Insurance Always Feels Expensive… Until You Need It

Back in the early 2000s, most airlines simply paid whatever fuel cost that day.

If oil went up… profits went down.

But Southwest Airlines played a different game.

Instead of buying fuel at market prices, the airline locked in prices years in advance using hedging contracts.

At times, Southwest had 70–80% of its fuel needs hedged — far more than most competitors.

And then oil exploded…

Between 2004 and 2008, crude prices surged from roughly $30 to over $140 per barrel.

For most airlines, it was a financial nightmare.

For Southwest , it was a windfall.

The company reportedly saved about $1.3 billion in 2008 alone thanks to its fuel hedges — one of the most famous risk-management wins in corporate history.

For years, business schools taught the strategy as a masterclass in hedging.

Fast forward to today.

Southwest eventually stepped away from that strategy — gradually reducing hedging over the past decade before largely exiting it around 2024–2025.

And now oil volatility is back.

Jet fuel prices have surged sharply this year, with some estimates showing prices jumping more than 80% during the recent energy shock tied to Middle East tensions.

Here’s the story ⇩

The Problem

Airlines run on extremely thin margins.

And fuel is one of their biggest costs.

So when energy prices spike, airline profits can disappear almost overnight.

This year, jet fuel prices have surged sharply — with some estimates showing prices jumping more than 80% during the recent geopolitical shock tied to the Middle East conflict.

Without hedges in place, airlines now have only two options:

• absorb the cost (destroying margins)
• raise ticket prices quickly

That’s why United Airlines’ CEO recently warned that fare increases could come fast if fuel stays elevated.

And the stock market has already noticed.

Airline stocks have come under pressure recently as investors weigh the impact of rising fuel prices on operating costs.

What Is a Hedge?

Let’s simplify the concept.

A hedge is basically financial insurance.

It’s a trade designed to protect against an unwanted price move.

For airlines, the unwanted move is simple:

Oil going up.

So they hedge by locking in fuel prices using derivatives like futures or options.

Example:

An airline agrees to buy fuel next year at $80 per barrel.

Two outcomes can happen:

Scenario 1 — Oil jumps to $120

The hedge wins.
The airline still pays $80.

Scenario 2 — Oil falls to $60

The hedge loses.
They’re stuck paying $80 while competitors pay $60.

So hedging removes uncertainty…

…but it also removes the chance to benefit from favorable price moves.

✈️ The Market Already Smells Trouble

If you want to see how investors feel about airlines right now, look at the sector ETF.

The U.S. Global Jets ETF (JETS) — which holds major airlines like Delta, United, and American — has dropped about 18% in the past month.

The market knows the equation. ⇩

Oil price ↑ → Airline stocks ↓

source: Yahoo Finance

Don’t forget to to cast your vote 👇

Lesson Of The Day:

It’s been 13 days…

For the past 13 days, markets have been trading a familiar playbook.

The conflict in the Middle East began on February 28, and almost immediately the usual market reactions kicked in.

Oil spiked.
Gold rallied.
And investors began watching the Strait of Hormuz — the narrow shipping lane that carries roughly 20% of the world’s oil supply — like hawks.

When a geopolitical shock threatens global energy flows, markets tend to react quickly.

That part wasn’t surprising.

What happened next was.

On Thursday, the biggest winners in the S&P 500 weren’t oil companies.

They weren’t defense contractors either.

Instead, four chemical and fertilizer companies suddenly climbed to the top of the leaderboard:

→ CF Industries CF › $136.90 (▲ 13.26% )  
→ Mosaic MOS › $31.81( ▲ 7.58% )  
→ Dow, Inc.  DOW ›$37.55 ( ▲ 9.30% )  
→ LyondellBasell LYB › $73.98 ( ▲ 10.38% )  

Not exactly the stocks most people associate with geopolitical crises.

But the reason they rallied actually reveals something important about how commodity markets really work.

Here’s the story ⇩

The Ingredient Behind Everything

At first glance, the move looks strange.

A war in the Middle East sends oil markets into chaos… and fertilizer companies rally.

But the connection becomes clearer once you look at the most important input in the chemical industry.

It isn’t oil.

It’s natural gas.

Companies like CF Industries, Mosaic, Dow, Inc., and LyondellBasell use natural gas to produce ammonia, nitrogen fertilizers, plastics, and a wide range of industrial chemicals.

In many cases, natural gas isn’t just the fuel used to power the plants.

It’s the raw material used to make the products themselves.

source: tradingeconomics

Why U.S. Producers Have the Edge

And this is where the conflict begins to reshape the economics of the industry.

Many chemical producers in Europe and Asia rely heavily on imported natural gas, much of which travels through global shipping routes linked to the Middle East.

But U.S. producers operate under a different set of economics.

Thanks to the shale boom, the United States has some of the cheapest natural gas in the world.

