How War, Volatility, and a Shifting Global Economy Are Stress‑Testing Markets

Markets are rattled as geopolitical risk collides with stubborn inflation and rising interest rates. In this episode of the Cents of Security Podcast, host Mary MacNamara is joined by Jose Torres, Senior Economist at Interactive Brokers, to break down what’s driving the latest volatility—from surging oil prices and elevated yields to weakening AI momentum and cracks in private credit.

Mary MacNamara  

Hello everybody and welcome to the Cents of Security Podcast, and today we’re talking about the markets and economics with Interactive Brokers, Senior Economist, Jose Torres. Hi Jose. How are you?

Jose Torres  

Hi, Mary. Doing great. A little sick from the turbulence that we’ve been seeing in markets, it’s been quite volatile since the beginning of the war against Iran. But doing well otherwise. How are you?

Mary MacNamara  

Good. It just seems like one thing after another, so let’s just get right to it. What’s going on this week?

Jose Torres  

Yeah, so you know, we’re on the sixth day. Today is March 5th. We’re on the sixth day of US and Israel’s invasion in Iran. We’ve seen interest rates shoot higher. We’ve seen oil prices reach 14-month high highest going back to January of 2025. Folks are worried that a sustained increase in oil prices would deter the Fed from cutting.

And that’s really holding back some of the areas and equities that have done really well a year to date, namely the Dow Jones, the Russell 2000, those areas of the market, they depend more on rate cuts and cyclic. They’re more cyclically oriented, so there is an expectation that if this conflict lasts longer than anticipated, that interest rates would stay higher and that those areas of the market would have trouble climbing from here. Of course, AI enthusiasm has been weakening in 2026 after three years of spectacular gains. And that’s where we are here. Markets are doing a lot better than you’d otherwise expect.

However, the S&P is only down 3% from, its higher. So, the Trump administration has come out and told folks not to worry about energy supplies because the cabinet is looking for additional ways to. Supply energy around the globe. The straighten of Horus moves 20% of crude oil supplies and mainly to Asia.

That’s essentially been blocked by, there’s a lot of controversy surrounding it, but essentially the Iranians are threatening that if ships are going through the strait, they could be stopped or hurt. In fact, today, March 5th, the Iranians claimed to have attacked a US oil tanker that was navigating the Strait of Hormuz

On top of that, Mary, the Iranians are also doing attacks around the region and other areas like in Dubai, near Riyadh and Saudi Arabia as well as other areas. And the region houses a third of global crude oil supplies. So that’s really the threat here is that if this conflict doesn’t end soon, that oil prices would stay too high.

Interest rates would be elevated as a result, and we wouldn’t get as much economic growth as we would have otherwise expected. One of the key things with oil prices is that consumers, when they’re spending more to fill up the tank of their car, they have less money for other goods and services.

So that can start to weigh on growth. And of course, from the corporate perspective, it’s more of an expense margin compression kind of situation where energy costs are higher. So now that starts to weigh on their margins. And then there is of course, somewhat of a limit on the capacity that you can pass on those higher costs onto consumers.

So, all in all, that’s really what the worry is here.

Mary MacNamara  

Okay, so seems like we’ve got a classic crisis pattern, at least what I’ve been reading, energy and defense up, banks and airlines take a hit. Tech selling is off as risk gets cut. When you see that type of behavior, what does it tell you about liquidity and positioning under the surface? And what about the safe havens?

Jose Torres  

Yeah, the safe havens here haven’t really been working out. It’s odd. I’m going to the last part of your question first. A long one. But the safe havens in Mary haven’t really worked out that well, namely gold and silver because they’re non yielding precious metals. Although they are highly liquid and during times of turbulence, folks tend to gravitate to gold and silver.

The issue is that another reason why folks gravitate to gold and silver is because interest rates are coming down or the dollar is weakening. But because the dollar is strengthening so much because of interest rates are rising so fast, then folks are not buying gold and silver. There’s actually more of an incentive to want to own treasuries despite the dynamic, because precious metals have gone on such a rally in the last few months or so.

First gold and then silver. So that’s really what’s happening there. What’s working really is hedges volatility protection instruments. Folks that have been hedging their books, they’ve outperformed folks generally speaking that have been unhedged. For example, today the VIX is up to 25, 26.

That means that folks that bought downside protection had somewhat of a cushion when markets went a lot lower as far as positioning. I think that this year there’s been a lot of caution going in, despite that when you have big dips, there has been a dip buying going on, a lot of conditioning from the past few years. And whenever markets fall, it, generally speaking, always come back at some point. So folks are really intraday coming in, scooping up the dips.

And we haven’t really had a day this week, Mary, where we’ve closed near the lows. We’ve gone deep down and then somehow retail investors that come in, institutions that have come in, they see value in the market, and they’ve picked it back up. Another pivotal consideration, Mary, is valuations. Markets, generally speaking, the NASDAQ and the S&P have gone nowhere for the last five months or so. So, during those five months, however, corporate earnings have grown and the economy has expanded. You have the earnings and economy expanding Mary, but stock prices are flat.

