War Impacts on Oil, Inflation & Interest Rates
Weekly Investment Update | By Brian Schreiner
The new war in the Middle East will have significant economic impacts, but we must acknowledge—and elevate to the highest priority—the devastation being felt by innocent families.
Last week, stocks were down while bonds, commodities and gold moved higher.
WAR IMPACTS ON OIL, INFLATION & INTEREST RATES - Economically, Americans will face higher prices and higher interest rates driven by a supply shock in the oil market. Oil prices are already up about 16% this year and inflation remains stubbornly high. This creates a major headache for the Federal Reserve, which had been under pressure to lower interest rates this year. Because inflation is currently tracking at over 3%, well above the Fed's 2% target, the argument for cutting rates is essentially vanishing. If oil prices continue to climb, the central bank might even be forced to consider raising rates further to keep the economy from overheating. While a full-blown global energy crisis may be avoided, the threat to critical shipping lanes like the Strait of Hormuz means that a risk premium is now being baked into the price. This is particularly difficult for the government to manage because the Federal Reserve's tools are designed to control how much people spend (demand), but they have very little power over the global cost of raw materials like crude oil (supply). For the average person, this means that the transition to a more affordable economy is likely on hold as long as the geopolitical situation in the Middle East remains unstable.
USS Abraham Lincoln
BULLISH VIEW FROM MORGAN STANLEY CHIEF US EQUITY STRATEGIST - Mike Wilson is one of my favorite Wall Street analysts because he’s never afraid to share his outlook for the stock market. Most analysts hedge their bets and rarely articulate a strong view of where the stock market is headed. For many years, in every interview, Wilson has offered a clear picture of his team’s view of future market conditions. And he’s always willing to acknowledge his wrong calls and missed trades. Instead of a meaningless word salad, Willson always gives a clear prediction. In an interview with Bloomberg on Wednesday, February 18 he said, “Liberation Day marked the end of a rolling recession. We’re not only in a new earnings cycle, we’re in a new economic cycle and that’s why we’re seeing the broadening-out now. There have been many parts of the economy that have been sort of mired in a recession for the last three years or so and they’re just starting to emerge.” Wilson re-affirmed Morgan Stanley’s call 2026 saying, “We stand by our 7,800 price target for the S&P 500 by the end of this year.” That’s about a 13% increase from the current level. (Bloomberg)
JAMIE DIMON WARNS MARKETS RESEMBLE PRE-CRISIS ERA - JPMorgan Chase (JPM) CEO Jamie Dimon said Monday that the financial world looks a lot like the heyday in the years ahead of the global financial crisis. “Unfortunately, we did see this in '05, '06, '07, almost the same thing," Dimon said at the firm's annual investor day in New York on Monday. "The rising tide lifting all boats, everyone was making a lot of money, people leveraging to the hilt. The sky was the limit…I see a couple of people doing some dumb things.” (Yahoo! Finance)
IBM STOCK DOWN 13%, WORST ONE DAY LOSS IN 25 YEARS - IBM stock had its worst day in 25 years over AI disruption fears, plummeting 13% last Monday. The selloff began after Anthropic announced that its Claude Code tool could automate the modernization of COBOL, a decades-old programming language that underpins most ATM transactions and in-person credit card swipes. Anthropic said modernizing this code—a task that has traditionally fallen in IBM’s wheelhouse—could be done “in quarters instead of years,” potentially disrupting a major revenue stream for IBM. (MSN)
U.S. EMPLOYMENT PROBABLY FELL IN 2025 - The U.S. U.S. employment probably fell in 2025, underscoring how the labor market weakened during the first year of Donald Trump’s second term, according to new projections by a top Federal Reserve official. Fed governor Chris Waller said at a conference in Washington on Monday that official data from the Bureau of Labor Statistics — which show job creation fell to an average of 15,000 new positions a month last year — contained an “upward bias”. Waller said, accounting from the likely further revision in those figures next year, it seemed “clear that payroll employment in the United States probably fell in 2025.” Declines in payrolls have rarely occurred outside of recessions, according to data stretching back to 1939. Waller said in the speech it was “only the third year that has happened since 1945.” (Financial Times)
HOUSING MARKET ON ICE: SALES AND RENTS FALLING - Home buyer demand is down 42% and the number of people moving is down 50% from 2021 levels. These numbers are at or near all-time lows. Demand for buying and renting falling at the same time means that aggregate demand for U.S. housing is falling. Nick Gerli of Reventure Consulting went in-depth on Adam Taggart discussing the underlying forces driving these trends. (Thoughtful Money)