So when global energy markets tighten, the cost advantage suddenly shifts.

American producers can keep manufacturing at relatively stable costs…
while competitors overseas face rising input prices.

And that dynamic gives U.S. chemical companies something investors love:

pricing power.

source: Voronoi

The Bull vs Bear Case

The rally in chemical and fertilizer stocks ultimately comes down to one variable:

energy costs.

As long as global natural gas prices remain elevated — while U.S. gas stays relatively cheap — American producers could maintain a meaningful cost advantage over competitors in Europe and Asia.

That advantage would allow companies like CF Industries, Mosaic, Dow, and LyondellBasell to keep capturing stronger margins and pricing power.

In this case, the bull vs bear case depends more on what happens next in global energy markets.

Don’t forget to to cast your vote 👇

Lesson Of The Day:

Inflation Was Fine…

The inflation report just dropped this morning.

And at first glance, everything looked… calm.

Consumer prices rose 0.3% in February, exactly what economists expected.

On an annual basis, inflation held steady at 2.4%.

Core inflation — the version that strips out food and energy — came in at 2.5%.

For investors hoping inflation is cooling, it looked like good news.

There’s just one small problem.

The data is already outdated.

Because the inflation report reflects February prices — before the Middle East conflict sent oil markets into chaos.

Since then, gasoline prices have jumped roughly 60 cents per gallon nationwide.

Which means the inflation report markets are celebrating today may already belong in the past.

Here’s the story ⇩

Calm Waters (For Now)

The February Consumer Price Index painted a picture of an economy where inflation pressures are slowly easing.

Housing costs — the largest component of CPI — rose 0.2%, continuing the gradual moderation seen over the past several months.

Core inflation also cooled, increasing 0.2% month-over-month, in line with economists’ forecasts.

In other words, the inflation trend looked stable.

At least for now.

Eggs Down, Coffee Up.

Inflation at the grocery store is a tale of two shopping carts.

Egg prices have plunged 42% from last year’s spike, providing one of the biggest sources of relief for consumers.

But other items are still moving the opposite direction.

Coffee prices have surged 18%, beef is up 14%, and sugar prices have climbed 9%.

So while headline inflation may look stable, the reality at the checkout line can still feel very different.

source: Yahoo Finance

The Bull vs Bear Case

The Bull Case:

Inflation really is cooling.

In that scenario, the inflation fight keeps trending in the right direction.

The Bear Case:

Energy has a way of ruining otherwise good inflation data.

That’s the nightmare scenario for the Fed.

Inflation had been cooling… but an energy shock could slow — or even reverse — that progress.

Don’t forget to to cast your vote 👇

Lesson Of The Day:

Don’t forget to to cast your vote 👇

source: NYTimes

In four words: Bad jobs. Strong dollar.

And suddenly the market had two problems to solve.

Because in the normal playbook, those two things rarely show up together.

Normally the logic works like this:

Weak payrolls → weaker economy → Fed more likely to cut rates → lower yields → weaker dollar.

This time, however, just as the payroll report disappointed, the U.S. dollar was having its strongest week in more than a year.

Part of that strength came from the usual suspect: geopolitics. As tensions in the Middle East intensified, global capital did what it has done for decades during uncertain moments — it moved toward the dollar.

That creates a strange situation.

Weak economic data normally helps gold and other rate-sensitive assets.
But a stronger dollar pulls in the opposite direction, because commodities priced in dollars suddenly become more expensive for buyers around the world.

So instead of one clear signal, markets got two signals pointing in different directions.

And that’s where the story really begins.

Because when investors have to choose between growth fears and currency strength, markets tend to get a little… indecisive.

Here’s the story ⇩

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Once the payroll numbers hit the tape, gold reacted almost immediately.

Economists had expected the U.S. economy to add about 59,000 jobs last month.

Instead, the report showed the opposite.

The economy lost 92,000 jobs, while the unemployment rate ticked up to 4.4%.

• Health Care (−28k): Mostly temporary strike activity at physician offices, which removed workers from payroll counts for the month.

• Information / Tech (−11k): Ongoing restructuring and layoffs as tech companies continue correcting post-pandemic over-hiring and improving efficiency.

• Federal Government (−10k): Budget tightening and program roll-offs, with federal employment now down about 330k since Oct 2024.

Under normal circumstances, that kind of data would be music to gold investors’ ears.

And for a moment, the metal behaved exactly as the textbook would suggest.

Spot gold jumped roughly 1.4% on Friday, climbing back above $5,150 per ounce.

But the rally ran into a problem.

Because at the exact same time gold was reacting to the jobs report, another market was moving much faster.

The U.S. dollar.

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Over the last thirty years, a peculiar gold signal has flashed three times.

Each time, gold soared in price. The first time was back in the 2000s: the dot-com mania was nearing its peak, money was flooding into any and all tech stocks, and equity valuations were trading at nosebleed levels.

