Here Comes the Bear Market
The Dow and Nasdaq indexes both closed Friday in correction territory—a market dip of 10 percent from the last peak—and the S&P 500 wasn’t far behind. We’re now likely headed into a bear market, which is a dip of 20 percent. Probably we’d be there already if the market didn’t build into its calculations that President Donald Trump will reverse himself on Iran to prop up stock prices, a doctrine known as TACO (for “Trump always chickens out”).
Before we proceed, a disclaimer. I am not a stock market expert. My views on the market are entirely second-hand—a distillation of what the business press is saying at any given moment. I believed last October that a stock market crash was imminent. That was obviously wrong (as my broker has lately been reminding me). But the signposts haven’t exactly got better since then. Warren Buffett has an indicator for stock overvaluation: market capitalization divided by gross domestic product. Buffett says that when his indicator nears 200 percent, which is to say when stock prices are twice as great as the economy, investors are “playing with fire.” The Buffett indicator was 218 percent when I wrote last fall. It’s 213 percent now.
Then there’s the more intangible cockroach index. Speaking in mid-October about signs of instability in private credit and private equity, a sector that goes largely unregulated, JPMorganChase’s chief executive, Jamie Dimon, said: “When you see one cockroach, there are probably more.” Five months later, private credit’s exposure to software companies vulnerable to AI advances is prompting what Bloomberg calls “a sudden investor exodus.” It’s cockroaches all the way down.
Some Wall Street commentators, including everybody in the Trump administration, are saying that the surge in oil prices and consequent financial disruption are only temporary. “The backdrop is very strong fundamentals,” said David Dietze, chief investment strategist of Dietze Wealth Management Group, last week, citing corporate earnings up 16 percent last year. But that was (a) last year and (b) driven by an AI bubble. Last year’s more relevant fundamental, as I’ve noted previously, is that growth in GDP slowed to 0.7 percent during the last quarter of 2026. This year’s most attention-getting fundamental is that the economy lost 92,000 jobs in February.
As for the war in Iran, I don’t disagree that Trump tends to lose his nerve when anything he does spooks the stock market. But as Yale’s CEO-whisperer Jeffrey Sonenfeld noted last week, Trump’s TACO reversals to calm markets are only temporary; once the markets calm down, “Trump is prone to nudging back toward his original inflammatory position until he hits the breaking point.” He goes on the wagon, then he falls off the wagon. Thus, for instance, “with financial markets soothed from Trump putting out smoke about a potential peace deal, counterintuitively, that has the opposite effect of buying Trump much more time on the clock and much more room to escalate militarily.”
Trump seems to want very much to end the Iran war. But what he’s discovering—and what any non-sycophant could have told him, if he’d had any on the White House payroll—is that wars are very difficult to end, especially against a pathologically violent regime like Iran’s. Trump wants to declare victory and go home, but that won’t open the Strait of Hormuz. As the stalemate continues, the likelihood increases that Trump will commit to the ground invasion he felt sure he could avoid. Even if troops were able quickly to overthrow Ayatollah Khamenei fils and the Islamic Revolutionary Guard, it likely wouldn’t happen quickly enough to rescue the global economy. And how would we prevent the theocracy’s reinstatement after we withdrew, as occurred in Afghanistan? In Venezuela, we didn’t even try to change the Chavismo regime we purported to oppose.
In an interview published Sunday night by the Financial Times, Trump floated the line that he’s achieved “regime change” already in Iran, adding, “The people we’re dealing with are a totally different group of people.… [They] are very professional.” Yeah, that’s the ticket! But Trump also said that he’d like to “take the oil in Iran” (he always wants to take the oil) and that he might “take Kharg Island,” Iran’s main oil export hub, but that if he did “it would also mean we had to be there for a while.”
What would be the effect of sustained high oil prices? It’s interesting to observe the shifting perspective of the oil market analyst Daniel Yergin, author of the Pulitzer Prize–winning 1991 book The Prize: The Epic Quest for Oil, Money, and Power. Six days into the war, Yergin wrote in the Financial Times: “This crisis is unfolding in a world in which the global oil and gas system is more resilient and diversified than it has been for decades.” Twenty-three days later, Yergin said Sunday on Fox News: “If it’s a couple more weeks, this crisis is manageable; if it goes longer, it really is a big hit to the global economy, including here in the United States.” Marko Papic, chief strategist at the investment research firm BCA Research, told CNBC Saturday that through April 19 the world will have lost 5 percent of global supply, but after that the loss will be more like 10 percent as the U.S. strategic petroleum reserve empties out and the Russian and Iranian tankers we exempted (preposterously) from sanctions unload their oil.
The presumption that oil prices will fall to previous levels as soon as the Strait of Hormuz is open appears to be a fantasy. Sheikh Nawaf al-Sabah, CEO of Kuwait Petroleum Corp., said at an energy conference Yergin’s firm S&P Global hosted last week that it would take Kuwait “and everybody else in the Gulf a few months to reach our full production capacity because we have had to shut in wells.” He guessed three or four months. Mark Zandi, chief economist at Moody’s Analytics, observed to The New York Times’ Tony Romm and Rebecca F. Elliot last week that oil prices “rise like a rocket, fall like a feather.”
All this suggests that, except perhaps for oil stocks, the bear market is practically here already. Even if Trump chickens out, he won’t be able to do it fast enough. TACO is dead. It got eaten by a bear.