THE CONSEQUENCES OF AI ABUNDANCE - A thought experiment from Citrini Research has been making the rounds addressing the idea that, if AI is as revolutionary as many believe, its success could cripple the economy by making human intelligence—our most valuable and scarce resource—cheap and abundant. This shift creates "Ghost GDP," where corporate profits and productivity soar on paper, but the real economy withers because machines don't buy groceries, pay rent, or go on vacation. The idea goes something like this: As AI agents replace high-earning white-collar workers, the consumer spending that drives 70% of the economy vanishes, triggering a feedback loop where struggling companies must use even more AI to cut costs, leading to further layoffs and a hollowing out of the middle class. This "success" eventually becomes a systemic crisis as the foundations of finance crumble. Since our financial system is built on the assumption that humans will always have rising incomes, the $13 trillion mortgage market faces a meltdown—not because of bad loans, but because "prime" borrowers simply no longer have jobs. Simultaneously, the government’s revenue base, which is essentially a tax on human labor, craters just as the need for social safety nets explodes. The warning for today is that while we are correctly betting on AI's power, we may be overlooking the "bearish" reality: an economy designed for human workers cannot easily survive the end of the human intelligence premium. I believe history suggests that this won’t happen and that instead humans will adjust to the new technology and find more productive work, somehow, but it’s an interesting—and scary—thought experiment that I think it’s important to consider and understand. (Citrini Research)
NYSE PUSHING FOR TOKENIZED STOCK TRADING - Speaking at the World Liberty Forum in Palm Beach, Florida, NYSE President Lynn Martin explained that the NYSE has already developed tokenization technology and is actively working with regulators to determine how tokenized assets can operate within the existing financial framework. The NYSE is now preparing a blockchain-powered platform that could enable 24/7 trading of tokenized stocks and ETFs later this year, pending regulatory approval — a significant shift from its traditional limited trading hours. While no official launch date has been provided, regulators appear open to innovation, with CFTC Chairman Michael Selig stating, “We stand ready to build with the incumbents, new entrants, old technologies, new technologies.” The move signals that tokenization is increasingly being viewed not as a crypto-native experiment, but as a structural evolution within mainstream financial markets. (CoinDesk)
CRYPTO TAX CHANGE FOR 2025 - Starting in the 2025 tax year, the IRS is requiring custodial crypto brokers like Coinbase to issue a new Form 1099-DA, which reports gross proceeds from digital asset sales - similar to how a 1099-B works for stocks. For the first time, exchanges will report your crypto sales directly to the IRS, including aggregated reporting for certain stablecoin transactions and even small-value disposals such as gas fees. This is a structural shift: crypto is now firmly inside the traditional broker-reporting framework. The key issue investors need to understand is that gross proceeds are not the same as taxable gains. While Coinbase will include cost basis information on your 1099-DA, cost basis will not be reported to the IRS for 2025. If crypto was transferred in from an external wallet or another exchange and the cost basis isn’t properly reconciled, the IRS may effectively treat the basis as $0. That can dramatically overstate gains. In other words, if you don’t proactively update and reconcile your cost basis, your reported capital gains could appear far larger than they actually are - potentially inflating your tax liability on paper. (Coinbase)
THE ALPHA ROCK DIFFERENCE - Our investment strategies are a compelling alternative to traditional buy-and-hold investing. By focusing on liquid alternative investments and active risk-management, we target absolute returns, not benchmarks. To see how we’re invested and why, download our most recent Quarterly Investment Outlook, Bubble Watch & the Elusive Pin.
REVIEW YOUR INVESTMENTS - When market volatility increases, it’s a good time to review your investments, especially if you’re using a passive, buy-and-hold strategy. Please schedule a call or meeting)
We’d love to hear from you!
Your thoughts are important to me, so don’t hesitate to share them. They give me great motivation and encouragement.
IMPORTANT DISCLOSURE INFORMATION
This commentary reflects the personal opinions, viewpoints and analyses of the Alpha Rock Investments, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Alpha Rock Investments, LLC or performance returns of any Alpha Rock Investments, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Alpha Rock Investments, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
The S&P 500 Index or the Standard & Poor's 500 Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The S&P 500 is a float-weighted index, meaning company market capitalizations are adjusted by the number of shares available for public trading. Note: Investors cannot invest directly in an index. These unmanaged indices do not reflect management fees and transaction costs that are associated with most investments.
Alpha Rock Investments, LLC provides links for your convenience to websites produced by other providers of industry related material. Accessing websites through links directs you away from our website. Alpha Rock Investments, LLC is not responsible for errors or omissions in the material on third party websites, and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites.
