War Jitters Put Stocks Under Pressure | The Close 3/11/2026
Speakers
Christine Phillpotts — Portfolio Manager, Ariel Investments
— Chopping Block co-host
Summary
- Geopolitical tensions in the Middle East are driving oil prices higher, creating a regressive tax on lower- and middle-income consumers and raising stagflation risks.
- The Federal Reserve is expected to delay rate cuts as they monitor the inflationary impact of sustained high energy prices and robust core PCE data.
- Private credit markets are facing scrutiny and redemption pressures, prompting major players like Apollo to increase transparency with more frequent mark-to-market valuations.
- Emerging markets are showing resilience due to stronger balance sheets, lower reliance on external debt, and structural shifts away from oil dependency (e.g., China's rapid EV adoption).
- The AI hardware supply chain remains a high-conviction trade, as downstream software companies rely entirely on foundational chip manufacturers regardless of which specific AI models win market share.
Trade Ideas
"Capitalize on some of those moves. For example, buying back into some mortgage exposure so close out some of those bets that haven't worked for you but remain diversified." With interest rates expected to remain range-bound and the Federal Reserve delaying cuts due to sticky inflation, agency mortgage-backed securities offer attractive yields and vital portfolio diversification compared to stretched equity valuations. LONG. MBS provides a safe haven with steady income generation during periods of heightened geopolitical and equity market volatility. If inflation re-accelerates significantly, forcing the Fed to actually hike rates rather than just delay cuts, bond prices across the board will suffer.
"This is the 16th quarter of negative comps... Kohl's is a bit stuck in the middle. The consumer in the middle and lower end is being very pressured and gas prices are a very instant tax on the consumer." With rising gas prices acting as a regressive tax, middle-tier department stores lose out as their core demographic is forced to cut discretionary spending and trade down to off-price or bulk retailers. AVOID. The company lacks a compelling product moat and is highly exposed to a weakening middle-class consumer. A sudden drop in oil prices or a highly successful turnaround in their women's apparel and Sephora partnerships could drive a surprise earnings beat.
"Department stores such as Kohl's and Macy's have had share losses... I buy clothes from Costco and Walmart too. Those have done really well." As inflation and gas prices squeeze the consumer, value-oriented big-box retailers capture market share not just in groceries, but in higher-margin discretionary categories like apparel. LONG. These retailers benefit from structural trade-down behavior and possess the scale to maintain margins in a tough macro environment. Valuations for defensive retail staples are historically stretched; any signs of consumer resilience could cause a rotation back into higher-beta discretionary names.
"Strong AI, cloud sales, fiscal outlook and suggesting little let up in demand for AI compute... Oracle did maintain its capital spending, which... was higher than expected." Sustained high capex in AI infrastructure signals strong future revenue pipelines, and Oracle's discounted valuation relative to other hyperscaler peers makes it an attractive catch-up trade in the cloud computing space. LONG. The company is proving it can successfully monetize AI demand while trading at a more reasonable multiple than its mega-cap tech peers. A broader slowdown in enterprise IT spending or failure to execute on their aggressive capex investments could compress margins.
"Agricultural chemical companies, we have seen them rise as a result of what is going on in the Middle East... It is impacting nitrogen, phosphate supplies, raising prices. Saudi Arabia supplies about 15 to 20% of the global trade through the Strait of Hormuz." Geopolitical blockades in key shipping routes restrict the global supply of essential fertilizers, driving up spot prices and expanding profit margins for North American producers who do not rely on Middle Eastern transit routes. LONG. Domestic agriculture chemical companies act as a direct geopolitical hedge with strong pricing power during supply shocks. A swift diplomatic resolution to the Middle East conflict would reopen shipping lanes, causing a rapid deflation in fertilizer spot prices.
"I actually do like some of the financial space because if you look at that sector it is still on an uptrend... we need to see names like American Express, we need to see them bounce off the trend lines... Capital One is another one." Despite short-term macro volatility and fears of consumer weakness, premium consumer finance companies remain in a structural technical uptrend. Buying them at technical support levels during market pullbacks offers a favorable risk/reward entry. LONG. These companies have resilient, higher-income customer bases that are less sensitive to inflation, allowing them to maintain strong transaction volumes. A severe spike in unemployment would lead to higher default rates and force these companies to aggressively increase their loan loss provisions.
"The real impact is jet fuel. That is what we are going to see in the short term, costs are going to go up. It is going to impact American Airlines most given the lower leverage, and pretty much across the other network carriers... it will be a 10% hit." Airlines lack the pricing power to fully pass on a 40% spike in oil prices to consumers without destroying demand. This leads to direct margin compression and EPS downgrades, with highly levered carriers suffering the most severe impact. SHORT. The sector faces a toxic combination of rising input costs and a consumer base that is becoming increasingly price-sensitive. A sudden release of strategic petroleum reserves or a ceasefire that crashes oil prices would trigger a massive short-squeeze in airline stocks.
"We are seeing growth in international demand. Growing 20% for Raytheon, Lockheed, and so on... All that coupled in, we are seeing defense grow 8 to 10%." Prolonged global conflicts force allied nations to restock depleted munitions and upgrade defense systems, creating a multi-year backlog of high-margin international orders for prime US defense contractors. LONG. Defense primes offer visible, long-term revenue growth driven by structural increases in global defense budgets, independent of the domestic economic cycle. US government budget impasses or a shift toward cost-cutting in domestic defense procurement could weigh on overall earnings growth.
"The chips powering AI are being manufactured by TSM. Even before the geopolitical debate, it was about downstream of AI... all of those downstream players require the products that the companies we have invested in provide." While software and downstream AI applications face intense competition and uncertain monetization, the foundational hardware manufacturers hold a sustainable monopoly. They profit regardless of which tech giant wins the AI software war. LONG. TSM is the ultimate "picks and shovels" play for the AI revolution, boasting an insurmountable moat in advanced semiconductor fabrication. Escalating geopolitical tensions between China and Taiwan could severely disrupt operations or trigger a massive risk-off selloff in the stock.
Up Next
This Bloomberg Markets video, published March 11, 2026, features Tony Rodriguez, Oliver Chen, Carol Massar, Victoria Fernandez, Sheila Kahyaoglu, Christine Phillpotts discussing MBB, KSS, WMT, COST, ORCL, CF, MOS, NTR, AXP, COF, AAL, LUV, DAL, UAL, RTX, LMT, TSM. 9 trade ideas extracted by AI with direction and confidence scoring.
Speakers: Tony Rodriguez, Oliver Chen, Carol Massar, Victoria Fernandez, Sheila Kahyaoglu, Christine Phillpotts · Tickers: MBB, KSS, WMT, COST, ORCL, CF, MOS, NTR, AXP, COF, AAL, LUV, DAL, UAL, RTX, LMT, TSM