War Games

Scott Poore, AIF^®, AWMA^®, APMA^®

May 29, 2026

There's only one word for market movement over the past few months - oil. Headlines have pushed markets around while investors have tried to figure out what will happen next. The messaging from both sides in the U.S.-Iran conflict has left investors' heads spinning. This week's musings are inspired by the 1983 movie "War Games." Here is some trivia about the film:

The movie was a surprise hit, earning almost $125 million at the box office in 1983 on a meager $12 million budget. In fact, the film landed in the top 10 highest grossing movies that year at #5.
Another surprise was the Oscar nomination for "Best Original Screenplay" and a film that spawned several video games. The film is credited with popularizing the concepts of computer hacking, cybersecurity, and information technology.
The NORAD command center was a set built specifically for the film. It cost $1 million and was the most expensive set in movie history at the time.
The screen writers of the film, Lasker and Parkes, were inspired by the November 9, 1979 incident at NORAD where information from a training simulation was accidentally fed into the warning system causing American military forces to be on high alert for six minutes before the alert was removed due to no actual Soviet missiles being detected by U.S. radar systems.
Matthew Broderick's character, David, hacks into his school's computer system to change his grades, as well as NORAD. However, hacking wasn't actually a crime in 1983. It didn't become illegal until the Comprehensive Crime Control Act was passed in 1984.
The character of David Lightman is based on the real-life hacker David Scott Lewis, who isn't allowed to discuss whether or not he hacked into a military computer.

Here's what we've seen so far this week...

Shall We Play A Game? When young David hacks into a back-door of the NORAD system in "War Games," the computer asks him (in techno voice) if they should play a game. For most investors, that's been the struggle for making market moves over the past 3 months. It was reported on Thursday that a "memorandum of understanding" has been reached between the U.S. and Iran that would allow for a 60-day extension of the ceasefire, would re-open the Strait of Hormuz fully, and would give the two sides time to work out a specific agreement on Iran's nuclear program.¹ It's not a final binding resolution on the conflict and the President has yet to sign this particular MOU, so there is still some uncertainties. The positive outcome of the MOU, if and when signed, is that traffic through the Strait would begin to ramp up to the volumes seen before the conflict began. This would help the price of oil and the price of shipping to recede. It would likely take some time before those effects were felt in the U.S. economy, however. So far, equity markets have reacted mildly to the news and back-and-forth headlines over the past month have likely left investors a little skittish on any good news reported on the conflict. If the President signs the MOU, look for risk assets to potentially out-perform as the correlation between equities and the price of oil has been high since the conflict began. A reduction in the price of oil over the past 90 days has typically led to higher equity returns.²

Defcon 5 Or Defcon 1? As the computer in "War Games" runs its simulations on global war, the phrase "defcon" is mentioned multiple times. The term "defcon" refers to "defense condition" or the current defensive posture of the U.S. military. A high reading means peace and a low reading means war. Some pundits might have you believe we're at Defcon 1 when it comes to the economy. The U.S. consumer, overall, is still spending, which would indicate otherwise. Redbook Sales came in this week at +9.0%, which is well above the historical average of 4.4%.³ In addition, Bank of America CEO Brian Moynihan stated this week, "Consumer spending in May is consistent with a strong economy."⁴ The strong consumer is fueling better corporate profits, and likewise, higher revenues. In the most recent earnings releases for the 1st quarter, S&P 500 companies have reported the highest revenue growth (+11.4%) in the last 4 years.⁵ If consumers have been able to withstand higher prices at the gas pump during the U.S.-Iran conflict, a reduction in gas prices, albeit not immediate, could prove a boon to spending moving forward. Assuming that a ceasefire deal can finally come to fruition, stating that the U.S. economy is at "Defcon 1" is not consistent with the data.

Only Winning Move Is Not To Play? When the computer in "War Games" learns from a simple game of Tic-Tac-Toe that nuclear war is an unwinnable strategy, it concludes that the best strategy is not to play the game at all. That's what investors should consider when allocating their assets. Sometimes the data and facts do not support the theory. Inflation is running hot, but it is tied to the dramatic increase in oil prices. May is the first month since the U.S.-Iran conflict started where the price of oil actually declined.⁶ However, the price of gas at the pump is down by only 4%.⁷ It will take some time for oil and gas prices to adjust, assuming that a peace deal to end the conflict is codified. The effect on inflation will also take some time to play out. Producers and suppliers of goods and services affected by oil will not be reducing their prices overnight. In fact, the Cleveland Federal Reserve is forecasting May inflation, as measured by the Consumer Price Index, to come in at +0.46% and the year-over-year reading to be 4.18%.⁸ It's important to note, however, that the Federal Reserve has left interest rates steady during the recent increase in inflation. Just this morning Fed Board member Bowman stated, "Reacting to energy shock would add unwarranted restraint."⁹ The Fed has estimated the rise in inflation to be somewhat temporary and that raising the Fed Funds Rate at this point in time is not needed. According to Mickey Levy at Haven Analytics, oil's effect on inflation should run its course in 2-3 months.¹⁰ If that proves to be true, the more appropriate strategy for investors is to not react to the rise in inflation, but to stay invested through the realization of a peace deal in the Middle East.

Click here to view the final scene of "War Games"...

___________________________________________________________________________

Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.