At the time, gold was despised by Wall Street.

Goldman Sachs called it “a 19th-century asset.”

One of Merrill Lynch’s top investment analysts said that it was only for “grandmothers and conspiracy theorists.”

And two of America’s leading economists at the time called it a “barren asset.”

The second signal came in 2008, amidst the chaos of the financial crisis, gold prices dropped briefly below $800 an ounce…

And finally, the third signal:

Three “all-in” moments, each of which seemed crazy at the time.

But for one man, it was the most obvious move to make.

Thanks to this little-known gold signal, he made an absolute killing each of the three times this gold signal flashed.

And right now, it is again predicting a shocking new price for gold in the near future.

Click here to see what this signal is saying about gold’s price next year.

While gold was reacting to the payroll data, the U.S. dollar was quietly having its strongest week in more than a year.

And that matters more than it sounds.

Gold and the dollar usually move in opposite directions. When the dollar strengthens, commodities priced in dollars become more expensive for international buyers, which tends to weigh on demand.

Part of the move came from geopolitics.

As the conflict in Iran expanded, global investors moved capital into the dollar.

So gold ended up caught in a tug of war.

Weak economic data was pulling the metal higher.

But a surging dollar was pushing back just as hard.

And … the dollar won.

Despite Friday’s bounce, gold is still heading toward its first weekly decline in five weeks.

source: Apmex

Just as investors were digesting the payroll report, another variable moved sharply.

Oil.

Prices are now heading toward their largest weekly gain since Russia’s invasion of Ukraine in 2022.

And when oil jumps quickly, investors begin recalculating …

Inflation.

Higher energy prices ripple through transportation, manufacturing, and consumer goods. That complicates the central bank outlook — especially at a moment when the labor market is already showing signs of slowing.

So the market suddenly found itself juggling two forces:

Slowing growth on one side.
Rising cost pressures on the other.

Not the most comfortable combination.

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Crypto reflected that uncertainty almost immediately.

Bitcoin briefly rallied above $70,000 earlier in the week, reaching nearly $74,000 before momentum faded.

By Friday, the asset had slipped back toward $68,000, unable to hold the psychological $70K level.

Options markets tell the same story.

A large cluster of hedging activity has formed around $60,000, suggesting traders are preparing for downside volatility even as some investors continue to bet on a breakout toward $75K–$76K.

In other words, conviction is split.

Some traders see the rally as the start of the next leg higher.

Others see it as nothing more than a relief bounce inside a volatile macro environment.

Just as markets were digesting those signals, another development caught investors’ attention.

BlackRock limited withdrawals from one of its $26 billion private credit funds after redemption requests surged.

Investors asked to withdraw roughly 9.3% of the fund, but the firm capped redemptions at 5%, returning about $620 million instead of the full amount requested.

This kind of gating isn’t unusual in private credit.

These funds invest in long-term loans that can’t easily be sold overnight, so many of them limit withdrawals during periods of heavy redemption requests.

Still, the move highlighted a broader issue.

The private credit market has ballooned to roughly $1.8 trillion, and episodes like this remind investors that semi-liquid assets aren’t always liquid when volatility appears.

It’s not necessarily a crisis.

But it’s a signal.

And markets tend to pay attention to signals.

By the time the payroll report arrived, markets had already been digesting a series of signals.

→ Gold reacting to softer growth expectations
→ Oil rising on geopolitical risk
→ Bitcoin struggling to sustain momentum
→ Private credit investors requesting liquidity

Individually, none of these developments defines the macro outlook.

But together they suggest investors are beginning to reassess the balance between growth, inflation, and liquidity.

And when growth slows, inflation pressures rise, and liquidity starts getting tested, investors tend to reduce risk.

💬 We Want To Hear Your Story:

Got a market or stock you want us to analyze next?

Just drop your request in the comments here. 

Was this email forwarded to you? Don’t miss out on future stories — subscribe to the TradingLessons and get our daily market breakdown delivered straight to your inbox.

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Don’t forget to to cast your vote 👇

source: NYTimes

In four words: Bad jobs. Strong dollar.

And suddenly the market had two problems to solve.

Because in the normal playbook, those two things rarely show up together.

Normally the logic works like this:

Weak payrolls → weaker economy → Fed more likely to cut rates → lower yields → weaker dollar.

This time, however, just as the payroll report disappointed, the U.S. dollar was having its strongest week in more than a year.

Part of that strength came from the usual suspect: geopolitics. As tensions in the Middle East intensified, global capital did what it has done for decades during uncertain moments — it moved toward the dollar.

That creates a strange situation.

Weak economic data normally helps gold and other rate-sensitive assets.
But a stronger dollar pulls in the opposite direction, because commodities priced in dollars suddenly become more expensive for buyers around the world.

So instead of one clear signal, markets got two signals pointing in different directions.

