000 per week, historically low and inconsistent with a recession that has already started. This is the single most real-time labor market indicator, and it is not flashing red yet.

Sentiment is also getting washed out. Some of the strongest one-year returns in the historical record (1953 at +36.3%, 1980 at +34.8%, 1982 at +41.3%) came after positioning had become extremely defensive.

The Fed

Today, the Fed has ammunition. Unlike 1973, when the Fed was already deep into a tightening cycle, today’s fed funds rate gives the Fed meaningful room to cut.

In 1990 and 2001, the market bottom arrived when investors believed the Fed’s next move would be a cut.

Currently, the futures market has priced in no action from the Fed at their next meeting, but the odds are increasing for at least one rate cut by the end of the year.

Listen closely for any shifts in language from the Fed, indicating future rate cuts.

The AI Cycle

Plus, the AI investment cycle is not over. Over $700 billion in AI-related capital expenditure has been committed by major tech firms through 2027.

While spending has slowed somewhat, as CEOs hedge against a macro downturn, it has not stopped. If the oil shock resolves, the AI buildout resumes as the dominant growth driver.

The Bear Case: Why This Could Be Worse Than It Looks

Oil

Oil above $100 is a tax on everything. Goldman Sachs estimates that every $10 increase in oil prices shaves approximately 0.1 percentage points off GDP growth.

With Brent up roughly $35 since the conflict began, that is a 0.35% GDP drag before any second-order effects.

Current Traffic — HORMUZ STRAIT; Source: MarineTraffic.Org

The International Monetary Fund estimates that a 30% oil price increase reduces global GDP by up to 0.5 percentage points. We are well past that threshold. Unlike 1990, when the shock lasted four months, the Strait of Hormuz remains at near-zero traffic with no credible timeline for reopening.

Economic Data

Again, the data is mixed. The February payroll numbers showed that the economy created only 181,000 total jobs in all of 2025. February saw a job loss of 92,000, the third time in five months that the economy lost jobs.

The labor market is not falling off a cliff. It is eroding slowly, which is exactly how the early stages of past recessions have looked.

Consumer spending is fading, as the University of Michigan consumer sentiment is at 53.3.

Real consumer spending growth has decelerated. Higher gas prices act as a regressive tax, hitting the bottom 60% of households hardest.

The Fed

The Fed may be trapped due to its dual mandates: maximum employment and stable prices. Meanwhile, Core PCE (inflation) remains above 3%, and rising oil prices are pushing headline inflation higher.

But the labor market is weakening, and growth is slowing. Cutting risks re-igniting inflation. Raising or keeping rates at current levels risks a deeper downturn. There is no clean option.

The same stagflation trap preceded the worst outcomes in 1973-74.

Tariffs are compounding the oil shock. Section 122 surcharges of 10-15% on imports are adding to cost pressures independent of oil.

Unlike oil prices, tariffs do not reverse with a ceasefire. The combination of supply-side inflation from oil and tariffs narrows the Fed’s room to respond with rate cuts.

The Private Credit Issue

Then there is the problem of escalating private credit stress. Apollo and Ares have gated redemptions on several funds after receiving over 11% in quarterly redemption requests. KKR’s Future Standard fund was downgraded to junk by Moody’s.

JPMorgan estimates that 30% of the $1.8 trillion private credit market is lent to software companies, precisely the sector most vulnerable to an AI-related spending pullback.

Private credit barely existed during the last recession. Nobody knows exactly how the stress will impact the economy or the markets.

The Bond Market

The yield curve un-inversion deserves attention. The 2-year/10-year spread un-inverted in late 2025 after the longest inversion in history.

Historically, un-inversion has preceded every recession since 1989, with a median lead time of about five months. We are roughly four months past un-inversion now. That does not guarantee a recession, but it puts the clock in a historically uncomfortable zone.

Where This Leaves Investors

Watch the charts. Charts, in my opinion, are one of the greatest tools to get an insight into how investors are positioning themselves.

