Two weeks into the war with Iran and the fog isn’t lifting, it’s thickening. Last week was defined by miscommunication, confusion, and escalation. Conflicting reports on the status of the Strait of Hormuz whipsawed markets for days, only to be followed by US strikes on critical oil infrastructure at Kharg Island (Iran’s primary crude export terminal). Oil has been hovering around $100 a barrel for most of the week and the VIX is up nearly 37% since the start of the conflict. If the geopolitical chaos wasn’t enough, Friday’s GDP print came in at a glacial 0.7% and the latest CPI report showed inflation ticking back up. We are staring down the barrel of a stagflationary environment and the market knows it. Meanwhile, the tech sector is dealing with its own storm as a wave of heavy layoffs rolls through the industry under the thinly veiled banner of AI efficiency. There’s plenty to unpack this week, so let’s get into it.
The Macro Picture is Getting Ugly
Friday’s second estimate for Q4 2025 GDP came in at an annualized rate of 0.7 percent, a revision downward from the previous estimate (which was at 1.4%). For context, Q3 posted at 4.4 percent. Consumer spending and investment were the only things keeping the number in positive territory at all, while government spending and exports both contracted. Imports (which subtract from GDP) also fell, which normally would help the headline number but clearly did not do much heavy lifting here.
The natural instinct is to look at 0.7 percent and start to consider a potential recession looming. I am not quite there yet but the trajectory is not encouraging. The economy went from running hot to barely moving in a single quarter and that kind of deceleration tends to carry momentum in the wrong direction.
Now layer on Wednesday’s CPI print. The Consumer Price Index rose 0.3 percent in February (up from 0.2 percent in January). Shelter was the largest contributor to the monthly increase, which is the same story we have been hearing for over a year now. Food prices jumped 0.4 percent on the month. Energy rose 0.6 percent (and with oil sitting at $100 a barrel that number is only going one direction from here). The year over year all items index held steady at 2.4 percent and core CPI (all items less food and energy) came in at 2.5 percent year over year.
On the surface those annual numbers look almost boring. They are basically flat compared to January. But that is precisely the problem. Inflation is not coming down anymore. It is just sitting there, stubbornly refusing to cooperate with the Fed’s timeline. And that was before oil became a triple digit commodity again.
Put the two prints together and the picture we’re looking at becomes clearer. Growth is collapsing while prices refuse to budge. That is the textbook definition of stagflation. The Fed is now stuck in a position where cutting rates to stimulate growth would risk letting inflation run hotter, and holding rates steady (or raising them) would put even more pressure on an economy that is already losing altitude fast. There is no clean move here.
We’re hearing more alarms being raised from more outlets and economists. Rate cuts are almost certainly off the table for the foreseeable future (although with the new Fed Chair coming in a few months who knows what they are going to do). The CME FedWatch tool has pushed rate cut expectations all the way out to December. That is a significant shift in expectations and one that I don’t believe has fully worked its way through asset prices yet.
For those who are not familiar with why stagflation is such a dreaded word in economics, here is the short version. In a normal recession the Fed cuts rates, borrowing gets cheaper, businesses invest, consumers spend, and the economy recovers. In a normal inflationary environment the Fed raises rates, things cool off, and prices stabilize. Stagflation breaks both of those playbooks simultaneously. You have an economy that is slowing down and needs stimulus, but you also have prices rising in a way that makes stimulus dangerous. Every tool in the toolbox either fixes one problem while making the other one worse or does nothing at all. The 1970s are the most cited example and for good reason. It took Paul Volcker deliberately engineering a deep recession (pushing rates to 20 percent) to finally break the cycle. That is the nuclear option and nobody wants to go there.
So what is the right move in an environment like this? Historically, stagflationary periods are tough on the traditional portfolio. Both stocks and bonds can lose value at the same time, which means the classic 60/40 split offers very little protection. The assets that tend to hold up are the boring ones. Companies with real pricing power (the kind that can pass cost increases to customers without losing them), energy producers who benefit directly from elevated oil prices, and hard assets like commodities. Cash also becomes genuinely attractive, not as a long term strategy but as dry powder. When the market eventually finds a bottom (and it will), having capital ready to deploy into quality names at distressed prices is where the real opportunity lies. I am continuing to hold cash and will look to deploy it in tranches toward companies that are insulated from oil pricing risk (particularly in software) once there is some clarity on direction.
The Convenient Scapegoat
While the macro picture deteriorates, the tech sector has found itself a neat little narrative to hide behind. AI is coming for your job. Or at least that is what every earnings call and press release would have you believe.
If this feels familiar it should. This would be Meta’s largest restructuring since the back to back rounds in late 2022 and early 2023 that they branded the Year of Efficiency. Those moves turned out to be the starting gun for a wave of layoffs that swept across the entire tech industry. Every major player followed suit within months. There is no reason to think this time will be different. Meta tends to move first in these situations and the rest of the Mag 7 tends to follow once they see the market reward the move.