And that’s where the story really begins.

Because when investors have to choose between growth fears and currency strength, markets tend to get a little… indecisive.

Here’s the story ⇩

SPONSOR BREAK  presented by ParadigmPress*

Public Law 63-43: Trump’s Secret Weapon to Win the Midterms?

Most pundits are predicting the coming midterm elections will be a disaster for Republicans.

But the 112-year-old little-known law you see below….
Could save Trump from this disaster

Click here to see the details…

Because Public Law 63-43 could also have a huge impact on your wealth in 2026…

Starting on May 15th.

Regards,
Jim Rickards
_{Former advisor to the CIA, the Pentagon and the White House}

Once the payroll numbers hit the tape, gold reacted almost immediately.

Economists had expected the U.S. economy to add about 59,000 jobs last month.

Instead, the report showed the opposite.

The economy lost 92,000 jobs, while the unemployment rate ticked up to 4.4%.

• Health Care (−28k): Mostly temporary strike activity at physician offices, which removed workers from payroll counts for the month.

• Information / Tech (−11k): Ongoing restructuring and layoffs as tech companies continue correcting post-pandemic over-hiring and improving efficiency.

• Federal Government (−10k): Budget tightening and program roll-offs, with federal employment now down about 330k since Oct 2024.

Under normal circumstances, that kind of data would be music to gold investors’ ears.

And for a moment, the metal behaved exactly as the textbook would suggest.

Spot gold jumped roughly 1.4% on Friday, climbing back above $5,150 per ounce.

But the rally ran into a problem.

Because at the exact same time gold was reacting to the jobs report, another market was moving much faster.

The U.S. dollar.

SPONSOR BREAK  presented by Porter&Co*

Over the last thirty years, a peculiar gold signal has flashed three times.

Each time, gold soared in price. The first time was back in the 2000s: the dot-com mania was nearing its peak, money was flooding into any and all tech stocks, and equity valuations were trading at nosebleed levels.

At the time, gold was despised by Wall Street.

Goldman Sachs called it “a 19th-century asset.”

One of Merrill Lynch’s top investment analysts said that it was only for “grandmothers and conspiracy theorists.”

And two of America’s leading economists at the time called it a “barren asset.”

The second signal came in 2008, amidst the chaos of the financial crisis, gold prices dropped briefly below $800 an ounce…

And finally, the third signal:

Three “all-in” moments, each of which seemed crazy at the time.

But for one man, it was the most obvious move to make.

Thanks to this little-known gold signal, he made an absolute killing each of the three times this gold signal flashed.

And right now, it is again predicting a shocking new price for gold in the near future.

Click here to see what this signal is saying about gold’s price next year.

While gold was reacting to the payroll data, the U.S. dollar was quietly having its strongest week in more than a year.

And that matters more than it sounds.

Gold and the dollar usually move in opposite directions. When the dollar strengthens, commodities priced in dollars become more expensive for international buyers, which tends to weigh on demand.

Part of the move came from geopolitics.

As the conflict in Iran expanded, global investors moved capital into the dollar.

So gold ended up caught in a tug of war.

Weak economic data was pulling the metal higher.

But a surging dollar was pushing back just as hard.

And … the dollar won.

Despite Friday’s bounce, gold is still heading toward its first weekly decline in five weeks.

source: Apmex

Just as investors were digesting the payroll report, another variable moved sharply.

Oil.

Prices are now heading toward their largest weekly gain since Russia’s invasion of Ukraine in 2022.

And when oil jumps quickly, investors begin recalculating …

Inflation.

Higher energy prices ripple through transportation, manufacturing, and consumer goods. That complicates the central bank outlook — especially at a moment when the labor market is already showing signs of slowing.

So the market suddenly found itself juggling two forces:

Slowing growth on one side.
Rising cost pressures on the other.

Not the most comfortable combination.

SPONSOR BREAK  presented by OxfordClub*

Strange New Wonder Metal Outperforms Silicon Up to 100X

Nvidia just partnered with the tiny company that holds 250 patents.
Here’s why it could become the most important stock in the world.

Crypto reflected that uncertainty almost immediately.

Bitcoin briefly rallied above $70,000 earlier in the week, reaching nearly $74,000 before momentum faded.

By Friday, the asset had slipped back toward $68,000, unable to hold the psychological $70K level.

Options markets tell the same story.

A large cluster of hedging activity has formed around $60,000, suggesting traders are preparing for downside volatility even as some investors continue to bet on a breakout toward $75K–$76K.

In other words, conviction is split.

Some traders see the rally as the start of the next leg higher.

Others see it as nothing more than a relief bounce inside a volatile macro environment.

Just as markets were digesting those signals, another development caught investors’ attention.

BlackRock limited withdrawals from one of its $26 billion private credit funds after redemption requests surged.