Are they buying at key levels, where they can buy strong names on sale? Or has something changed their outlook and they no longer believe that current prices are “a deal” because a recession is right around the corner?

Currently, the S&P 500 has pulled back to some important levels. Keep an eye on how the market reacts at these levels.

History says this five-week decline is likely a buying opportunity with strong 12-month forward returns, if the economy avoids recession.

The bulls can point to unemployment claims data, ISM readings, and the possibility of an Iran resolution.

However, if the economy tips into recession - and the bear case has its own compelling logic: the oil shock severity, payroll deterioration, and private credit stress - then the current decline could be just the opening act of a larger drawdown.

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

With charts like this, I like to look at not just the level, but the catalysts that may cause the dollar to breakout or fail to breakout again.

Adam over at the Kobeissi Letter posted this chart from Goldman Sachs. The chart shows how systematic funds are starting to aggressively sell their global equity positions.

X: KobeissiLetter

Why does this matter? Well, it is a potential signal that money managers are starting to take the viewpoint that the US dollar is about to get stronger.

Fellow Terp and CMT, Finnian Devine then shared this chart with me:

X: Finnian Devine, CMT

What May Cause the Dollar to Rise?

The big question is, what are these money managers worried about?

It’s inflation. It's still here. It’s still sticky.

As inflation continues to be a problem, the chances of further rate cuts from the Fed are starting to fade.

Below is the FedWatch Tool. It shows how the futures market is pricing the chances of future cuts/hikes by the Fed by the end of 2026:

Notice the shift in consensus from just a month ago. The odds of rates staying where they are have jumped from 4.9% to 40%.

The market is now indicating that we may get one or zero rate cuts for the rest of the year.

This will attract foreign capital.

Foreign Capital

The combination of higher US interest rates, a strengthening currency, and deep liquid capital markets creates a powerful pull for global savings. The higher inflow from overseas causes an increase in demand for the dollar. Thus, the dollar rises.

Foreign holdings of US assets exceed $35 trillion, with European investors alone holding approximately $8 trillion in US bonds and equities (Morgan Stanley data).

This capital attraction is self-reinforcing: foreign demand for dollar-denominated assets pushes the dollar higher, which increases returns for foreign investors, which attracts more capital.

The Consumer Benefits from a Strong Dollar

If the dollar does breakout and begin to strengthen, there will be a major benefit to consumers in the form of deflation.

A strong dollar makes imports cheaper, acting as a disinflationary force.

American consumers benefit from lower prices on imported goods such as electronics, automobiles, clothing, and energy.

In addition, most global commodities are priced in US dollars; when the US dollar is weaker, it increases their price for American buyers while making them cheaper for foreign purchasers (boosting demand). This adds to inflation.

Why Would We Not Want a Strong Dollar?

A strong dollar will have a negative impact on exporters. US goods become more expensive abroad, reducing competitiveness.

During the dollar’s 2010-2024 bull cycle (approximately 40% cumulative appreciation), US manufacturers consistently cited currency headwinds as a drag on international sales. The trade deficit widened substantially during this period, reaching record levels.

For example, when the dollar weakens 10%, a $100 American product effectively drops to $90 for a European buyer (assuming EUR/USD appreciation).

This price advantage accumulates across billions of dollars in annual trade flows. US sectors like manufacturing, agriculture, and technology services — sectors with significant export exposure — stand to benefit most directly when the dollar is weak.

Foreign consumers (they get lower prices) and US companies (they sell more overseas because they can underprice foreign competitors) are the clear winners when the dollar is weaker:

● EUR/USD: US goods became 11.8% cheaper for European buyers in 2025 (dollar fell 11.8% vs. the euro)

● USD/MXN: US goods became 13.5% cheaper for Mexican buyers (dollar fell 13.5% vs. the peso)

● GBP/USD: US goods became 7.5% cheaper for British buyers (dollar fell 7.5% vs. the pound)

Looking Back at 2018’s Winners and Losers

While global political events can have a big impact on the market, I did want to look at the areas that did well during the rising dollar event that occurred in 2018.

