Leuthold Group’s Chun Wang used this lede to introduce the firm’s March “Green Book.” He titled it “Goldilocks & The Three Bears”:
Markets are currently fixated on Operation Epic Fury, whose trajectory and spillover effects are highly uncertain. Even before the U.S.-Israel strike on Iran, the news flow had already skewed negative, dominated by concerns over AI disruption and mounting stress in private credit.
Readers, please remember this Leuthold Group monthly research was written weeks ago. The report continues:
Equity market resilience against war headlines, AI disruption fears, and private credit stress have so far been largely supported by a rare “Goldilocks” macro setup. Enter the three bears: Software stocks, private credit/BDCs, and bitcoin.
Reading would normally require a subscription and a password, but we have obtained permission to offer this link to all readers. Thank you to Leuthold Group for sharing their research with our readers:
“Goldilocks & the Three Bears” | Leuthold Group (March 2026),
https://advisors.leutholdgroup.com/research/special-reports/2026/03/20/goldilocks-the-three-bears.25639)
Today we’ll pick up on the Leuthold Group’s assessment, noted above. For our exploration we will end with “the Greeks” but start with a few ETFs.
A lot has happened since the Leuthold Group published their research commentary on March 20. This past week, as President Donald Trump’s address to the nation approached, the markets experienced a “Hormuz Hope rally,” as I termed it, noting that “Market agents think this is a turning point.” That phrase was picked up in this Wall Street Journal piece on the rally:
“Stocks Cap March With ‘Hormuz Hope’ Rally on Possible End to Middle East Conflict” | Wall Street Journal, https://www.wsj.com/finance/stocks/wall-street-is-finishing-the-worst-quarter-for-stocks-in-four-years-31ac41ea?st=Ah1DJK&reflink=desktopwebshare_permalink
President Trump’s address to the nation on April 1 precipitated an immediate and sizable market reaction, underscoring the theme of volatility. Tracking one year (from the day before “Liberation Day” to this April Easter/Passover period) a month into the escalating Iran War, we look at the turmoil and volatility in the US markets. We have no idea what will come next. That’s the key point.
But we do know that tools focusing on volatility metrics and “the Greeks” send messages or indicators to help those who want to take the time to look at them.
I want to offer a special hat tip to Matt McAleer, president of Cumberland’s Private Wealth division for his help with some of the ETF research selections. Please note that I select the themes to tell the story. Matt helps me with the ETF choices when I ask him. These are not buy-sell-hold recommendations; they are examples I select to assist in the discussion I want to present. For Cumberland’s portfolio management strategies with ETFs, go directly to Matt.
Today, we will use the one-year timeline that began with “Liberation Day” (April 2, 2025), when Trump held up the infamous chart in the White House Rose Garden. Kotok Report commentaries focused on “Liberation Day” and the computational error that embarrassed the president can be found at the following links:
“Trump’s Tariff War” | Kotok Report (April 3, 2025) https://kotokreport.com/trumps-tariff-war/
“DT 2.0 Tariffs” | Kotok Report (April 6, 2025), https://kotokreport.com/dt-2-0-tariffs/
“Trump Tariff Outcomes?” (April 8, 2025), https://kotokreport.com/trump-tariff-outcome/
“Tariffs — Damn the Torpedoes!” | (April 9, 2025), https://kotokreport.com/tariffs-damn-the-torpedoes/
“Trump’s Math Gaffes” | Kotok Report (April 13, 2025), https://kotokreport.com/trumps-math-gaffes/
We publish today’s missive having heard the Trump speech, with Iran War still underway and escalating. So far, the biggest beneficiary has been Putin, who seems to be seizing every opportunity to prolong the war and assist Iran in targeting and attacking Americans and our allies while trying to bank gobs of money from the oil price shock.
Is it over? No. Is it changed? Absolutely.