Investors asked to withdraw roughly 9.3% of the fund, but the firm capped redemptions at 5%, returning about $620 million instead of the full amount requested.

This kind of gating isn’t unusual in private credit.

These funds invest in long-term loans that can’t easily be sold overnight, so many of them limit withdrawals during periods of heavy redemption requests.

Still, the move highlighted a broader issue.

The private credit market has ballooned to roughly $1.8 trillion, and episodes like this remind investors that semi-liquid assets aren’t always liquid when volatility appears.

It’s not necessarily a crisis.

But it’s a signal.

And markets tend to pay attention to signals.

By the time the payroll report arrived, markets had already been digesting a series of signals.

→ Gold reacting to softer growth expectations
→ Oil rising on geopolitical risk
→ Bitcoin struggling to sustain momentum
→ Private credit investors requesting liquidity

Individually, none of these developments defines the macro outlook.

But together they suggest investors are beginning to reassess the balance between growth, inflation, and liquidity.

And when growth slows, inflation pressures rise, and liquidity starts getting tested, investors tend to reduce risk.

💬 We Want To Hear Your Story:

Got a market or stock you want us to analyze next?

Just drop your request in the comments here. 

Was this email forwarded to you? Don’t miss out on future stories — subscribe to the TradingLessons and get our daily market breakdown delivered straight to your inbox.

❗ P.S. – If you no longer want to receive occasional emails from us and you want to unsubscribe, click here 👉 “Unsubscribe” . Thank you!

Don’t forget to to cast your vote 👇

Inflation rarely fades in a straight line.

Economists often describe the process as uneven. Prices cool for a period of time, the pressure inside the system begins to ease, and markets gradually grow comfortable that the worst is behind them.

Then something shifts.

For much of the past year, investors believed the U.S. economy was moving through that cooling phase. Inflation had fallen sharply from its pandemic peak, Treasury yields drifted lower, and expectations slowly formed that the Federal Reserve might eventually have room to begin cutting interest rates.

The process was gradual, but the direction looked clear.

That narrative started to wobble this week.

Since tensions escalated in the Middle East, crude oil prices have jumped roughly 14–15%, forcing markets to reconsider how durable the recent progress on inflation might actually be.

Because energy has a unique role in the global economy.

Unlike most commodities, oil doesn’t simply move through supply chains — it powers them. Ships burn it, trucks rely on it, airplanes consume enormous amounts of it, and the cost of moving goods across the world rises with it.

When oil climbs quickly, the effect rarely stays confined to the energy market.

And that’s exactly why the Federal Reserve is watching this move so closely.

Here’s the story ⇩

SPONSOR BREAK  presented by OxfordClub*

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The concern isn’t just the price of oil itself.

It’s how quickly that price spreads through the economy.

Goldman Sachs estimates that a 10% rise in oil prices could increase headline CPI by roughly 0.28 percentage points.

That may sound small, but when inflation is already hovering near 3%, even modest pressure makes it harder for policymakers to push prices toward their 2% target.

In more extreme scenarios, the effects can become much larger.

Apollo Global economist Torsten Sløk estimates that if crude prices were to jump $50 per barrel, inflation could temporarily rise by around one percentage point above baseline levels.

! For central banks, that’s the nightmare scenario: inflation that begins to move higher again just as policy makers were preparing to ease.

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Financial markets have started responding to that possibility.

Treasury yields moved higher this week as traders reduced expectations for near-term rate cuts. Measures of inflation expectations have also begun climbing, with the two-year breakeven rate rising toward roughly 2.9% from around 2.3% earlier this year.

Fed officials are acknowledging the uncertainty.

Minneapolis Fed President Neel Kashkari said geopolitical developments mean policymakers need “a lot more data” before committing to rate cuts.

New York Fed President John Williams echoed that view, noting that energy prices could influence the near-term inflation outlook depending on how persistent they become.

For now, traders still expect the Fed to keep rates unchanged at the upcoming meeting.

But the path beyond that has become less certain.

Historically, central banks often look past temporary energy shocks.

If oil spikes briefly and then retreats, policymakers typically focus on underlying inflation trends.

The risk emerges when energy prices remain elevated long enough to influence expectations.

If consumers begin assuming gasoline, transportation, and food costs will keep rising, those expectations can feed into wage negotiations and business pricing decisions.

At that point, inflation stops behaving like a temporary shock.

It becomes self-reinforcing.

And when that happens, central banks usually become far more cautious about easing policy.

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Higher oil prices rarely move markets evenly.

Some industries benefit almost immediately.
Others feel the pressure within hours.

And as crude climbed to its highest level since early 2025, energy stocks quickly became one of the few bright spots in the market.

U.S. oil and gas producers led the advance:

→ APA Corporation APA ( ▲ 4.12% ) ▲ $32.26
→ Devon Energy DVN ( ▲ 2.37% ) ▲ $44.52
→ Coterra Energy CTRA ( ▲ 1.96% ) ▲ $31.15

Natural-gas exposure also helped lift producers after Qatar temporarily halted LNG liquefaction, sending global gas prices higher.