Healthcare, Utilities, and Real Estate rose along with the dollar during this time, while the rest of the sectors and the S&P 500 declined:

Note: Past performance is not indicative of future results. Source: Koyfin

Every market cycle is different. Keep a close eye on the charts if/when the dollar starts to strengthen to see if similar patterns emerge, indicating we may see a repeat of 2018.

What I’m Watching

In addition to policy changes from the White House and the Fed, the charts tell the real story.

I want to see how the markets react at current levels. Do investors feel that there is value and an opportunity to invest in dollars at current levels?

Or do they feel that policies will be revised to push the dollar lower when/if the dollar begins to break out to the upside?

For now, I am paying close attention to DXY. A meaningful breakout above 100 is a notable move and may force changes to Wall Street’s outlook and US economic policies.

John Rothe, CMT

ARTAIS Capital Management

john.rothe@artaiscapital.com

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

Sources

Morgan Stanley — US Dollar Devaluation Research (2025)

RSM — Market Minute: Weak Dollar Policy (2025-2026)

FactSet — S&P 500 International Revenue Analysis (2025)

Bureau of Economic Analysis — US International Trade 2025

Tax Foundation — Tariff Tracker: 2026 Trump Tariffs & Trade War

Federal Reserve — FOMC Minutes and Dot Plot (December 2025)

Goldman Sachs — Dollar Diversification Research (2025)

TradingEconomics — DXY, Trade Balance, Interest Rate Data

Apollo Academy — S&P 500 Foreign Revenue Data (2025)

S&P Global Market Intelligence — International Revenue Rebounds for S&P 500 Companies, Q1 2025

Goldman Sachs Global Investment Research — Foreign Sales Exposure Analysis and Sector-Neutral Baskets

Visual Capitalist — Visualizing the S&P 500’s Domestic and Foreign Revenues (2024)

Last fall, there was a shift in the market.

Stocks that had been leading the markets higher came to a screeching halt.

Names like Nvidia, Apple, and Google just stopped going up as fears of overvaluation and the impact that AI may have on other sectors of the market changed the narrative from “we are going to get massive growth from AI” to “AI is going to destroy a lot of companies.”

Areas like the software sector got crushed as investors began to worry that AI would be able to easily replicate and replace legacy software.

Names like Salesforce, Adobe, and ServiceNow became collateral damage in the AI disruption narrative.

Value Takes the Lead: Industrials and Materials Surge

Value companies became the new leaders.

The Industrial and Materials sectors took off and saw an impressive rise during this time.

The rotation was textbook. As the RRG chart below shows, the technology sector was rotating into weakness while value and cyclical plays were accelerating toward strength.

Money was leaving one side of the market and flowing into the other.

Note: RRG Chart as of 11/17/2025

There were real catalysts behind this move. The passage of the “One Big Beautiful Bill Act” in early 2026 injected an estimated $137 billion in corporate tax reductions, with the largest benefits flowing to manufacturing and R&D.1

Companies like Caterpillar got re-rated as an “AI-adjacent” infrastructure play because its power generators became essential for the global buildout of AI data centers.

This was not just sentiment — it was fiscal policy lifting the real economy in a way that growth stocks could not capture.

The Iran Catalyst: Why War Is Accelerating the Rotation Back to Tech

On February 28, 2026, U.S. and Israeli military forces launched strikes against Iran, setting off what has become the most significant geopolitical event since the Russian invasion of Ukraine.

The conflict has since expanded across the Middle East, pulling in Israel and disrupting global oil trade routes through the Strait of Hormuz.

The global markets immediately reacted.

