Mar 11, 2026 Steady Through the Storm: Making Sense of AI Disruption and the Iran Conflict
Two major forces have shaken markets in 2026: a sharp selloff in software and technology companies as artificial intelligence reshapes the industry, and a military conflict between the United States, Israel, and Iran that has disrupted global oil shipping for the first time in modern history. In this commentary, we break down what’s happening, what it means for investors, and how we’re thinking about the road ahead.
The AI Repricing: What’s Really Going On With Tech Stocks
If you’ve noticed your technology holdings are down more than the broader market this year, you’re not imagining it. Software companies — particularly the ones that sell subscription-based business tools, often called “SaaS” (software-as-a-service) — have fallen roughly 20% since January. Some of the biggest names in the sector are down 30–40%.
The reason is straightforward: AI tools have gotten dramatically better, very quickly. New AI products can now handle tasks that used to require expensive software subscriptions and large teams of people. Wall Street looked at this and asked a simple question: if AI can do the work, do companies still need all those software licenses? The market’s answer, at least for now, has been to sell first and ask questions later.
Here’s where we disagree with the crowd: for the major enterprise software platforms, this selloff is a massive overreaction. The leading companies aren’t sitting still waiting to be replaced. They’re building AI directly into their own products and finding entirely new ways to make money from it. The top customer relationship platforms have already launched AI tools that charge per action rather than per user — so even if a company needs fewer people, the software maker still earns revenue from the AI doing the work. The biggest workflow automation companies aren’t being replaced by AI agents; they’re becoming the management layer that organizes those agents. The largest cloud platforms have embedded AI assistants into every product, activated with a click (and a price increase).
That said, we do expect profit margins to come down from current levels as these companies invest heavily in their AI transitions. The adjustment in stock prices isn’t entirely wrong — but the magnitude is.
Where We See Real Danger
Not every area of technology will come through this unscathed. Gaming and graphic design face serious, potentially permanent disruption. About 30% of the gaming industry workforce has been laid off over the past two years, and there’s little sign these companies are adapting. Many of you have seen firsthand what AI can do with images and design — the quality is impressive and the cost is a fraction of hiring human talent. We expect significant losses in this space and believe caution is warranted.
Cybersecurity is more nuanced. The demand for cybersecurity has never been higher, especially with a hot war and escalating digital threats. But AI is a double-edged sword here — it helps companies defend their systems, but it also helps hackers break in. Cybersecurity firms may eventually look less like high-flying growth stocks and more like utilities: essential, permanent, but with thinner profit margins. We believe the pullback in market leaders with strong competitive advantages could represent an opportunity, but selectivity matters — not every name in the space is equally well-positioned.
The payments and financial technology space is also worth watching closely. There are several ways AI could disrupt how transactions are processed, from margin compression at the big card networks to AI potentially modernizing decades-old banking infrastructure. This is an area where the picture is still developing and we will share more detailed views as it comes into focus. Other areas on our radar include legal services, accounting, management consulting, and healthcare administration.
The Iran Conflict: What It Means for Your Money
On February 28, the United States and Israel launched Operation Epic Fury — the largest American military operation in the Middle East since the 2003 Iraq invasion. The strikes have been devastating to Iran: the Supreme Leader and a significant number of senior officials were killed, the vast majority of Iran’s air defenses have been destroyed, and its ability to launch ballistic missiles has been reduced by an estimated 90%. The U.S. and Israel currently control the skies over Iran without opposition.
Iran has fired back with missiles and drones at targets across the Persian Gulf region, hitting U.S. bases in Kuwait and infrastructure in several neighboring countries. But the development that matters most for markets is this: shipping through the Strait of Hormuz has effectively stopped. The Strait is a narrow waterway between Iran and the Arabian Peninsula, and roughly 32% of the world’s seaborne oil passes through it every day. Iran doesn’t technically “control” it, but with missiles and mines threatening the area, no commercial shipping company is willing to send tankers through. This has never happened before in modern history.
How Markets Have Reacted
The response has been surprisingly split. U.S. stocks have held up remarkably well — the S&P 500 is down only modestly through the first week of the conflict. That resilience reflects a market consensus that this will be a short conflict. Investors are buying the dips.
The story overseas is very different. South Korea’s stock market suffered its worst single-day crash since 2008, falling over 12%. Japan had its worst week since the early days of COVID. The reason is simple: those countries import almost all of their oil, and much of it normally comes through the Strait of Hormuz. The United States, by contrast, is now a net oil exporter — we produce more than we consume. That’s a critical distinction.