Refiners joined the move as well.

Higher crude prices can squeeze some parts of the economy, but they often boost refining margins and fuel marketing.

→ Valero Energy VLO ( ▲ 1.08% ) ▲ $226.24
→ Phillips 66 PSX ( ▲ 1.04% ) ▲ $166.44 (+1.06%)

Meanwhile, industries that depend heavily on fuel costs moved in the opposite direction.

Airlines, which treat jet fuel as one of their largest operating expenses, fell sharply:

→ Allegiant Travel ALGT ( ▼ 8.64% ) ▼ $84.13
→ Frontier Group Holdings ULCC ( ▼ 5.13% ) ▼ $3.70
→ Delta Air Lines DAL ( ▼ 3.95% ) ▼ $61.32
→ United Airlines UAL ( ▼ 5.03% ) ▼ $95.29
→ American Airlines AAL ( ▼ 5.38% ) ▼ $11.77

Retailers also struggled as investors considered the consumer impact.

Higher gasoline prices often act like a tax on household spending, leaving less income for discretionary purchases.

→ Walmart WMT ( ▼ 3.53% ) ▼ $123.00
→ Dollar General DG ( ▼ 3.27% ) ▼ $146.15

Geopolitical headlines often dominate the news cycle.

But for markets, the real signal usually appears somewhere else.

This time, it’s in energy.

When oil rises sharply:

→ Inflation expectations move higher
→ Bond yields climb
→ Rate cuts get pushed further into the future

Which means the most important chart for the Federal Reserve right now may not be the S&P 500.

It’s the price of crude. 

💬 We Want To Hear Your Story:

Got a market or stock you want us to analyze next?

Just drop your request in the comments here.

Was this email forwarded to you? Don’t miss out on future stories — subscribe to the TradingLessons and get our daily market breakdown delivered straight to your inbox.

❗ P.S. – If you no longer want to receive occasional emails from us and you want to unsubscribe, click here 👉 “Unsubscribe” . Thank you!

Don’t forget to to cast your vote 👇

Inflation rarely fades in a straight line.

Economists often describe the process as uneven. Prices cool for a period of time, the pressure inside the system begins to ease, and markets gradually grow comfortable that the worst is behind them.

Then something shifts.

For much of the past year, investors believed the U.S. economy was moving through that cooling phase. Inflation had fallen sharply from its pandemic peak, Treasury yields drifted lower, and expectations slowly formed that the Federal Reserve might eventually have room to begin cutting interest rates.

The process was gradual, but the direction looked clear.

That narrative started to wobble this week.

Since tensions escalated in the Middle East, crude oil prices have jumped roughly 14–15%, forcing markets to reconsider how durable the recent progress on inflation might actually be.

Because energy has a unique role in the global economy.

Unlike most commodities, oil doesn’t simply move through supply chains — it powers them. Ships burn it, trucks rely on it, airplanes consume enormous amounts of it, and the cost of moving goods across the world rises with it.

When oil climbs quickly, the effect rarely stays confined to the energy market.

And that’s exactly why the Federal Reserve is watching this move so closely.

Here’s the story ⇩

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The concern isn’t just the price of oil itself.

It’s how quickly that price spreads through the economy.

Goldman Sachs estimates that a 10% rise in oil prices could increase headline CPI by roughly 0.28 percentage points.

That may sound small, but when inflation is already hovering near 3%, even modest pressure makes it harder for policymakers to push prices toward their 2% target.

In more extreme scenarios, the effects can become much larger.

Apollo Global economist Torsten Sløk estimates that if crude prices were to jump $50 per barrel, inflation could temporarily rise by around one percentage point above baseline levels.

! For central banks, that’s the nightmare scenario: inflation that begins to move higher again just as policy makers were preparing to ease.

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Financial markets have started responding to that possibility.

Treasury yields moved higher this week as traders reduced expectations for near-term rate cuts. Measures of inflation expectations have also begun climbing, with the two-year breakeven rate rising toward roughly 2.9% from around 2.3% earlier this year.

Fed officials are acknowledging the uncertainty.

Minneapolis Fed President Neel Kashkari said geopolitical developments mean policymakers need “a lot more data” before committing to rate cuts.

New York Fed President John Williams echoed that view, noting that energy prices could influence the near-term inflation outlook depending on how persistent they become.

For now, traders still expect the Fed to keep rates unchanged at the upcoming meeting.

But the path beyond that has become less certain.

Historically, central banks often look past temporary energy shocks.

If oil spikes briefly and then retreats, policymakers typically focus on underlying inflation trends.

The risk emerges when energy prices remain elevated long enough to influence expectations.