Japan’s Nikkei 225 plunged more than 5%. South Korea’s KOSPI suffered its worst single-day decline on record, dropping over 12%. Oil prices spiked to nearly $120 a barrel. The average price of unleaded gasoline hit $3.54 per gallon — a 21% increase from a month earlier and the highest level since mid-2024.

But here is what matters for portfolio positioning: the damage was not distributed equally across the market.

Tech and growth held up. Value and cyclicals did not.

Sector performance since the Iran conflict began (Feb 28, 2026). Source: Yahoo Finance / ARTAIS Capital Management

Why? Three reasons.

First, tech companies have minimal direct exposure to the conflict.

Unlike industrials and materials companies, which face rising input costs from spiking oil prices and supply chain disruptions through the Middle East, a software company’s cost structure is largely unaffected by crude prices.

Microsoft’s Azure margins do not change because oil hit $120. Google’s ad revenue does not decline because shipping lanes through the Strait of Hormuz are closed.

Second, after months of underperforming, tech valuations had corrected enough to look attractive again.

Morningstar noted that tech valuations were “sufficiently attractive to warrant investment,”2 and fund flow data showed sustained inflows into global tech funds even as the broader market sold off.

Third, flight to quality. When geopolitical uncertainty spikes, institutional capital gravitates toward large-cap, high-quality balance sheets.

Mega-cap tech — Apple, Microsoft, Google, Nvidia — fits that description better than any other corner of the market. These are companies with hundreds of billions in cash, minimal debt, and business models that generate free cash flow regardless of what happens in the Persian Gulf.

What Comes Next?

The key question is not whether tech can sustain a rally — the fundamentals and the flows both support it. The question is whether the conflict broadens in a way that overwhelms the flight-to-quality trade entirely and forces a broad de-risking across all sectors.

That scenario remains possible, but it is not what the data is showing today.

Until it does, the evidence points toward a continuation of this rotation back into growth and technology, with mega-cap quality names leading the way.

Staying tactical, watching the RRG signals, and resisting the urge to chase the value trade that the market may already be unwinding is the discipline this environment demands.

Happy trading,

John Rothe, CMT

ARTAIS Capital Management

john.rothe@artaiscapital.com

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

What’s Actually Happening

Let’s dispense with the euphemisms. Markets aren’t “experiencing volatility” — they’re repricing for a world where 20% of global oil supply is offline, and the US economy is shedding jobs.

Those are two things that aren’t supposed to happen at the same time.

The Iran war, now entering its second week, has effectively closed the Strait of Hormuz — the narrow waterway through which a quarter of the world’s seaborne oil passes.

WTI crude has surged to $107 a barrel. Brent briefly topped $119. Qatar declared force majeure on its liquefied natural gas exports after Iranian strikes on the Ras Laffan complex. Saudi Arabia’s Ras Tanura refinery — the largest in the Middle East — shut down as a precaution after drone interception debris caused a fire. Gas at the pump is heading to $4 a gallon, and diesel has doubled in Europe.

This is not a speculative spike driven by fear — it’s a physical supply crisis with cascading second-order effects.

Then came Friday’s jobs report: the economy lost 92,000 jobs when economists expected it to add 55,000.

The word no one in Washington or on Wall Street wants to say out loud is now unavoidable: stagflation.

Healthcare — a historically resilient sector — shed 28,000 positions, though a Kaiser Permanente strike affecting over 30,000 workers in Hawaii and California accounted for much of that decline.

Strip out the strike, and the underlying picture is still soft — but the headline number overstates the structural weakness. The unemployment rate ticked up to 4.4%. The word no one in Washington or on Wall Street wants to say out loud is now unavoidable: stagflation.

The Pain Investors Are Feeling Right Now

What makes this moment particularly difficult is that there’s no obvious playbook.

In a normal correction, you can point to an overvalued market that needs to reset, or a Fed that’s been too tight, or earnings that missed expectations.

Those are problems with identifiable solutions. This is different.