Oil prices have surged about 21% in a single week, from roughly $67 to over $80 per barrel. You’re already seeing this at the gas station — retail gasoline jumped about 27 cents per gallon. Gold has traded in a wide band around $5,100–5,300 per ounce. And here’s something unusual: U.S. government bonds have not rallied the way they typically do during crises. Normally, when investors get scared, they pile into Treasury bonds, pushing prices up and interest rates down. This time, rates have actually risen — a signal that the bond market is more worried about oil pushing inflation higher than it is about an economic slowdown. The U.S. dollar, rather than bonds, has been the primary safe haven this time around.
What We Expect From Here
The U.S. Economy and Interest Rates
Let’s put the economic impact in practical terms. Research suggests that every sustained $10 rise in oil prices shaves a small amount off economic growth and adds about 0.2% to inflation. With oil already up roughly $15 from its recent lows, that’s meaningful but manageable. Importantly, energy prices are stripped out of the “core” inflation measure that the Federal Reserve actually targets when setting interest rates. The pass-through from oil prices to the things the Fed cares most about tends to be slow and limited.
Here’s the key point: the United States is energy independent. We export more oil than we import. Americans will feel higher prices at the gas pump, but we are not going to run short of oil. That’s a fundamentally different position than Japan, South Korea, India, or most of Europe. We believe the Fed will look through any short-term bounce in inflation caused by oil and keep its focus on supporting economic growth. It would be very unusual for the Fed to raise interest rates in response to a supply shock like this — and if anything, incoming Fed leadership appears inclined toward cutting rates.
U.S. Stocks: History Is on Our Side
If there’s one data point we’d ask you to remember from this commentary, it’s this: across 17 major geopolitical crises since 1939, the average one-week decline in the S&P 500 was just 1.09%. And twelve months after those shocks, the market posted an average gain of nearly 3%. The biggest one-year gain following a crisis was over 32%, after October 2023. The pattern is remarkably consistent: markets absorb the shock, and then they move forward.
The sector rotation we’ve seen is exactly what the textbooks would predict. Defense companies are up 15–18%. Energy stocks are at all-time highs. Airlines are down 8–11% on jet fuel cost fears, and cruise lines have fallen about 12%. Companies with hard physical assets that can’t be replicated — utilities, railroads, industrial manufacturers — are holding steady. This rotation will likely persist as long as the conflict continues, but much of it should reverse when hostilities end.
The question every investor should ask right now is simple: will the events in Iran permanently damage the earnings power of the biggest American companies? For the vast majority, the answer is no. There are risks from prolonged oil price elevation, but those are tail risks — unlikely scenarios, not the base case. The emotional selloff in the early days of a conflict has historically been a buying opportunity, not a reason to head for the exits.
International Markets and Oil
International markets carry more risk right now, especially in Asia. Japan imports 90% of its oil, with 75% normally flowing through the Strait. South Korea, India, and Thailand are similarly exposed. A stronger U.S. dollar makes this worse, since these countries must pay more for oil that’s priced in dollars. European markets are also under pressure, with Spain and Italy most vulnerable as large energy importers. In our view, caution on overseas stocks is warranted in the near term, but a quick resolution to the conflict could trigger sharp recoveries — which could create attractive opportunities for investors willing to ride out the turbulence.
On oil: markets are currently pricing in a disruption lasting roughly four to five weeks, which matches the administration’s stated timeline. If the Strait reopens on schedule, oil likely drops back toward $65–70 per barrel. OPEC countries have already announced production increases, and the administration has additional options including the Strategic Petroleum Reserve and Venezuelan output. A prolonged disruption is the worst-case scenario — some analysts have modeled oil at $90–100+ in that case — but several factors argue against it: Washington has little appetite for high gas prices heading into midterm elections, Iran is operating from a position of extreme weakness, and the U.S. military has taken steps to prevent Iran from mining shipping lanes.
Our Perspective: Why This Environment Rewards Engagement
If there’s a single takeaway from early 2026, it’s this: a passive, set-it-and-forget-it approach to investing is being tested in ways we haven’t seen in years. Two entirely different forces — one driven by technology, the other by geopolitics — are creating both real risks and genuine opportunities, sometimes in the exact same sectors. This is the kind of environment where staying engaged with your portfolio and your financial advisor matters more than usual.
