President Donald Trump said in a 21:00 EST address that bombing Iran could continue for weeks, including a threat to bomb it “back to the stone age”. The speech did not include language aimed at de-escalation.
US shares fell on Thursday morning, with the NASDAQ Composite down more than 2% and the S&P 500 and Dow Jones Industrial Average each down 1.5%. The declines ended a two-day rally, during which the NASDAQ rose 5% between Tuesday and Wednesday.
Markets React To Escalation
Oil jumped after the speech, with WTI crude up 11% to $111.20, the highest level since 8 March. Long-dated US Treasury yields rose, while gold fell by more than 3%, and no plan was offered to reopen the Strait of Hormuz.
The Wall Street Journal reported new tariffs of 25% on finished goods made with imported steel and aluminium, applied to the full value of the product. A 50% tariff will remain for items made almost entirely of steel and aluminium.
Tech and growth shares led the sell-off, and the NASDAQ opened below Tuesday’s close. The index’s Monday low is 20,690, with levels cited at 20,500, 19,350, and an 18,000–18,500 gap.
The President’s aggressive stance removes any hope for a quick de-escalation, meaning we should expect market volatility to remain extremely high for weeks. The CBOE Volatility Index (VIX), often called the market’s “fear gauge,” has likely surged back above 35, a level that reflects significant investor anxiety. We should anticipate this elevated volatility to be the new normal as long as the bombing campaign continues.
The two-day rally was a trap, and we must now position for further declines in the major stock indices. We should consider buying puts on the SPY and QQQ, targeting the support levels around 20,500 and 19,350 that held during the summer of 2025. The approaching “Death Cross” on the NASDAQ is a major technical warning that, while not always perfect, has preceded significant downturns in the past.
Positioning For Continued Volatility
The failure to present a plan for the Strait of Hormuz is the most critical factor for oil, as over 20% of global oil supply passed through it daily in 2024. With no end in sight, we should use options to bet on crude prices pushing higher, perhaps toward the historical peak of over $140 seen in 2008. Bullish positions on energy sector stocks and ETFs are one of the few clear long plays in this market.
The new tariffs on finished goods will act as a direct tax on consumers and corporations, hurting profits for companies that rely on global supply chains. We should look to short sectors most vulnerable to these new import taxes and high fuel costs, such as retail, automotive, and transportation stocks. Conversely, defense contractors are an obvious beneficiary of an escalating war footing, making them a potential hedge.
The unusual drop in gold and the rise in Treasury yields suggest that fears of war-fueled inflation are currently overriding the typical flight to safety. This means that for now, betting on higher interest rates by shorting Treasury bond futures could be a profitable, though counter-intuitive, trade. The drop in gold may present a buying opportunity for long-dated call options if we believe its value as a haven will eventually return.
