February 28, 2026, changed everything. |
Before that date, U.S. markets were broadening healthily. The average S&P 500 stock beat the index by nearly 5% in January. Small caps gained ground. Manufacturing crossed back into expansion for the first time in a year. |
After that date, the U.S. and Israel launched Operation Epic Fury against Iran. Oil spiked from $66 to $101. The inflation fight the Fed thought it had won reignited overnight. |
The S&P 500 finished Q1 down 4.3%. But that number hides a complete regime change in market leadership, Fed policy, and the macro narrative. |
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Confessions Of The 1% Class |
My name is Dr. Mark Skousen. |
I've worked for the CIA. I've shaken hands with four U.S. presidents. I've consulted for Fortune 500 companies. |
For 45 years, I've been in rooms where the big money gets made before the ink is dry. |
Private deals. Pre-IPO stakes. The kind of opportunities regular Americans never hear about. |
And I'm tired of watching the rich get richer while everyone else gets left behind. |
So I'm doing something about it. |
I met Elon Musk face-to-face at a private gathering of the world's financial elite. |
The video of our meeting has gone viral across the internet. |
And what I learned that day — combined with my own research — has convinced me that Elon will announce the SpaceX IPO on April 20th. |
That's less than two weeks away. |
Industry experts are calling it a "seismic event" — a $1.5 trillion valuation that could be the biggest IPO in Wall Street history. |
And I want to share everything I know with my readers. |
Including a free ticker I found that lets you grab a pre-IPO stake in SpaceX... before Elon steps up to that podium. |
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The War That Broke the Quarter |
Operation Epic Fury destroyed Iran's command infrastructure, sank much of its navy, and killed Supreme Leader Ali Khamenei in a decapitation strike. |
Iran declared the Strait of Hormuz closed on March 4. It attacked shipping. Struck Qatar's Ras Laffan LNG complex on March 18, knocking out 17% of Qatar's LNG capacity. |
Asian LNG spot prices surged by over 140%. The International Energy Agency called it “the most severe oil supply shock in history.” |
Oil market reaction: |
WTI ran from $65.56 on February 26 to above $101 by month-end. Brent surged 28% in the first week of war, hitting an intraday $119 on March 23. |
March marked oil's largest one-month gain on record. |
U.S. gasoline topped $3.50/gallon in early March and reached $4.00 by March 31. Up roughly 30%. |
European and Asian natural gas jumped 54–63% within a week of the strikes. |
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Leadership Flipped Completely |
The S&P 500 fell 4.3% for Q1. The Nasdaq 100 fell 5.8%. The Magnificent Seven declined roughly 13% year-to-date. |
But the Russell 2000 and equal-weight S&P 500 each gained roughly 1%. |
Read that again. The index fell 4.3%. The average stock rose 1%. |
This wasn't a generic sell-off. It was a genuine rotation. |
High Dividend, Low Volatility, and Multifactor strategies delivered their best relative performance in four years as investors rotated out of concentrated mega-cap exposure. |
Energy was the clear sector winner. Healthcare was the standout loser. |
The divergence between cap-weighted and equal-weighted performance is the best single number to describe the quarter. It signals a fundamental shift in what's working. |
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The Earnings vs. Valuation Breakdown |
Here's what's confusing the market. |
Q4 2025 S&P 500 earnings grew 13.9%. A 5.6-point beat versus estimates. Fifth consecutive quarter of double-digit growth. |
Q1 2026 consensus growth stood at 13.2% entering April. Information Technology projected at +45%. |
So why did tech crater? |
The Mag Seven's 13% decline occurred alongside 45% expected tech earnings growth. Valuation compression, not earnings, drove the pain. |
AI monetization thesis remains intact. AI stocks decoupled from AI earnings. |
Investors are saying: We believe the earnings, we just don't want to pay these multiples anymore. |
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The Fed: Paralyzed Between Growth and Inflation |
The FOMC held rates at 3.50–3.75% at both the January and March meetings. |
But the March meeting statement explicitly acknowledged “the implications of developments in the Middle East for the U.S. economy are uncertain.” |
Translation: we have no idea what to do about an oil shock during weakening growth. |
The impossible position: |
The labor market is deteriorating. February payrolls collapsed to -92K (revised to -133K), the worst print in four months. March rebounded to +178K as striking nurses returned. |
But the three-month average through February was under 6,000 jobs per month. Unemployment edged up to 4.4%. |
Simultaneously, inflation is reigniting. March CPI printed +0.9% month-over-month, the largest monthly increase since June 2022. Energy rose 10.9% in one month, gasoline +21.2%. |
Headline YoY jumped to 3.3%, the highest since May 2024. |
The Fed can't cut rates (inflation) and can't hold forever (weakening labor market). |
Market-implied pricing by end-March saw roughly one cut or less for all of 2026. Down from several priced at year-end 2025. |
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The Supreme Court Tariff Bombshell |
February 20, 10:00 a.m. The Supreme Court ruled 6–3 that the International Emergency Economic Powers Act doesn't authorize presidential tariffs. |
The most consequential constraint on executive trade power in decades. |
Immediate effects: |
$142–175 billion of IEEPA tariff revenue collected since early 2025 became subject to potential refunds. |
The administration terminated IEEPA tariffs effective February 24. |