That means that valuations are better. Valuations are cheaper. And for that reason, I think that’s another thing that’s really supporting markets here as far as banks and airlines. While airlines, of course, they have limited capacity on how much they can raise airfares for consumers.

So, when jet fuel prices goes up, and of course jet fuel is derived from crude oil. So, when jet fuel costs go up, gasoline costs go up. Airlines can’t pass as all that cost onto the consumer. ’cause then you end up having damaging revenues. You don’t get as many sales folks say, oh wow, airfares are too expensive.

I’m not going to fly. So that’s really why high oil prices negatively affect airlines. Banks, that’s a little bit of a mixed story because sometimes you actually, in the financials, you want higher interest rates, especially for the large financials that have strong balance sheets because they can lend at higher rates.

But then with the capital markets centered, focused financials, there couldn’t be a lot of trouble with higher rates with M&A activity drying up and not as many deals happening due to borrowing. But then another key thing here, Mary, with the financials, the private credit, we’re starting to have some issues in private credit, some.

Missed payments, some borrowing some borrowers defaulting and folks are still early, but folks are worrying that this could become a little bit of a contagion event. And that’s really also weighing on banks.

Mary MacNamara  

Okay, so I’m going to switch the question here a little bit and talk about China. Obviously, China seems to be affected by oil, right? Especially from this region. So that’s one question. And also, they came out and said that their growth is going to slow.

They’ve actually are comfortable with some lower targets. What do you think about that?

Jose Torres  

Yeah, I think that its communism has failed again. The state can’t allocate resources as effectively or as efficiently as a private sector can. And China’s been suffering as a result for ages, they’ve been allowing loose monetary and financial conditions to drive up asset prices and to drive up economic growth.

But now you have a lot of structural issues. For example, Mary, the aging demographics, their population is contracting, right? They you have very low births in China on youth unemployment is through the roof. But that’s also, worrying the younger folks in society. Home prices still down, suffering declines. A lot of folks depended on asset values going higher. They bought second homes. They were helped by Chinese banks that had a lot of loose lending policies. As far as the commodity markets, it does at the margins mean. Slower demand for things like crude oil. China is the number one importer of oil, by the way.

But of course, there’s a lot of factors with commodities of global dynamic. So, China is contracted, but India is growing fast and India also imports a lot of crude oil. China alone might not be able to really dent the market that much overall. And then of course, you have the supply dynamic of folks adjusting to whatever the demand picture is.

But for global markets, I think that it points to less emerging market buoyancy. When you look at Chinese stocks over the last few years, they’re so well off their highs, they haven’t recovered. Home prices, you have deflation there, which by the way is the reason why we don’t want prices to go down, right?

They’re dealing with that problem right now. When you have prices going down, Mary, messes up with the behavior and the of consumers and of corporates, because if you think that things are going to be worth less later. And you’re going to save all your money in anticipation. So, it really, messes up the whole supply demand, spending saving kind of dynamic.

And that’s what they’re going through now. And it’s a, here in the states, the bifurcation of the inflation rate and the inflation price level. We don’t want the price level to go down because then we have issues like we had during the Great Depression or issues that China has. We want the inflation rate to be slow, but positive right around 2%. Most developed nations, some are a little higher at 3%, some that are less developed are up to four or five. But 2% here in the states, in the EU, UK other major economies, that’s where the objective is. And the idea is you have 2% of inflation to accommodate productivity growth, accommodate population growth and have natural supply and demand incentives in terms of spending and savings.

Mary MacNamara  

So, as we wrap up here, what are you looking for this weekend? What are you watching out for?

Jose Torres  

We have non-farm payrolls tomorrow, and I think that here the issue with interest rates, Mary, is that you have the war is pushing up oil prices, but also the economic activity has been buoyant. We got beats this week from ISM purchasing managers, index for services and manufacturing. We got beats on initial unemployment claims lower than expected.

Challenger job cuts lower than expected half of what it was back in January for February’s data. Yesterday March 4th we got a beat on ADP employment, wage pressure is still there. That’s positive for the consumers, but when you have all this strong economic data and you also have an oil price problem, then that does lift interest rates.

So that could be, a little bit of a problem heading into tomorrow’s Friday’s jobs report, because if you have a great number that talks about a great economy and points to strong wage pressures and subdue unemployment, then you also have the oil price problem. Rates are going to go a lot higher tomorrow, maybe 5 or 10 basis points, and that’s not going to be something that equity investors want to see.

Because that’s increasingly going to incentivize folks to go into the treasury complex, to go into fixed income rather than stay into risk assets.

Mary MacNamara  

Awesome. So glad to hear your analysis, Jose. Really appreciate it. So, folks, Jose Torres, Senior Economist at Interactive Brokers. Thank you so much, Jose.

Jose Torres  

Thank you, Mary. Thank you all.