If consumers begin assuming gasoline, transportation, and food costs will keep rising, those expectations can feed into wage negotiations and business pricing decisions.

At that point, inflation stops behaving like a temporary shock.

It becomes self-reinforcing.

And when that happens, central banks usually become far more cautious about easing policy.

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Higher oil prices rarely move markets evenly.

Some industries benefit almost immediately.
Others feel the pressure within hours.

And as crude climbed to its highest level since early 2025, energy stocks quickly became one of the few bright spots in the market.

U.S. oil and gas producers led the advance:

→ APA Corporation APA ( ▲ 4.12% ) ▲ $32.26
→ Devon Energy DVN ( ▲ 2.37% ) ▲ $44.52
→ Coterra Energy CTRA ( ▲ 1.96% ) ▲ $31.15

Natural-gas exposure also helped lift producers after Qatar temporarily halted LNG liquefaction, sending global gas prices higher.

Refiners joined the move as well.

Higher crude prices can squeeze some parts of the economy, but they often boost refining margins and fuel marketing.

→ Valero Energy VLO ( ▲ 1.08% ) ▲ $226.24
→ Phillips 66 PSX ( ▲ 1.04% ) ▲ $166.44 (+1.06%)

Meanwhile, industries that depend heavily on fuel costs moved in the opposite direction.

Airlines, which treat jet fuel as one of their largest operating expenses, fell sharply:

→ Allegiant Travel ALGT ( ▼ 8.64% ) ▼ $84.13
→ Frontier Group Holdings ULCC ( ▼ 5.13% ) ▼ $3.70
→ Delta Air Lines DAL ( ▼ 3.95% ) ▼ $61.32
→ United Airlines UAL ( ▼ 5.03% ) ▼ $95.29
→ American Airlines AAL ( ▼ 5.38% ) ▼ $11.77

Retailers also struggled as investors considered the consumer impact.

Higher gasoline prices often act like a tax on household spending, leaving less income for discretionary purchases.

→ Walmart WMT ( ▼ 3.53% ) ▼ $123.00
→ Dollar General DG ( ▼ 3.27% ) ▼ $146.15

Geopolitical headlines often dominate the news cycle.

But for markets, the real signal usually appears somewhere else.

This time, it’s in energy.

When oil rises sharply:

→ Inflation expectations move higher
→ Bond yields climb
→ Rate cuts get pushed further into the future

Which means the most important chart for the Federal Reserve right now may not be the S&P 500.

It’s the price of crude. 

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Men building the San Francisco Bay Bridge

There’s a concept in structural engineering called “load sharing.”

When a bridge is built correctly, no single beam carries the full weight. The stress distributes itself across multiple supports. If one area flexes, another absorbs part of the strain. The structure holds because pressure disperses.

But when stress begins concentrating instead of dispersing, small weaknesses become catastrophic ones. What once felt stable can suddenly look fragile simply because the distribution changed.

For most of the past year, financial markets have behaved like a well-designed bridge.

Technology surged while defensives cooled. Energy rallied while growth paused.
And when geopolitical tension flared, gold caught a bid.
And when equities wobbled, Treasuries often steadied the tape.
Pressure rotated rather than accumulated.

That dispersion kept volatility contained. It made pullbacks feel manageable.

This week, the pattern shifted.

→ Gold fell sharply even as geopolitical tension intensified.
→ Equities declined broadly.
→ Long-duration Treasuries offered little relief.
→The US dollar, meanwhile, surged toward multi-month highs.

Instead of stress spreading across supports, it began concentrating.

And when that happens in markets, correlations rise.

Here’s the story ⇩

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For most of this bull market, low correlations have been an invisible stabilizer.

Mega-cap stocks moved independently. Sector leadership rotated. Weakness in one pocket rarely infected the entire system.

That’s what kept index-level volatility surprisingly contained, even as valuations stretched and positioning grew crowded.

When correlations are low, markets can absorb shocks.

When correlations rise, markets transmit them.

This week wasn’t just about equities falling.

source: Sherwood

It was about traditional offsets failing at the same time.

→ The S&P 500 declined.
→ Gold dropped nearly 4% — its sharpest one-day slide in weeks.
→ Silver fell even harder.
→ Long-duration Treasuries offered little insulation.
→The US dollar surged toward a three-month high.

That combination is rare.

Since Bitcoin ETFs began trading in early 2024, there have only been a handful of sessions where stocks, gold, Bitcoin, and long bonds all moved lower together.

Those sessions tend to mark moments when liquidity overrides narrative.

! Now here’s the important distinction.

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Geopolitical tension typically introduces a risk premium into gold and Treasuries. That’s the textbook response.

But this time, the dollar moved first — and forcefully.

When the dollar strengthens rapidly, it tightens global financial conditions. Commodities feel pressure. Foreign holders of Treasuries adjust. Funding costs shift. Hedging relationships weaken.

