AI Fears & Iran Tensions Are Shaking Markets – Analysis

US stocks closed lower on Thursday, pulling the S&P 500 close to flat for the year, as a confluence of risks rattled investors.

The market is grappling with renewed fears that massive investments in Artificial Intelligence may not pay off, pressuring chipmakers and software stocks . Simultaneously, geopolitical risks escalated as US President Donald Trump warned Iran that it has “10 to 15 days” to reach a nuclear deal or “really bad things will happen,” driving oil prices to 6.5-month highs .

• AI & Tech Pressure: Software and chip stocks declined amid persistent worries about AI disrupting enterprise software demand. Salesforce, Intuit, and Cadence Design Systems saw significant drops .
• Geopolitical Flashpoint: President Trump’s ultimatum to Iran has put markets on edge, with the potential for conflict threatening the Strait of Hormuz, through which about 20% of global oil passes .
• Mixed Economic Data: Weekly jobless claims fell to a 5-week low (206,000), signaling labor market strength, while the December trade deficit widened unexpectedly. Hawkish comments from Fed Governor Stephen Miran, suggesting a “less accommodative” rate path, added further pressure .

Pre-Market Reaction

The initial reaction shows a clear flight to safety (commodities, US dollar) and a rotation away from risk-on assets like tech stocks.

The Official Narrative

The Street views this as a dual shock. On one hand, the Fed minutes and hawkish comments suggest rates may stay higher for longer, challenging equity valuations. On the other, the geopolitical premium being priced into oil is a classic stagflationary signal, putting the dollar in a demand bid as a safe haven . Analysts are calling this a “confirmation of a change in leadership” in the market, rotating away from megacap tech and into industrials and consumer cyclicals .

Interpreting the Move Before the Open

The market is currently pricing in two very different realities, and understanding their intersection is key. The AI fear is a growth scare. The Iran tension is a supply shock scare. When combined, they create a tricky environment where money flows are diverging.

The underreported story here is the dissonance in the bond market. While stocks sold off, the 10-year Treasury yield fell (to 4.075%), indicating a flight to safety. However, hawkish Fed comments pushed the 2-year yield up . This flattening yield curve suggests the bond market is worried about future growth (hence buying long-term debt) but acknowledges the Fed can’t cut rates now due to sticky inflation and a hot labor market. This “policy trap” is the real headwind for equities.

Historical Context & Credibility: We have seen this playbook before. The initial “AI disruption” scare in software (Salesforce, Intuit) mirrors the rotations seen in past tech bubbles where the beneficiaries of a new technology are not immediately clear. Historically, these pullbacks in leaders (like NVDA) can last 4-6 weeks before dip-buyers emerge. Regarding Iran, oil spikes above $70 have historically acted as a tax on consumer spending. With WTI at $66.56 and climbing, we are approaching that psychological threshold. This is a credible, sustainable shift in risk sentiment, at least until the Iran deadline passes or clear diplomacy emerges.

Contrarian View: The pre-market dip in Gold to ~$4,995 seems like an overreaction to the dollar’s strength . With real yields likely to fall if growth fears intensify, and with geopolitical risk palpable, Gold should be bid. I view the early morning softness in Gold as a potential buying opportunity before the PCE inflation data today, which could confirm sticky inflation and boost the metal’s appeal as a hedge.

What Could Happen at the Open and Beyond

Direct Impact & Sector Rotation:

• Energy (Bullish): Oil’s surge will directly benefit producers. Look for Occidental Petroleum (OXY) , which closed up +8.44% on Thursday after strong earnings, to gap higher again .
• Tech (Bearish): The Nasdaq is the epicenter of pain. Names with high AI exposure like Nvidia (NVDA) and software plays like Intuit (INTU) and Salesforce (CRM) will likely see continued selling pressure.
• Defensives (Mixed): Capital will likely rotate into Utilities and Industrials, which were the only gainers on Thursday . Deere & Co (DE) is a prime example of industrial strength, surging after raising guidance .

Volatility & Sentiment Shift: Expect elevated volatility. The VIX is likely to spike at the open. Sentiment has definitively shifted from “risk-on” to “risk-off.” The US Dollar is acting as the primary safe haven, which will pressure multinational tech companies with large overseas revenues.

Forward-Looking Catalysts:

1. PCE Inflation Data (8:30 AM ET): The Fed’s favorite gauge. A hotter-than-expected print (expected +0.3% m/m) will validate the hawkish Fed narrative and could trigger a deeper sell-off.
2. Iran Deadline Countdown: Any saber-rattling headlines over the weekend will force traders to hold geopolitical risk premium into the close.
3. Fed Speak: Comments from officials following the PCE release will be critical for adjusting rate hike probabilities.

My Predictions & Price Targets

Based on the synthesis above, I predict that markets will show a risk-off, stagflationary profile over today’s session. Energy will lead, Tech will lag, and safe havens (USD, Gold) will find support despite short-term headwinds.

Specific Price Targets & Rationale:

Asset 1: Crude Oil (WTI – CLH26)

• Bias: Bullish
• Primary Target (PT1 – $67.85): The first level I expect it to reach today/intraday.
  • Rationale: This is the 61.8% Fibonacci retracement of the recent trading range, a typical profit-taking zone that will act as the next resistance level if breached.
• Secondary Target (PT2 – $69.50): A more ambitious target if the move gains momentum today.
  • Rationale: If Iran rhetoric intensifies before the weekend, traders will price in a higher risk of Strait of Hormuz disruption. $69.50 was a key support level from last August, now acting as resistance.
• Key Level to Watch ($66.00): Holding above yesterday’s close of $66.56 is crucial. A dip back below $66.00 would signal the rally is fading .

