Good morning investors,
This will be the final newsletter this week with markets closed tomorrow for Good Friday.
The March jobs report will still be released Friday morning, so we will have fresh employment data to digest when trading resumes Monday.
Yesterday's session extended the relief rally with the S&P 500 gaining 0.7%, the Dow adding 0.5%, and the Nasdaq climbing 1.2%. Energy stocks dropped 3.9% while industrials and materials each rose more than 1%. The rotation away from energy and toward everything the conflict disrupted was playing out exactly as you would expect from a market getting reasons for optimism.
Then came the speech.
Opening Bell
President Trump's primetime address Wednesday night has sent futures tumbling this morning. Dow ($DIA ( ▼ 0.03% )) futures have dropped 541 points or 1.2%. S&P 500 ($SPY ( ▼ 0.23% )) futures have declined 1.4%. Nasdaq 100 ($QQQ ( ▼ 0.65% )) futures are down 1.7%.
Oil has reversed sharply higher. WTI has surged 8% to around $108 per barrel. Brent has jumped 8% to approximately $109. The war premium that appeared to be coming off yesterday is back with force.
The speech itself was puzzling. Trump effectively restated much of what he had already posted on social media over the past week. He said the US would "hit" Iran "extremely hard" over the next two to three weeks and would bring them "back to the stone ages." He confirmed discussions with Tehran are ongoing and that the war would end "very shortly."
There was nothing substantively new. Yet markets are trading as though the conflict just escalated dramatically.
The disconnect appears to be about expectations rather than content. Numerous major news outlets had reported ahead of the speech that Trump would be "winding down" the war. Insider sources across multiple publications signaled de-escalation was coming. When the President simply restated his existing position rather than announcing a breakthrough, markets interpreted the absence of explicit de-escalation as implicit escalation.
The Oil-Equity Relationship Has Never Been Tighter
The inverse correlation between stocks and oil prices has reached historic extremes. Over the past 50 trading sessions, the S&P 500 and oil have moved in opposite directions 38 times. That is 76% of all sessions, surpassing the previous record of 36 sessions set during the 2008 financial crisis.
The result, the S&P 500 has declined 4% over the past 50 sessions while crude oil has surged 72%. The correlation between the two has dropped to negative 0.4, the most negative since July 2025 and approaching the negative 0.5 reading seen in February 2022.
This relationship tells you everything about what matters to this market right now. When oil falls, stocks rally. When oil spikes, stocks sell off. The fundamental drivers of individual companies, their earnings quality, their competitive positions, their growth trajectories, all of it becomes secondary noise until the energy question resolves.
The Market Solved a Problem, Then Recreated It
There is irony in how this week has unfolded. By Tuesday evening, the market had found its footing. Both sides had signaled willingness to end the conflict. Oil was falling. Yields were declining. Financial conditions were easing. The worst appeared to be behind us.
Then the speech happened. Not because the content was bearish, but because it failed to deliver the bullish confirmation that had been widely telegraphed. Now the administration faces the same challenge it appeared to have solved 48 hours ago: how to contain the market reaction.
The longer oil prices stay elevated, the less consumers have to spend and the more the economy slows. The Fed won't be adjusting rates in the near future, which means that this will have to work itself out, and oil prices drop, before we can see some support for the economy.
The Labor Market Remains Resilient
ADP's private payroll data yesterday showed 62,000 new jobs added in March, exceeding the 40,000 economists had anticipated. This is not a labor market in freefall.
Oracle is reportedly cutting thousands of jobs as it searches for ways to fund AI spending. LinkedIn posts and reports have pegged the number at potentially 10,000. We have seen this pattern repeatedly this year from Meta, UPS, and Amazon. Large technology companies are reallocating headcount toward AI initiatives while trimming elsewhere.
But the aggregate data has not reflected these splashy announcements from recognizable names. The plane is not falling out of the air. The layoffs from megacaps may be the leading edge of a broader trend, or they may simply reflect sector-specific restructuring that gets absorbed by hiring elsewhere in the economy. We will know more when the March jobs report arrives tomorrow morning.