Now, Gold falls because liquidity became the dominant variable.

That’s the shift.

The war may have been the trigger.

The dollar was the transmission mechanism.

And rising correlations were the result.

Yes, but partially.

Wars move prices, shift sentiment, reprice commodities, and create short-term volatility.

However, what makes this episode different is not that markets fell. It’s that they fell together.

That kind of alignment usually appears when risk was already tightly packed and volatility had been running below its natural level. In those conditions, it takes a trigger.

The geopolitical escalation may have provided the headline.

But the magnitude of the move suggests the market was already leaning in one direction.

Low volatility can create confidence. Confidence can create concentration. Concentration can create fragility.

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The question now is whether markets regain separation.

If this was primarily event-driven, you should begin to see assets resume their roles. → → Gold stabilizes even if equities remain soft.
→ Treasuries absorb part of the pressure.
→ The dollar’s advance slows as liquidity conditions normalize.

If instead correlations remain elevated and the dollar continues strengthening, that would suggest the adjustment is still working through positioning rather than simply reacting to news.

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Uneasy

When the tide pulls back, it doesn’t expose everything at once.

It reveals the most fragile footing first.

Loose sand shifts.

Unsecured boats tilt.

Anything dependent on calm water suddenly looks unstable.

Over the weekend, geopolitical risk surged after US military strikes against Iran.

→ Oil jumped nearly 7%.
→ Gold climbed.
→ The dollar strengthened.

But what mattered most wasn’t the headline.

It was how equities responded when the tide moved.

Here’s what got exposed ⇩

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The most speculative corners of the market felt it first.

AI infrastructure plays.
Quantum computing firms.
High price-to-sales energy-adjacent names.

Data center & AI infrastructure

→ Nebius (NBIS) ▼ -1.12%
→ CoreWeave (CRWV) ▼ -2.11%
→ Applied Digital (APLD) ▼ -1.36%
→ Cipher Mining (CIFR) ▼ -0.06%
→ IREN (IREN) ▼ -1.15%

AI energy & thematic plays

→ Bloom Energy (BE) ▼ -5.61%
→ Plug Power (PLUG) ▼ -1.12%
→ Oklo (OKLO) ▼ -2.02%

Quantum computing

→ D-Wave Quantum (QBTS) ▼ -0.64%
→ IonQ (IONQ) ▼ -0.64%
→ Rigetti Computing (RGTI) ▼ -0.95%

Other AI-linked names

→ SoundHound AI (SOUN) ▼ -1.05%
→ Tempus AI (TEM) ▼ -0.23%

This was about what kind of risk the market no longer wanted to hold.

Most of these names share the same traits:

→ Earnings that swing wildly
→ Heavy speculative trading
→ Big daily price moves
→ Valuations built more on future potential than present cash flow

When uncertainty rises, those traits stop being attractive and become liabilities.

So the selling was about fragility vs. resilience.

And when the tide shifts, the fragile names move first.

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While high-beta names stumbled, other parts of the market found footing.

Energy

→ Exxon Mobil (XOM) ▲ +1.21%

As crude spiked nearly 7%, integrated energy exposure offered immediate earnings leverage.

Defense contractors

→ Lockheed Martin (LMT) ▲ +3.04%
→ RTX (RTX) ▲ +4.56%
→ Northrop Grumman (NOC) ▲ +5.33%

When geopolitical risk rises, defense spending expectations rise with it.

Satellite & space infrastructure

→ Planet Labs (PL) ▲ +8.49%
→ AST SpaceMobile (ASTS) ▲ +8.25%
→ Firefly Aerospace (FLY) ▲ +8.56%
→ Intuitive Machines (LUNR) ▲ +8.07%

Modern conflict depends on imaging, surveillance, and communications — and markets price that quickly.

Intelligence & government AI

→ Palantir Technologies (PLTR) ▲ +5.13%

After months of cooling retail momentum, its defense and government exposure came back into focus.

Iran is the world’s fifth-largest oil producer and borders the Strait of Hormuz — a narrow waterway through which roughly 20% of global petroleum consumption flows.

When that chokepoint enters the conversation, energy becomes the fulcrum.
Oil becomes the market’s first transmission mechanism. Prices adjust quickly because energy is embedded across the economy. Higher oil prices ripple through inflation expectations, transport costs, and corporate margins.

And when rate expectations shift, equity valuations follow.

Even if conflict de-escalates, markets rarely wait for certainty before repricing risk. They build in a premium first.

And that repricing shows up immediately in the most extended, most volatile parts of the equity market.

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When uncertainty enters — whether through geopolitics, energy shocks, or shifting rate expectations — capital moves to:

→ Toward what generates cash today.
→ Toward what benefits from higher energy prices.
→ Toward what governments are likely to spend on.

Defense firms. Energy producers. Companies with balance-sheet strength.

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