From our vantage point, we see value in high-quality software companies that are demonstrating real AI adaptation — the ones building new revenue streams, not the ones watching from the sidelines. We believe areas like defense, energy, and companies with hard physical assets deserve attention in the current environment. We think the areas facing genuine disruption risk without a credible response warrant caution. And we believe flexibility is essential as the Iran situation develops — whether that ultimately means leaning into opportunity on a resolution or becoming more defensive if things escalate. History has shown time and again that geopolitical flare-ups tend to be short-lived in their market impact. This one should prove to be no exception.
The weeks ahead will be volatile — that much is certain. But volatility and permanent loss are not the same thing. For investors who stay disciplined and avoid making emotional decisions, periods like this have consistently been where long-term outperformance is built. We encourage you to stay in close contact with your financial advisor as events unfold. Together, we can make sure your portfolio is positioned to weather the uncertainty and take advantage of the opportunities that disruption inevitably creates.
As always, please don’t hesitate to reach out to your financial advisor with questions or concerns.
Michael Levitsky, CFA®, CAIA®
Chief Investment Officer
Sources
SaaS sector performance: iShares Expanded Tech-Software Sector ETF (IGV) year-to-date performance data; CNBC, “AI fears pummel software stocks,” February 6, 2026; MoneyWeek, “AI disruption: does the software selloff create contrarian buying opportunities?” February 2026. Individual stock declines referenced from S&P Capital IQ market data.
Gaming industry workforce reductions: Multiple industry reports and news sources documenting layoffs across the gaming sector throughout 2024–2026.
Iran conflict details and military assessments: CNN, “Everything we know on the seventh day of the US and Israel’s war with Iran,” March 5, 2026; Al Jazeera, “Iran war: What is happening on day seven of US-Israel attacks?” March 6, 2026; Brookings Institution, “After the strike: The danger of war in Iran,” March 2026.
Strait of Hormuz shipping volumes (32% of seaborne crude, ~14 million barrels/day): U.S. Energy Information Administration (EIA); CNBC, “The Strait of Hormuz crisis explained: What it means for global shipping,” March 2, 2026.
South Korea, Japan, and Asian market declines: Bloomberg; CNBC market data; Wikipedia, “Economic impact of the 2026 Iran war.”
Oil price movements (WTI $67 to $80+, 21% weekly gain): CNBC, “U.S. crude oil tops $80 per barrel as escalating Iran war disrupts global fuel supplies,” March 5, 2026. Gasoline price increase: NPR, “Oil prices surge, but no panic yet, as Iran war continues,” March 2, 2026.
Gold prices and Treasury yield behavior: Bloomberg market data; Profile News, “Financial markets: VIX spikes and bonds slide as oil jumps amid Iran conflict,” March 2026.
Oil price impact on GDP and inflation ($10/bbl = 10–20 bps GDP, ~20 bps headline CPI): Goldman Sachs Research, “How Will the Iran Conflict Impact Oil Prices?” March 2026; Federal Reserve economic research.
Historical geopolitical crisis data (17 events since 1939, avg. 1-week decline of 1.09%, avg. 12-month return of +2.92%, 32%+ gain following October 2023): Stock Trader’s Almanac, compiled by Jeffrey Hirsch; as cited in CNBC, “Iran war and your portfolio: The historical stock market patterns investors should know,” March 4, 2026.
Average geopolitical drawdown of 4.7% over 19 days, 42-day recovery: LPL Research, Bloomberg, FactSet, S&P Dow Jones Indexes, CFRA, Strategas.
Defense and energy stock performance, airline and cruise line declines: Market data; FinancialContent, “Defense Stocks Surge to Record Highs as Iran Conflict Hits Tipping Point,” March 2, 2026.
Japan oil import dependency (90% imported, 75% via Strait of Hormuz), South Korea and regional exposure: CNBC, “The Strait of Hormuz is facing a blockade. These countries will be most impacted,” March 3, 2026.
OPEC+ production increase and administration timeline: Financial Times; CNBC, “How high can oil and gas prices go because of the Iran war? Here are the scenarios,” March 2, 2026. Oil scenario projections ($90–100+): Goldman Sachs Research; CNBC, “Experts weigh potential scenarios for oil if Strait of Hormuz closes,” March 1, 2026.