Within hours, it invoked Section 122 of the Trade Act to impose a flat 10% tariff on all countries for a statutory maximum of 150 days (expiring approximately July 24, 2026). |
The net effect: U.S. effective tariff rate dropped from roughly 14.3–17% to about 10.5%. Still the highest since 1943, but a meaningful reduction. |
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The Labor Market Mask |
Unemployment at 4.4% looks stable. The reality beneath is worse. |
Labor force participation dropped from 62.5% to 62.0% between November and February. 1.2 million people exited the labor force. |
The household survey showed roughly 850,000 fewer employed persons over that stretch. |
Had participation held steady, unemployment would have topped 5%. |
A softer supply side masked softer demand. People aren't finding jobs. They're giving up looking. |
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Growth Collapsed Before Anyone Noticed |
Q4 2025 GDP advance estimate: 1.4%. Less than half the 2.8% consensus. |
Sharp deceleration from Q3's 4.4%. The government shutdown alone subtracted 1.0 percentage point. |
But that means even without the shutdown, Q4 was only 2.4%. Weak. |
Markets entered 2026 assuming stronger starting conditions than actually existed. |
Activity data through Q1 told a stagflation story. ISM Manufacturing expanded all three months (the strongest run since 2022). But the Prices Paid subindex exploded from 59 in January to 78.3 in March. Highest since June 2022. |
Decent output. Surging input costs. Weakening hiring. Textbook early-stage stagflation. |
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Gold, Bonds, and the Dollar Told Different Stories |
Gold: Opened at $4,384 on January 2. Hit a record $5,589 on January 28 (gaining 25% in four weeks). Retreated to $4,300–$4,500 by quarter-end as oil-driven inflation cut rate-cut odds. |
The Q1 range of $4,100 to nearly $5,600 was historically extraordinary. |
Dollar: Opened near 98 after a historic 2025 decline. Plunged over 3% between January 16 and 28 on weak jobs data. Climbed back toward 100 by the end of March on safe-haven Iran-war demand. |
Rallies remained capped below 103. Structural 2025 weakness intact. |
Bonds: 10-year Treasury yield rose from 4.19% at year-start to 4.34% by quarter-end. But jumped 38 bps in March alone as energy-driven inflation risk overwhelmed growth concerns. |
Credit spreads widened modestly but remained near long-run lows. The cash bond market viewed Iran's shock as an inflation event, not a default catalyst. |
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The Powell Succession Overhang |
Trump nominated Kevin Warsh to succeed Powell when his chairmanship expires in May 2026. |
Powell was subpoenaed over the Fed's headquarters renovation. A judge quashed it, accepting Powell's argument that it was a pretext to pressure for rate cuts. |
Powell personally attended Supreme Court oral arguments in the Lisa Cook removal case in January, calling it “perhaps the most important legal case in the Fed's 113-year history.” |
The combination: a lame-duck chair, an openly dovish successor nominee, and active legal attacks on Fed independence. |
Markets struggled to price this policy backdrop. |
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The Seven Lessons |
First: Tech/AI valuations broke from the macro backdrop. Mag Seven fell 13% alongside 45% expected earnings growth. Valuation compression, not fundamentals. |
Second: Fed credibility survived, but independence is under genuine institutional attack. The May 2026 transition is unusually high-stakes. |
Third: The labor market deteriorated more than unemployment showed. Falling participation masked the damage. "Sudden stop" in hiring is plausible. |
Fourth: Q4 2025 GDP's 1.4% print reframes starting conditions entering 2026 as weaker than markets assumed. |
Fifth: The Supreme Court IEEPA ruling is the most consequential constraint on executive trade power in decades. July 24 Section 122 expiration creates a clean policy cliff. |
Sixth: Commodity markets, not equity markets, properly priced geopolitical risk. Oil, gold, and LNG moved with historic speed while equity volatility never caught up. |
Seventh: Cap-weighted versus equal-weighted divergence (index -4.3%, average stock +1%) may matter more for the rest of 2026 than any single datapoint. |
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The Bottom Line |
Q1 2026 wasn't a correction. It was a regime change. |
From disinflation-driven complacency to a world where geopolitics, institutional fragility, and commodity shocks are back at the center of the macro narrative. |
The quarter split on February 28. Before: broadening rally, tariff reprieve, disinflation validating. After: war, oil shock, stagflation risk, mega-cap damage. |
Entering Q2, the question is no longer whether the Fed will cut in 2026 but whether inflation expectations, not the labor market, will dictate the answer. |
Three major uncertainties will be resolved by August: the Iran war outcome, the tariff cliff decision, and Powell's succession. |
What matters now is understanding that market leadership has changed fundamentally. Equal-weight outperformed cap-weight. Small caps beat large caps. Energy crushed tech. |
If you're still positioned for 2024's Magnificent Seven dominance, you're fighting last year's war. |
The market has already moved on. The question is whether you have. |
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Important disclosures: This newsletter is provided for informational purposes only and does not constitute investment advice. All investments involve risk, including possible loss of principal. Please consult with your financial advisor before making investment decisions. |
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