Insight & Outlook: Fidelity Market Signals Weekly

Market remains orderly since the campaign in Iran began Feb. 28

The conflict in Iran continues, but market reaction so far has not reflected a material change in urgency, mindset, or decision-making. The market in recent days has had an orderly tone to it—not one of panic. Jobs data has softened, but energy and inflation remain the bigger watchpoints.

• Energy prices have risen, with Brent crude about 26% higher since the start of the conflict and up nearly 50% YTD. Volatility is also elevated, but the bigger debate is whether this becomes a lasting supply disruption vs. a risk premium that fades.
• February payrolls fell by 92,000 and unemployment rose to 4.4%, but wage growth stayed firm at 3.8% YoY. Much of the softness appears tied to temporary factors unrelated to the Iran conflict, and broader indicators suggest the labor market is slowing rather than breaking. While softer hiring may influence Fed policy decisions, rising energy prices linked to events in the Middle East are a more important swing factor for inflation and growth than any single jobs report.

Software rotation underway as durability of business models is being questioned

The software sell-off reflects markets adapting to a faster AI future—not capitulating. Volatility is the cost of that adjustment, and selectivity is the opportunity. Markets continue to navigate a shifting narrative around artificial intelligence (AI), with recent volatility highlighting a growing divide between perceived winners and losers. Over the past six months, investors have rotated aggressively within technology, selling long-duration software stocks while favoring areas tied more directly to AI infrastructure, hardware, and industrial demand. This reallocation reflects structural questions about business models—not a deterioration in economic fundamentals.

What is (and isn’t) driving the sell-off in software stocks?

Uncertainty around terminal value is a sell-off driver

Investors are concerned that rapid advances in generative and agentic AI may introduce uncertainty around traditional software pricing, moats, and long-term profitability, rather than enhance growth. This has led investors to question terminal values for many software companies, even where near-term fundamentals remain solid (Exhibit 1).

But is the energy crisis in the 1970s a fair parallel for today?

You may notice the 1973–1974 oil embargo/energy crisis in the chart above and think it seems similar to what is happening now. However, that moment in economic history was extreme: Oil prices soared because of OPEC’s total embargo targeting many nations, including the U.S., the United Kingdom, Canada, and Japan. Global oil supply was squeezed in a united effort, which is not the case today. Economies around the globe suffered from high inflation, job losses, and recession. While the current U.S.-Israeli conflict with Iran has caused oil prices to spike and increased market volatility, its overall consequences are likely to be less severe because modern oil sources are more diverse, strategic reserves exist, and policymakers have better tools to respond.

Another way the crisis in the 1970s was different: Today, U.S. households spend about 3% of their income on energy, compared to 8%–9% in the 1970s. So, even if oil prices rose by a similar percentage now, it would take a smaller bite out of consumers’ income and impact the U.S. economy less than it did in the past.

However, if the conflict drags on, and oil prices remain high, it could eventually cause higher overall inflation that spreads into other economic sectors. In addition, the 1973 embargo drove crude prices up, boosting oil company values and profits so much that energy became a cornerstone of the S&P 500 index by the end of the decade. Today the sector makes up about 3.5% of the S&P 500,¹ reflecting the rise of tech firms and the shift away from fossil fuels as market leaders.

Staying steady through volatility

S&P 500 companies’ earnings are projected to grow by 15% in 2026.² If oil shocks are brief, economic expansion should withstand price spikes, and equity markets may revert to fundamentals unless the conflict worsens. Thus, unless the Iran situation escalates and/or extends, the broadening of equity market leadership may be delayed, there may be volatility in the interim, but wider market growth is unlikely to be derailed.

We believe that periods of volatility can be uncomfortable, but they can also create opportunities for long‑term investors who stay disciplined with diversified, well‑structured portfolios. Keeping exposure steady, rebalancing across regions and sectors, and thoughtfully using alternatives can help manage risk while positioning portfolios to participate when market leadership broadens again.