The Top Line
The stock market ended Thursday lower for the fourth week in a row, as rising oil prices from the U.S.-Iran conflict keep investors on edge. The Federal Reserve held interest rates steady this week and signaled it is not ready to cut anytime soon.
We are operating in a transitional macro regime—one where the underlying expansionary impulse of 2025 is being stress-tested by an exogenous energy shock with genuine stagflationary potential. February CPI printed 2.4% year-over-year with core at 2.5%, readings that were on-target before the U.S.-Iran conflict erupted on February 28th and sent Brent crude briefly above $119 per barrel. The Fed held rates steady at its March 18th meeting, maintaining its median projection of one cut in 2026, while Chair Powell acknowledged that inflation progress has stalled and that the economic impact of the Iran war remains deeply uncertain. The primary structural tension now is whether the oil shock proves transitory—as Hormuz normalization efforts suggest it might—or embeds into services and goods inflation in a way that forces the Fed to abandon its easing bias entirely.
Inflation
Before the war in Iran began, inflation was actually behaving well — prices were rising at 2.4% annually as of February, almost exactly where the Fed wants them. But oil prices have surged since late February, and higher oil means higher gas prices, shipping costs, and eventually grocery bills. The Fed — the central bank that sets borrowing costs for everything from mortgages to car loans — held rates steady this week and said it needs to see inflation improve further before it will consider cutting. One silver lining: consumers' long-run inflation expectations actually dipped slightly, suggesting most people don't believe this oil shock will permanently change the price of everything.
Key Takeaway
Borrowing costs are staying put — don't expect mortgage or loan rates to fall anytime soon.
The February CPI report, released March 11th, offered a clean pre-war baseline: headline CPI rose 0.3% month-over-month, holding the year-over-year rate at 2.4%, while core CPI printed 0.2% MoM and 2.5% YoY—both exactly in line with consensus. Shelter decelerated meaningfully, with rent rising just 0.1% MoM (smallest since January 2021), providing long-awaited relief in the stickiest component of the index. However, apparel surged 1.3% MoM (largest since September 2018), reflecting tariff pass-through beginning to materialize, and services outside housing remain firm. PPI for February, released March 18th, surprised to the upside at +0.7% MoM headline and +0.5% core, both above the +0.3% consensus forecast—a signal that pipeline inflation pressures have not fully resolved.
The inflation outlook has now been fundamentally disrupted by the Iran conflict. Brent crude briefly touched $119.50 per barrel before retreating toward $108, and EY-Parthenon estimates March headline CPI could print as high as +0.9% MoM, pushing the year-over-year rate toward 3.3% when released on April 10th. Gasoline prices are the immediate transmission mechanism, with pump prices rising sharply nationwide; airline fares, shipping costs, and eventually food prices represent the secondary wave. The critical policy question is whether this is a transitory supply shock—analogous to, but more severe than, the 2022 Russia-Ukraine episode—or whether it embeds into longer-run inflation expectations. For now, University of Michigan year-ahead inflation expectations stalled at 3.4% in the preliminary March survey (ending six months of consecutive declines), while long-run expectations edged down to 3.2%—a cautiously encouraging signal that consumers are not yet extrapolating the oil shock into the indefinite future.
The Federal Reserve's posture post-March meeting is best described as asymmetrically hawkish patience. Powell pushed back against stagflation characterizations, noting that the 1970s involved double-digit unemployment and inflation simultaneously—conditions not present today. The FOMC's median dot still projects one cut in 2026 (consistent with December), but markets have effectively priced that cut out to December or January given the energy uncertainty. Critically, derivatives markets are now assigning a 10% probability to a rate hike over the next twelve months—a remarkable repricing that would have been unthinkable six weeks ago. Financial conditions have tightened modestly: the DXY surged above 100 on the March 18th FOMC press conference before retreating Thursday as the ECB, BOJ, and BOE all signaled tighter stances, weakening the dollar's safe-haven premium.