We’ll start with the round trip in Bitcoin. Does anyone remember the recent time when Bitcoin traded at three times the current price and when cryptocurrency optimism seemed unlimited? Hmm.
iShares Bitcoin Trust ETF (IBIT)
Let’s look at the other Leuthold theme, software:
iShares Expanded Tech-Software Sector ETF (IGV)
I want to move on to interest rates, especially at the longer-maturity range. While not in the graphics, I can report that the credit default swap prices on the US longer-tenor (10-yr) Treasury debt have been rising, and credit spreads are widening. Here’s the chart of TLT, the ETF used for the long end of the US Treasury bond market. Note that the falling price of TLT reflects the rising interest rate on traded US T-bonds. It appears that market agents are adjusting their positions in anticipation of forthcoming new and larger borrowing by the federal government. With $1.5 trillion in defense spending planned, this market price change seems reasonable.
iShares 20+ Year Treasury Bond ETF (TLT)
Next, let’s move to gold.
SPDR Gold Shares (GLD)
While the volatility in gold is apparent, we remind readers that we regularly track the Shanghai gold warrants. The outstanding claim on physical gold in Shanghai with those warrants continues to rise. It set an all-time high of about 107 metric tonnes right before the so-called Iran War pause. That new high occurred even as the gold price in dollars experienced a downward, sharply volatile correction. The implication is that the Chinese are still buying gold to add to their hoard.
Let’s move to the two ways to look at the Standard & Poor’s 500 Index: cap weight and equal weight. Note that for the entire year the performance percentage is now about the same.
Here’s SPY:
State Street SPDR S&P 500 ETF Trust (SPY)
Here’s RSP:
Invesco S&P 500 Equal Weight ETF (RSP)
And here’s the Mag 7 ETF MAGS:
Roundhill Magnificent Seven ETF (MAGS)
Remember that the MAG 7 was once 40% of the cap weight in the S&P. These days, watch the energy sector weight. But be careful. In 1979–1980, at the peak of that oil price shock and when the Iran conflict started, the energy sector weighed 25% of the S&P. I remember seeing it. It took some number of years, but the eventual correction brought that energy sector weight into mid-single digits (5–6%). If you bought the energy sector at peak cap weight, you underperformed the benchmark S&P for the next 30 years as the sector reweighting was the wind in your investment face. Moral of the story: Get the sector weight right, and you outperform; get it wrong, and you will lag.
We will end with a few more charts.
We use XLE for the oil sector…
State Street Energy Select Sector SPDR ETF (XLE)
And OIH for the oil exploration and drilling sector:
VanEck Oil Services ETF (OIH)
And finally, we use USO for the oil ETF.
United States Oil Fund, LP (USO)
Two Observations
First, we are watching an expanding regional war. The conflict was and still is a war about existential risk, which means one side must defeat the other side decisively. Anything else is only an interim ceasefire and, in my opinion, only allows rearming and more war.
Iran has killed thousands of Americans since this conflict started in 1979 with the taking of hostages. The IRGC and their enablers have killed many tens of thousands of their own citizens. They hold 200,000 people in prisons.
Iran, as I see it, is trying to wear down the US and the world using the oil price as a weapon and Hormuz as the tool of war. That works as a short-term strategy.
For the longer term, they have already lost that tool of war. It can only be used once — threatened for a half century, yes, but used only once. Worldwide changes are underway to avoid a repetition of the Hormuz threat ever occurring again.
Second, the extraordinary and rapid change in the tools of war means lots of additional billions (trillions?) in US defense spending. Those budgets are headed much higher because they must go higher. The same is true worldwide.
It’s a dangerous world. Market agents know it. It’s an unpredictable world. We have seen that over the last few weeks as the mutual destruction has intensified.
That is why volatility in markets will be with us for a long time. Wise investors will learn to use “the Greeks”: They are delta (rate of change), gamma (the change in the rate of change), vega (the price sensitivity to the underlying asset), and theta (the value of time decay to an expiration).
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