Market Outlook

April 1, 2026

War Heightens Market Volatility; Technology May Make It Worse

While war should put our everyday concerns into perspective, a quick Google search reminds me that the "fog of war" speaks to the "realm of uncertainty where three-quarters of the factors on which action is based are hidden."

So if battlefield outcomes (and publicly disclosed negotiations) are not immediately clear, doesn’t it follow that there would also be a lack of clarity in the financial markets? Granted, the traders, analysts, economists and fund managers I have known through the years are a bright, well-schooled lot who are seemingly made brighter by computer-driven algorithms and highly sophisticated trading platforms. But they can’t understand what they don’t know.

Add to wartime’s age-old fog with today’s deepfake videos, AI-generated internet news, clickbait, state-initiated mis- and disinformation, coupled with a few ill-considered tweets and, voila!, there’s the recipe for today’s more frequent and extreme price swings.

For years, the market’s true invisible hand has been high-frequency trading. HFT now accounts for more than half of U.S. equity trading volume and, more importantly, is thought to increase intraday volatility by an average of 30%. (The growing popularity of ETFs and the forced rebalancing of their underlying benchmarks contribute this volatility.) Indeed, since the start of the war, the CBOE Volatility Index has risen 31% atop that calculated baseline. In fairness, the VIX (or Fear Guage) was actually lower during both the 2007/’08 Financial Crisis and Pandemic. The larger point is that equity price swings have become more frequent and wider over time.

At the extreme was March 23. Driven by extinguished hopes of peace, a $3 trillion peak-to-trough change in stock market capitalization occurred in just 56 minutes. That’s the rough equivalent of Alphabet or Microsoft’s market value.

Along with stocks, Operation Epic Fury has sparked extreme volatility in oil prices. Though not yet apparent at U.S. gas pumps, the oil volatility gauge (OVX) has tripled since the start of the year (it had been rising ahead of the actual start of hostilities). With a barrel of Brent Crude soaring over 60% since the start of the war, daily price swings have since settled into a “high-volatility regime” of 6 - 7% daily versus about 0.6% in 2025.

With the first quarter over, is the past prologue for the next three quarters? Well, there have so far been three different markets this year. January saw a continuation of 2025, February saw growth bow to value, while March bore no resemblance to either.

As such, and in spite of the unpredictability of the war’s timeline and its economic aftermath (especially outside the U.S.), the past remains prologue: tampering with one’s asset allocation (stocks, bonds and cash) at such a volatile time is likely to be a mistake.

On the other hand, the asterisk above serves a purpose. As Jack’s model portfolio trades attest, higher energy prices risk a slowdown in global GDP growth. (Inflation may also become an issue, but maybe not if higher oil and gas slow growth.) Separately, the rapid adoption of AI is already disrupting software and financial services giving rise to emerging businesses that will be less costly to do-it-yourself investors.

In last month’s newsletter we showed the relationship between stock prices and corporate earnings. In the short-term, there is always dislocation. But not over the long term. While we all hope for a speedy end to the war, its unpredictability will continue to shift market sentiment — sometimes hourly. However, U.S. markets have weathered far more, for far longer and have always recovered. Time is on every investor’s side.

— John Bonnanzio