Outlook It was approximately one-year ago (April 2, 2025) when "Liberation Day" was announced, the market briefly dipped into bear-market territory losing -19% off its high value from earlier in the year. The fear surrounding tariffs was enough to motivate many nervous market participants to sell stocks. At the time, the CNN Fear & Greed Index levels showed that "Extreme Fear" levels were driving returns. However, by the end of April, the S&P 500 was back at all-time highs.1 Today, the CNN Fear & Greed Index is back at "Extreme Fear" levels - although not quite as extreme as Liberation Day. While the market was concerned about international trade and the potential impact on economic growth, today's fear is also driven by economic concerns. However, today's concerns have more to do primarily with the global economic impact of higher oil prices resulting from limited oil tanker traffic through the Strait of Hormuz, in our view. Today the market sits -9% off of its all-time-high, which is not yet in correction territory (-10%), let alone bear market territory (-20%). While the market is always ready to reclaim its all-time-high, we believe investors will need to gain confidence that the Strait will reopen safely. However, as long as traveling through it remains a risky venture, markets would likely remain under pressure as the global need for fossil fuels depletes oil reserves. The risk environment remains higher for now, though both businesses and consumers remain in good shape in our view. For now, we are looking for good news on the opening of the Strait of Hormuz. On the risk side, we will be looking for signs of heightened risk in the corporate bond market.
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U.S. markets faced another volatile week as geopolitical tensions, rising oil prices, and shifting monetary policy expectations continued to dominate investor sentiment. The Iran conflict remained the overwhelming driver of headlines, influencing energy markets, inflation expectations, and the Federal Reserve's outlook.
Oil Prices Surge, Fueling Market Volatility
The escalating war involving Iran remained the central story shaping global markets. The conflict, now entering its second month with no ceasefire in sight, disrupted energy flows through the critical Strait of Hormuz, resulting in dramatic price swings across oil markets.
This volatility spilled over into equities, lifting energy stocks, which continued their run as the year’s strongest sector, while pressuring technology, consumer discretionary, and other rate-sensitive areas. Inflation Pressures Rise as Energy Costs Spike
Higher oil prices fed directly into concerns about accelerating inflation. The Producer Price Index (PPI) rose 0.7% in February, the largest monthly gain since July 2025, driven by higher costs for industrial inputs and tariffs.2 The Federal Reserve increased its headline and core PCE inflation projections to 2.7%, reflecting the expected pass-through from elevated energy prices.3 Fed officials warned that oil-driven price shocks could unanchor inflation expectations, a key risk as the war continues.
Monetary Policy: A More Cautious, Hawkish Fed
The Iran-related energy shock significantly complicated the Federal Reserve’s policy path. The Fed kept the federal funds rate at 3.50%–3.75% and signaled only one rate cut likely in 2026, pushing back against market expectations of more aggressive easing. Policymakers emphasized that the economic impact of the war remains “uncertain” and highlighted that oil price shocks could keep inflation elevated longer than anticipated, reinforcing a “higher for longer” stance.4
Markets, however, priced in three rate cuts for 2026, betting that cooling labor conditions will force the Fed to pivot, creating a growing disconnect and contributing to further volatility.
Market Performance and Sector Rotation
Major U.S. indices ended the week lower amid rising uncertainty. The S&P 500 fell about 2.1%, the Nasdaq 100 declined 3.2%, and the Dow Jones slipped 0.9%, supported modestly by lower tech concentration.
Sector dynamics continued to reflect the geopolitical and inflation backdrop, with energy extending its strong performance amid rising crude prices. Financials saw modest relief but remain weak year to date. Tech and software underperformed sharply due to higher rates and reduced risk appetite. Consumer staples outperformed discretionary stocks by nearly 15% year to date, as investors sought defensive stability.
Overall, the Iran conflict remains the defining macro risk, and its influence continues to ripple through global markets. Investors should expect continued short-term volatility, with upcoming jobs data and inflation readings likely to be key drivers in the market’s next direction.
[1] https://www.cnn.com/markets/fear-and-greed [2] Producer Price Index News Release summary - 2026 M02 Results [3] Summary of Economic Projections, March 18, 2026 [4] The Fed - March 17-18, 2026 FOMC Meeting | 
