BTFD

 I have been meaning to give this thread a rest. We've written about it quite a bit, and it's a bit off topic for the blog. But then we got yet another iteration—perhaps even more dramatic than before—along with a new column from Allison Morrow on the subject.

Plus, I actually thought of something else I wanted to say about this.

Here's how things looked Monday morning before the markets opened.

 

And here's how they looked after they closed.

From Allison Morrow's newsletter: 

Investors have long viewed the prolonged closure of the Strait of Hormuz as a “tail risk” event — the kind of thing that was highly unlikely to happen but would be so catastrophic that you can’t afford to be unprepared for it. As black swans go, Hormuz closing for weeks or months would be an economic disaster on par with a global pandemic.

 

The nightmare scenario may be upon us, with the caveat that “nightmares” are relative.

 

Maritime traffic in the narrow waterway between Iran and Oman has ground to a halt since the US and Israel began attacking Iran on Feb 28. While there is no physical blockade in the strait, Iran has threatened to attack any vessels moving through it, and insurers have yanked their war-risk policies, leaving hundreds of tankers in limbo. An estimated 20% of world oil supply has been disrupted, my colleague Matt Egan writes. If that trend continues, the risks of a global recession compound. The war has already effectively wiped out the “spare capacity” that typically serves as a shock absorber in energy markets.

 

It’s not just oil supplies at risk: the Gulf is also one of the world’s top suppliers of nitrogen fertilizers that are essential for agriculture around the world.

 

... 

 

There are two major factors behind this pattern of selling in the morning and then getting a grip in the afternoon:

 

1. Equity traders are holding out hope for a swift resolution, confident that the US — a net oil exporter — can weather a short-lived shock better than most, and
2. They are buying the [expletive] dip, in meme parlance.

To be sure, stocks have fallen over the prospect of a longer Mideast conflict. But the S&P 500, the broadest gauge of US stocks, fell only about 2% last week, even as oil shot up 36% and an unexpectedly awful February jobs report raised concerns about the labor market. The index is still up about 20% from a year ago.

 

Investors have become conditioned to a trend in which morning selloffs attract bargain-hunters who swoop in and spark afternoon rallies. This strategy of “buying the dip” (of BTFD, for the extremely online retail crowd) has been a popular and fairly reliable trade for the better part of the past five years. Virtually every economic shock of 2025 — including Trump’s tariffs and a handful of surprise pullbacks in the tech sector — was followed by a rally, reinforcing a sense that there’s no point panicking.

 

It’s less of a stock market downturn, and more of a sale on stocks, goes the thinking.

 

“We’ve got this black swan event, and US stock markets have barely flinched because people are more focused on buying dips and not missing rallies than they are about existential concerns about risk,” Steve Sosnick, chief strategist at Interactive Brokers, told me. “The ‘fear of missing out’ is labeled as fear, but it’s really greed… I would argue, in terms of investor behavior, there’s still plenty of greed out there relative to fear.”

 

Of course, buying the dip works great until it doesn’t, and what comes next is entirely out of any investors’ hands.

 

It's true that the major economies are less dependent on Middle Eastern oil than they were fifty years ago, but this is still bad, with the chances of inflation or recession—or both—increasing every day.

While it's not a perfect mechanism by any stretch of the imagination—voters are notorious for blaming politicians for economic factors beyond their control—the understanding that recession, and probably even more to the point inflation, can force a party out of power is generally a good thing for democracy.

Of course, the economy is not the stock market, and the stock market is not the economy, but a market crash does generally indicate either that something is going wrong or that something that has been wrong for a while has just come to the surface.

To the extent that unthinkingly buying the dip keeps markets from pricing in bad news and disastrous policies, it undermines one of the few forms of feedback that Donald Trump has actually responded to in his second term. That's not the biggest of our worries, but it's not helping.