This is a supply-side shock layered on top of a weakening labor market, and it’s happening while the Federal Reserve is paralyzed.

Cut rates, and you pour fuel on energy-driven inflation.

Hold rates, and you watch the job market deteriorate.

The Fed “put” — that implicit backstop that has bailed out investors in every downturn since 2009 — doesn’t work when the problem is bombs and barrels, not balance sheets.

For the investor who built a “diversified” portfolio of US equities, international stocks, and bonds, the math is unforgiving this month.

Equities are down across the board. International markets are getting hit harder by the energy shock. Bonds are rallying modestly, but not enough to offset equity losses.

The only things working are energy stocks, gold at $5,125 an ounce, and cash.

True diversification, it turns out, requires the ability to own none of the above when they’re all going the wrong direction.

And that’s the quiet pain that no allocation chart or Monte Carlo simulation prepares you for: the realization that “staying the course” is indistinguishable from “doing nothing” when the course itself has changed.

The Bull Case — Why This Could Resolve

Before we write the obituary for this bull market, the evidence for resolution deserves honest consideration.

First, geopolitical oil spikes have historically reversed within three to six months as demand destruction, strategic petroleum reserve releases, and diplomatic efforts combine to cap prices.

Second, the VIX is strikingly low for a crisis of this magnitude, suggesting either complacency or that the market sees a resolution ahead.

Third, the S&P 500 has not broken its 200-day moving average. Every correction in this cycle that held that level produced a meaningful bounce.

Fourth, the weak jobs data actually strengthens the case for Fed rate cuts — the March 17–18 FOMC meeting could deliver a dovish pivot that sparks relief.

And fifth, corporate earnings growth remains positive; this is an exogenous shock, not an earnings recession.

The bull case requires things to go right — de-escalation, Hormuz reopening, a cooperative Fed. That’s a lot of “ifs.”

The Bear Case — Why This Could Get Worse

The bear case requires only that the current trajectory continue.

Twenty percent of the global oil supply offline is unprecedented in modern markets.

Even if a ceasefire materializes tomorrow, the infrastructure damage to Saudi and Qatari facilities will take months to repair.

Meanwhile, the consumer spending cliff is approaching fast — $4 gas plus a deteriorating job market is a double squeeze on household budgets that shows up in earnings within one to two quarters.

The technical damage is real and accelerating.

The S&P 500 has broken below its 50-day moving average. The weekly Price Momentum Oscillator is turning down — historically a signal of sustained downtrends, not buyable dips.

Sector breadth is narrowing to just energy, and narrow leadership in a declining market is one of the most reliable bearish signals in technical analysis.

What To Watch

Despite the recent volatility, tech stocks have been holding up better than the rest of the market.

Since last Fall, tech stocks have been underperforming most value sectors within the market. But the tech sector has been trading in a sideways range. Not getting weaker, not getting stronger.

Instead, the sector has been consolidating/absorbing the gains from 2025:

Last year’s big winner was NVIDIA. Currently, the stock is stuck in the same sideways trading pattern.

The extended sideways trading range can lead to a next leg up for AI stocks. I believe the opportunity is too great to ignore, and we may start seeing the shift back into these sectors as traders take profits from the energy sector.

Due to the large weighting of the technology sector within the S&P 500, this can potentially push the S&P 500 higher and out of its trading range.

I am keeping a close eye on sector rotation. Already, the rotation within the market is starting.

The Relative Rotation Graph(RRG) for the sectors within the S&P 500 is already showing a rotation that is favoring tech and communication sectors, while value sectors like materials and industrial are rotating towards weakness:

Conclusion

It’s going to be up to last year’s winners to give direction to this market. If investors believe the overall bull market theme remains intact, then we should start seeing opportunistic investors looking for bargains.

If they don’t step in this week, then Wall Street will need to revisit and reprice their 5 year outlooks, which will cause major disruption to the US markets.