And the market does reward it. Block’s
When the Block news broke I wrote about how AI is genuinely displacing white collar workers and how the people downplaying it are not looking at the data honestly. I stand by all of that. The job growth numbers are propped up almost entirely by healthcare. New grad unemployment is climbing. Software engineering grads are sitting at 7.8 percent unemployment. The pain is real and it is accelerating faster than our economic systems can adapt to. None of that has changed in the last few weeks.
What has changed is the volume of companies now rushing to wrap themselves in the same AI flag, and a growing body of evidence that suggests a lot of them are full of it. Forrester published a report in January that put it plainly: many companies announcing AI related layoffs do not have mature AI applications ready to fill those roles. They called it AI washing. The firm went further and predicted that over half of layoffs attributed to AI will be quietly reversed as companies realize the operational challenges of replacing human talent prematurely.
According to this HR Executive post, 59% of companies admitted they emphasize AI’s role when explaining layoffs because it resonates better with stakeholders than citing financial constraints with 9% saying AI had fully replaced certain roles. Even Sam Altman (a man who has every incentive to hype AI’s capabilities) acknowledged the phenomenon, saying that some companies are blaming AI for layoffs that they would otherwise do.
So here is where I land on this. Dorsey was being honest (or at least more honest than most). AI is changing the economics of certain roles and that is not going away. But what we are now watching is every other company in the industry using that kernel of truth as cover for a decade of bloated hiring and bad capital allocation. Blaming tariffs risks political backlash. Blaming slowing revenue is an admission of weakness. AI is the one explanation that makes leadership look forward thinking instead of incompetent. A lot of bad decisions are getting laundered through a narrative that conveniently absolves the people who made them.
I said when the Block news dropped that I expected layoffs to continue rolling across the tech sector. That prediction is playing out and I expect we’ll see a drumbeat of additional layoffs from the rest of the big players in the coming weeks.
Rapid Fire Observations
Some quick top level thoughts on other big things that happened last week:
- Anthropic v. The DoW, Continued: The Anthropic saga escalated some more this week with Anthropic filing two federal lawsuits against the Trump administration, alleging the Pentagon illegally retaliated against the company for its position on AI safety. As I wrote last week, this is fundamentally about the precedent being set when a government attempts to bankrupt a company over a policy disagreement. What makes this even more absurd is the backdrop. The Pentagon has continued using Claude in the ongoing conflict with Iran to process intelligence and targeting data, even as it labels the company a supply chain risk. Read that again. They are actively using the product in a war while simultaneously trying to destroy the company that makes it. I said last week I was deeply pessimistic about the direction this was heading. Nothing that happened this week changed that. The first hearing is March 24. Watch this closely.
- Gaming Is Getting Squeezed From Every Direction: This one hits close to home for me. GDC wrapped up last week (it is hard to believe it has been seven years since we unveiled Stadia there) and the state of the industry is grim. The AI boom is squeezing gaming from multiple angles at once. Data centers are expected to consume around 70 percent of global RAM production in 2026, which has created a genuine hardware crisis. Multiple panels at GDC this year were dedicated to how studios can optimize their games to work with less memory because the supply simply is not there. On the jobs front, roughly 45,000 gaming employees lost their jobs between 2022 and the end of 2025, with up to 10,000 more layoffs predicted for 2026. Studios are gutting junior roles and backfilling with AI tools, and the developers I have seen commenting on this are candid about the fact that people are going along with it because they are terrified of losing their own positions. The gaming industry is becoming one of the clearest examples of AI’s collateral damage: it is not just taking jobs inside the industry, it is physically consuming the resources the industry needs to make its products.
What’s Happening Next Week
The biggest event on the calendar is the FOMC meeting on Tuesday and Wednesday. This is one of the meetings that comes with a Summary of Economic Projections and a press conference, which means we will get the Fed’s updated forecasts on GDP, inflation, and unemployment. The market is expecting them to hold rates steady. The real question is what the dot plot looks like and how Powell frames the path forward. If the projections show fewer rate cuts than the market is hoping for (or none at all) expect a selloff. If the Fed acknowledges the stagflationary dynamics without offering a clear plan, expect volatility to spike further. There is no version of this meeting where the Fed says something that calms everyone down.
Micron
The Iran situation will continue to dominate. Any escalation (or de-escalation) at the Strait of Hormuz will move oil prices and, by extension, everything else. At this point I am not expecting any positive developments but I would love to be wrong.
The Last Word
The thread connecting everything this week is that the consequences are arriving. The GDP print is the consequence of an economy that was running on borrowed momentum. The CPI print is stubborn even before the full weight of $100 oil works its way through the system. The layoffs are the consequence of reckless hiring and a weakening economy dressed up in a shiny AI narrative. And the Fed meeting this week will be the consequence of all of it landing on Powell’s desk at the same time. There are no easy answers right now. Keep holding cash, keep watching the data, and do not let anyone tell you this is priced in.