The S&P 500 dropped further last week and hit its lowest level since August, and there were two main reasons for the new lows. First, oil hit a new high in response to the lack of de-escalation in the U.S./Iran conflict. Last week’s events were especially disconcerting because President Trump couldn’t “tweet” markets higher via ceasefire posts. That is confirming fears that Trump cannot unilaterally de-escalate the situation, which, if nothing changes, means higher oil prices for longer (and rising stagflation risks).
Second, AI anxiety rose further as tech badly underperformed (QQQ was down nearly 5% last week) after OpenAI further scaled back aggressive AI infrastructure spending plans. That’s a dual negative because 1) It further boosts AI Anxiety that all this promised cap-ex (which fueled part of 2025 gains) won’t materialize, and 2) that the most important sector in the market can’t “hold up” as it has in the past.
Looking at this week, here’s what we need to see regarding these two situations to help fuel a rebound. Real signs of de-escalation. Social posts won’t work anymore to stop this market decline. Markets need to see real signs of de-escalation from both sides and specific headlines that would reflect 1) Evidence of direct talks between the U.S. and Iran or via a respected proxy or 2) Credible signs of restraint by both countries as a good-faith signal that both want to de-escalate.
On tech, we need to see a reaffirmation of AI investments, ideally from the core AI companies (OpenAI, MSFT, ORCL, NVDA, AVGO, etc. Markets need important AI companies to reiterate their commitment to the $1- trillion-plus AI buildout and, in doing so, further validate the 2025 gains in the minds of investors. Conversely, there are specific headlines that would further exacerbate the weakness in stocks.
On the Iran conflict, fears are rising that the U.S. will need to “escalate to deescalate” at this point, which means some ground troops. Any signs that point to that will boost oil prices. Additionally, if the Houthis begin to harass ships in the Bab el-Mandeb Strait off Yemen, that will further choke global oil transit, send oil higher, and push stocks lower.
In tech, further announcements about a “pulling back” in AI investment or spending plans will only further weigh on the sector and further fuel fears that the AI cap-ex boom that helped stocks rally in 2025 was just a mirage and that the money will never actually be spent. From a positioning standpoint, clearly, headwinds are building. And while the possibility for a real de-escalation headline to cause a spike rally exists, there’s more pressuring this market than just higher oil prices.
As such, I continue to support 1) Maintaining exposure, because the outlook hasn’t turned decidedly negative yet, and 2) Focusing tactical exposure on minimum volatility funds, bonds, and international. I believe those are the best places to “hide” while still maintaining exposure by lowering beta and focusing on businesses with solid execution and performance.
Source: Sevens Report 3/31/26