Happy trading,

John Rothe, CMT

ARTAIS Capital Management

john.rothe@artaiscapital.com

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.

“The stock market has predicted nine of the last five recessions.” — Paul Samuelson. But here’s what Samuelson didn’t say: it’s also priced in roughly zero of the last eight U.S. military strikes within six months.

This past weekend, the United States and Israel launched joint military strikes against Iran, killing Supreme Leader Ayatollah Ali Khamenei and multiple senior officials. It was the most significant direct U.S. military action against a sovereign nation since the Iraq War in 2003.

Markets reacted on cue: S&P 500 futures fell more than 1%. Brent crude surged over 9% toward $79 per barrel. Gold jumped nearly 3%. CNBC ran the banner: “MARKETS IN TURMOIL.”

If your instinct is to sell first and ask questions later, I understand it. But before you let headlines dictate your portfolio, let’s look at what actually happens to the stockmarket and specific sectors in the days, weeks, and months after the U.S. goes to war.

The data may surprise you.

What History Actually Shows: The Counterintuitive Evidence

Since World War II, the United States has launched military strikes, interventions, or full-scale operations more than a dozen times. The pattern in markets is remarkably consistent — and remarkably counterintuitive.

The First Week: Knee-Jerk Selling, Fast Recovery

The average first-day S&P 500 decline following a major geopolitical military event is -1.1%. That’s it. One bad day. The average total drawdown from peak to trough is -4.7%, and it takes an average of just 19 trading days to find the bottom.

The average recovery from the bottom back to prior highs? 42 trading days — roughly two months.

Here’s what specific conflicts looked like:

Note: Historical returns are provided for educational context only. Past performance is not indicative of future results. Every conflict is unique, and there is no guarantee that future market reactions will mirror historical patterns. All investments involve risk, including the possible loss of principal.

Notice the pattern: The biggest drawdowns occurred when military events coincided with existing economic weakness (the 1990 Kuwait invasion happened during a recession; 9/11 happened during the dot-com bust). When the economy was healthy, markets shrugged off the missiles within days.

One Month Out: Essentially Flat

At the one-month mark after military events, the S&P 500 has averaged a return of approximately -0.1% when no recession is present. During the 2003 Iraq War, the DJIA rose 8.4% in the month following the invasion. After the 2020 Soleimani strike, markets recovered their losses within approximately 72 hours.

The critical variable is not the conflict itself — it’s whether the conflict triggers or coincides with an economic recession. When it doesn’t, markets barely notice.

Six Months Out: The Real Story Emerges

At six months, the picture has historically turned decisively positive. The S&P 500 has averaged approximately +6.3% in the six months following military conflicts when the economy avoids recession. During recessionary periods, the six-month return averaged -6.1%.

After the 1991 Gulf War air campaign, the S&P 500 was up roughly 15% six months later. After the 2003 Iraq invasion, stocks were well on their way to a 26.7% annual gain. After the 2017 Syria strikes, the S&P 500 barely paused before continuing its bull market run.

Note: Historical returns are provided for educational context only. Past performance is not indicative of future results. Every conflict is unique, and there is no guarantee that future market reactions will mirror historical patterns. All investments involve risk, including the possible loss of principal.

The historical takeaway: when the underlying economy has been sound, military conflicts have created buying opportunities, not lasting damage. That said, every conflict is unique, and past patterns provide context — not guarantees.

The Drawdown Playbook: How Deep Have Markets Fallen?

The depth of the initial selloff depends heavily on the scale and perceived risk of the conflict. Limited strikes have produced minimal drawdowns. Major invasions or conflicts that threaten global economic infrastructure have caused deeper pullbacks.

The average drawdown across major geopolitical events since World War II is approximately -4.7%. Pearl Harbor and the Iraqi invasion of Kuwait stand out as outliers because they represented existential threats to U.S. security or global oil supply. Limited strikes like Syria in 2017 or the Soleimani operation barely registered.