SpaceX Files for IPO
Elon Musk's SpaceX has confidentially filed for an IPO with the SEC, bringing the rocket company one step closer to what is expected to be a record public offering. Bloomberg reported the company could seek a valuation of $1.75 trillion with a listing around June.
SpaceX is reportedly looking to raise up to $75 billion, which would be more than three times the size of the largest US IPO in history. For context, Alibaba raised $22 billion in 2014 and Visa raised close to $18 billion in 2008.
When SpaceX eventually lists, Musk will become the first person to lead two separate trillion-dollar publicly traded companies simultaneously. The company merged with Musk's xAI in February, creating a combined entity he valued at $1.25 trillion at the time.
For investors, this offering could absorb significant capital from other growth names and may create volatility in the broader technology space around the listing date. It will also establish a public market valuation for the AI plus space combination that could influence how investors think about adjacent companies.
Volatility Was Expected
I want to be direct about how I am thinking about this morning's selloff.
Volatility through Trump's speech was expected and will continue. The pattern of the past five weeks has been clear: headlines create short-term moves in both directions while the underlying trajectory bends slowly toward resolution. Yesterday's rally was built on expectations that the speech would deliver an explicit breakthrough. When it did not, the market recalibrated.
But the fundamental signals have not changed. Both sides have expressed willingness to end the conflict. Trump continues to reference ongoing discussions with Tehran. The two to three week timeline he mentioned, while accompanied by aggressive rhetoric, is consistent with what he said Tuesday. The Strait of Hormuz remains the key variable, and Trump stated the US would only consider a ceasefire once it is "open, free, and clear."
I believe we are closer to the end of this conflict than we are to the beginning. The market interpreted last night as though the war was ramping up for another month-long escalation. I do not share that interpretation. The speech contained no new information that would suggest a dramatic change in the trajectory.
Entry Points Remain Attractive
I continue to view current valuations as attractive entry points for long-term investors.
The technology names that sold off hardest this quarter remain compelling. Nvidia, Microsoft, Meta, and the cybersecurity leaders are trading at discounts to where they stood three months ago despite secular growth stories that have not changed. The AI capex cycle continues. The cloud migration continues. The threat environment that drives cybersecurity spending has intensified rather than diminished.
Small caps remain my highest-conviction positioning. If the conflict resolves and oil falls, the Fed regains optionality to cut rates later this year if economic data weakens. Small caps benefit disproportionately from lower rates given their higher floating rate debt loads. The Russell 2000's discount to the S&P 500 remains historically wide, and the P/E ratios on many small cap names are very attractive.
Historical Context on Oil and Equity Bottoms
During past Middle East conflicts, stock market bottoms have often coincided with peak oil prices. The pattern makes intuitive sense. The worst moment for equities is when energy costs are highest, uncertainty is greatest, and fear is most acute. Once oil begins to decline, equities typically recover quickly as the tax on consumers eases and recession fears subside.
We may have seen that peak in oil last week when Brent touched $120. Or we may see another spike in the coming weeks as the military operation continues. The precise timing is impossible to call. What matters for long-term investors is recognizing that the recovery, when it comes, will be priced rapidly. Those who wait for certainty will pay higher prices.
Final Thought
The next several weeks remain uncertain. The Strait of Hormuz is still not open. Iran and US officials continue to exchange claims about next steps. Markets will remain volatile as headlines drive short-term moves in both directions.
But the broader picture has not changed. Both sides want this conflict to end. The economic pressure on all parties grows daily. The bond market has already tightened financial conditions, doing some of the Fed's work for it. And the extreme short interest across the market means any sustained positive catalyst will produce outsized moves higher.
Today's selloff may feel like a setback after Tuesday and Wednesday's gains. It is. But setbacks within a bottoming process look different than setbacks within a sustained decline. The breadth indicators that improved earlier this week, the rotation away from energy that began yesterday, the de-escalation signals from both governments, none of that has been invalidated by a speech that contained nothing new.
Stay disciplined. Use volatility to add to quality positions.
Enjoy the long weekend. We will reconvene Monday with fresh employment data and hopefully more clarity on the path forward.
Best regards,
Dan Sheehan [email protected]
Subscribe: https://substack.com/@dansheehan3
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.