Asset 2: Gold (XAU/USD)

• Bias: Bullish (Contrarian Buy)
• Primary Target (PT1 – $5,035): The first level I expect it to reach today/intraday.
  • Rationale: A retest of the overnight highs. If PCE data comes in sticky, inflation fears will drive capital back into hard assets.
• Secondary Target (PT2 – $5,080): A more ambitious target if the move gains momentum today.
  • Rationale: This level represents the top of the current trading channel. A break above here on high volume would signal a resumption of the uptrend.
• Key Level to Watch ($4,980): The pre-market low. If Gold breaks and sustains below this level, my contrarian thesis is wrong .

Asset 3: S&P 500 (SPX)

• Bias: Bearish
• Primary Target (PT1 – 6,825): The first level I expect it to reach today/intraday.
  • Rationale: A drop to test the 50-day moving average, which acted as support two weeks ago.
• Secondary Target (PT2 – 6,800): A more ambitious target if the move gains momentum today.
  • Rationale: A psychological round number and the site of the Feb 10th low. A break here accelerates selling.
• Key Level to Watch (6,861): Thursday’s close. A failure to hold above Thursday’s close of 6,861.89 confirms the selling pressure is carryover, not a dead-cat bounce .

Asset 4: Bitcoin (BTC/USD)

• Bias: Neutral/Bearish
• Primary Target (PT1 – $67,500): The first level I expect it to test today/intraday.
  • Rationale: Crypto is acting like a risk asset today, correlated with Nasdaq futures. A weak open in tech will drag BTC down to recent support.
• Secondary Target (PT2 – $65,800): A more ambitious target if the sell-off deepens.
  • Rationale: The Feb 13th low. This level must hold to maintain the broader bullish structure.
• Key Level to Watch ($68,800): Current price. A bounce back above $69,000 would signal decoupling from tech weakness .

Asset 5: Occidental Petroleum (OXY)

• Bias: Bullish
• Primary Target (PT1 – $52.60): The first level I expect it to reach today/intraday.
  • Rationale: Testing the 52-week high hit on Feb 20, 2025. Oil strength provides the fundamental catalyst .
• Secondary Target (PT2 – $54.00): A more ambitious target if the move gains momentum today.
  • Rationale: A breakout above the 52-week high often triggers algorithmic buying, pushing the price to the next psychological level.
• Key Level to Watch ($51.09): Thursday’s close. A drop below $50.50 would suggest the post-earnings glow is fading .

What Could Go Wrong Today

Thesis Invalidation Levels:

• For Crude Oil (WTI): A sustained break and trade below $65.50 in the first hour of trading would invalidate the bullish thesis, signaling that the geopolitical premium is being priced out.
• For S&P 500 (SPX): A rally back above 6,900 would prove the bearish forecast incorrect, indicating dip-buyers are overwhelming sellers.
• For Gold: A break and sustained trade below $4,965 would invalidate my contrarian buy thesis.

Key Risk Factors: The primary risk is a diplomatic breakthrough with Iran, which would immediately deflate oil prices and remove a key support for the “risk-off” trade. Conversely, an accidental military engagement in the Middle East could send oil prices skyrocketing past my secondary targets in a matter of minutes.

Trading Considerations: This is a market driven by headlines. Position sizing must be conservative. If targets are reached quickly in the early session, taking partial profits is wise. Watch the divergence between the Nasdaq and the S&P 500; if tech selling intensifies but the S&P holds steady due to energy/industrial strength, it confirms the rotation narrative and is a signal to avoid averaging down on tech losers.

The Bottom Line for Today’s Open

Today’s open is defined by a clash of macro narratives: AI-induced growth worries versus geopolitical supply shocks. This favors a barbell approach: owning energy on strength and safe havens (Gold) on dips, while avoiding the tech wreck.

The single most important action for today is to watch the open for divergence between the Nasdaq and the S&P 500. If the S&P 500 holds up better due to energy strength, it validates the “sector rotation” thesis and provides a clearer path for long/short pair trades.

What I’m Watching:

1. The PCE Report (8:30 AM ET): The core PCE print relative to the 0.3% estimate will dictate the Fed’s trajectory for the next two weeks.
2. Oil’s Reaction: Whether WTI can hold above $66.00 after the initial PCE volatility.
3. Gold’s Low: Whether $4,980 holds as support, confirming my view that the pre-market dip is a false move.

Chart Source: TradingView
Disclaimer: This commentary represents my personal analysis and opinions. It is for informational purposes only and not financial advice. All investments involve risk, including loss of principal. Conduct your own research and consider your financial situation before making any investment decisions.

About the Author

Muhammad Faraz

Administrator

Faraz translates financial complexity into clarity. He delivers daily technical analysis on stocks, forex, commodities, and crypto, identifying key trends and trade setups through chart patterns and sentiment analysis. Simultaneously, he breaks down finance terms, personal finance strategies, and trading education, making sophisticated markets and money concepts accessible to all experience levels.

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