The current Iran situation falls somewhere in between: it’s more significant than a limited strike (the killing of a head of state is unprecedented in modern U.S. military action), but the economic risk depends entirely on what happens to the Strait of Hormuz.

Winners and Losers: The Sector Rotation Playbook

Military conflicts have historically triggered predictable rotations across sectors. Some tend to win immediately.

Others tend to suffer.

The magnitude depends on the conflict’s impact on energy markets and economic growth expectations.

Historical Winners

Energy (+8-10% in the first 48 hours)

Energy is the most direct beneficiary of Middle East conflicts. Brent crude surged over 9% toward $79; WTI climbed over 9% to roughly $73. If the Strait of Hormuz sees sustained disruption, J.P. Morgan estimates oil could test $100 or higher. Energy equities (XLE) have historically outperformed during Middle East conflicts because the same supply fears that pressure the broader economy tend to directly boost energy sector revenues.

Defense & Aerospace (+2-3% initial, with potential longer tailwind)

Lockheed Martin, Northrop Grumman, and RTX have been standout performers in 2025-2026. The iShares U.S. Aerospace & Defense ETF (ITA) is up approximately 14% year-to-date, with a roughly 35% surge since the first strikes on Iranian nuclear facilities last June. Defense stocks often spike at the onset of a conflict — and unlike some geopolitical trades, this sector can benefit from a longer-term tailwind because military spending commitments tend to extend for years.

Gold & Precious Metals (+2-3%)

Gold jumped approximately 2.9% to roughly $5,391 per ounce. When bonds can’t serve as the safe haven (as in this current inflationary scenario), gold has historically filled the void. Gold miners (GDX) tend to amplify gold’s moves with additional leverage.

Utilities & Consumer Staples (Relative Defensive Stability)

Traditional defensive sectors don’t typically surge, but they have historically provided relative stability. Utilities and consumer staples tend to outperform on a relative basis during periods of elevated geopolitical uncertainty because their earnings are generally less sensitive to economic cycles and energy costs.

Historical Losers

Airlines & Travel (-5-7% or more)

Airlines have historically been the most immediate casualty of military conflicts. In the current situation, over 50% of global flights to the Middle East were cancelled within hours of the strikes. Qantas plunged as much as 10% before recovering to close down approximately 6%. ANA and Japan Airlines dropped more than 5%. IAG (British Airways parent) fell nearly 7%. Airlines face a triple threat: surging jet fuel costs, route disruptions, and reduced consumer travel demand.

Technology (-2% or more)

Tech stocks led the futures selloff with Nasdaq futures down approximately 2%. High-growth technology companies tend to be rate-sensitive, and if oil-driven inflation pushes yields higher (which is already happening), their valuations may compress. Additionally, any conflict that threatens global supply chains raises concerns for semiconductor and hardware companies with Asian manufacturing exposure.

Consumer Discretionary

Higher energy prices function as a tax on consumers. When gasoline prices rise, spending on discretionary items tends to fall. Restaurants, retailers, and auto manufacturers have historically underperformed when oil spikes.

Financials (Mixed, Trending Negative Short-Term)

Banks face a complicated picture. Higher interest rates could boost net interest margins, but increased credit risk, potential loan defaults in energy-sensitive regions, and general risk-off sentiment have historically pushed financials lower in the first weeks of a conflict.

The Critical Variable: Does This Cause a Recession?

Here’s the single most important question for your portfolio right now — and it’s not “will we go to war?” We’re already there.

The question is: Does this conflict tip the U.S. economy into recession?

The historical data has been unambiguous on this point:

Note: Historical returns are provided for educational context only. Past performance is not indicative of future results. Every conflict is unique, and there is no guarantee that future market reactions will mirror historical patterns. All investments involve risk, including the possible loss of principal.

The spread between these two historical outcomes is enormous: +9.2% versus -11.5% at the 12-month mark. That’s a 20-percentage-point gap driven entirely by whether the economy held up.

The Recession Risk Factors to Watch

• Oil above $100/barrel: Historically, this represents a potential stagflation threshold. Every $10 increase in oil has tended to shave roughly 0.1-0.2% off GDP growth and add 0.2-0.3% to inflation.

• Strait of Hormuz closure: Would represent a genuine economic shock. 20% of the global oil supply transits this chokepoint daily. A sustained closure could push oil to $120-130, according to J.P. Morgan estimates.

• Conflict duration: Limited strikes (days to weeks) have historically had minimal economic impact. Prolonged military campaigns (months) have tended to affect consumer confidence and business investment.

• Federal Reserve response: If oil-driven inflation forces the Fed to maintain or raise rates during a growth slowdown, the recession probability could increase significantly.

The Skeptic’s Corner: Why This Time Could Be Different

Before concluding that history guarantees a market recovery, consider the counterarguments:

1. Iran is not Iraq, Syria, or Libya.

Iran is the world’s sixth-largest oil producer and controls access to the Strait of Hormuz. Previous U.S. military actions targeted countries with limited ability to disrupt global energy markets. Iran has that ability.

2. The killing of a head of state is unprecedented.

The Soleimani strike killed a military commander. These strikes killed the Supreme Leader. The geopolitical escalation risk is categorically different, and the path to de-escalation is far less clear.

3. Markets were already fragile.

The S&P 500 closed at approximately 5,955 on February 27, already dealing with hot inflation data and fading AI optimism. This is not a market striking from all-time highs with maximum confidence.

The ARTAIS Perspective: What We’re Watching

At ARTAIS Capital, we don’t predict whether conflicts will escalate or resolve. We aim to respond to what the data and our indicators tell us in real time.

Here’s my framework for navigating this environment:

1. Monitor the Technical Signals

Our rules-based approach using the Ichimoku Cloud, PMO, and momentum indicators is designed to tell us whether the broader trend remains intact or is breaking down. If the S&P 500 breaks below key cloud support levels, our process may reduce equity exposure — not because of headlines, but because the price action warrants it.

2. Watch Oil, Not Just Stocks

The Strait of Hormuz is the real risk variable. If tanker traffic resumes and oil pulls back below $75, the conflict’s economic impact may be contained. If oil sustains above $85-90, the recession probability rises materially.

3. Sector Positioning Matters

The divergence between winning and losing sectors is unusually wide. Energy, defense, and gold may offer tactical opportunities. Airlines, tech, and consumer discretionary face headwinds. A tactical approach that can shift sector exposure may have a meaningful advantage over a static allocation in this environment.

4. Don’t Sell Into Panic

The historical evidence has been overwhelming: selling on the first day of a military conflict has been the wrong trade in nearly every instance over the past 80 years. The average historical recovery time is 42 trading days. Panic selling has historically locked in losses at exactly the wrong moment.

What Comes Next

This week, markets will attempt to price in the duration and scope of U.S. military operations in Iran. The Monday open will set the initial tone, but the real story will unfold over weeks and months.

I’ll be watching the technical levels, the oil markets, and the bond market’s unusual behavior for signals about what comes next. If history is any guide, the buying opportunity may be right in front of us — but only if the economy holds.

John Rothe, CMT

Founder, Portfolio Manager

ARTAIS Capital Management

3/2/26

Disclaimer

ARTAIS Capital Management, LLC (“ARTAIS Capital”) is a registered investment advisor offering advisory services in registered states and in other jurisdictions where exempt. Registration does not imply a certain level of skill or training.

The information on this site is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. This information should not be relied upon as the sole factor in an investment making decision.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any recommendations made will be profitable or equal any performance noted on this site.

The information on this site is provided “AS IS” and without warranties of any kind, either express or implied. To the fullest extent permissible pursuant to applicable laws, ARTAIS Capital Management, LLC disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement, and suitability for a particular purpose.