Key Takeaway
The Fed is in asymmetric hold mode: it will not cut until energy-driven inflation clears and core progress resumes, but hikes remain a low-probability tail risk absent a structural inflation re-acceleration. Core PCE (the Fed's preferred gauge) and the April 10th CPI report are the next pivotal data points. Markets are pricing one cut no earlier than December 2026.
Risk and Positioning
Markets are nervous but not panicking — the fear gauge (VIX) closed near 24, which is elevated but well below the levels that signal genuine alarm. Stocks briefly dropped much harder Thursday before recovering, after Israel's prime minister said the U.S. and Israel are working to reopen a key oil shipping route in the Middle East. That single piece of news turned a bad day into a manageable one. Gold — which people usually buy when they're scared — actually fell sharply Thursday, which is unusual; it likely reflects investors raising cash to cover losses elsewhere rather than any change in the underlying risks.
Key Takeaway
Markets are anxious but holding — one headline from the Middle East is enough to swing stocks 1% in either direction.
Thursday's session illustrated the volatility regime markets now inhabit. The S&P 500 initially plunged toward intraday lows approaching the 200-day moving average (approximately 6,600, per JPMorgan's widely-cited technical level) before recovering to close down just 0.27% at 6,606—a meaningful intraday reversal triggered by Israeli Prime Minister Netanyahu's statement that Israel is assisting U.S. efforts to reopen the Strait of Hormuz. The VIX closed near 24 after spiking intraday, a level that reflects genuine macro uncertainty but remains below the acute stress thresholds (30+) that would signal capitulation. The index has been below its 50-day moving average since February 27th; the 200-day moving average is now the fulcrum of the technical debate. Risk sentiment is best classified as mixed-to-risk-off: oil-sensitive sectors are attracting capital, but the mega-cap growth complex and financials continue to face fundamental and technical pressure.
Equity positioning metrics reflect a market in transition rather than panic. The S&P 500 sits approximately 5.7% below its January 27th all-time high of 7,002, having logged four consecutive losing weeks. Equal-weight performance has held up better than market-cap-weighted during this drawdown, as the leadership rotation away from mega-cap technology pre-dates the Iran conflict. Micron Technology's 3.8% decline on Thursday—despite posting Q1 EPS of $12.20 versus an $8.66 estimate and revenue of $23.86 billion versus a $19.74 billion estimate—illustrates the degree to which sentiment headwinds are overriding fundamental strength in the technology complex. Meta and Nvidia both saw 1-2% declines in sympathy. Credit markets remain relatively orderly, with Treasury yields rebounding from session lows after the Hormuz news; the 10-year closed at 4.28%, up 2 basis points on the day.
The most important anomaly to flag is the divergence between gold and its historical safe-haven function. Gold fell more than 4% on Thursday and silver tumbled over 8%—a counterintuitive move in a risk-off session driven by geopolitical conflict. This likely reflects forced liquidation and margin call dynamics rather than a genuine reassessment of gold's store-of-value properties; the dollar's initial surge post-FOMC mechanically pressured dollar-denominated commodities. However, investors should watch whether gold recovers its footing as the dollar retraces, or whether elevated real yields (with the 10-year real yield approaching 2%) are structurally capping gold upside. The BOJ, ECB, and BOE all held rates Thursday while signaling tighter stances—a development that strengthened the yen and euro against the dollar, pulling DXY below 99.5 by session end.
Key Takeaway
Implied volatility at VIX 24 understates realized intraday vol, which has been substantially higher. The 200-day moving average near 6,600 on the S&P 500 is the key technical line; a confirmed close below would likely accelerate selling toward the 6,000–6,200 support zone identified by JPMorgan. The primary tail risk remains an Iran escalation that closes the Strait of Hormuz for an extended period.
Sector and Cross-Asset Analysis
Oil and gas companies have been the biggest winners of 2026 so far, up roughly 22% since January as energy prices surge — Exxon and Chevron are leading that charge. Everyday goods companies like food and household products brands (think Walmart and Costco) have also held up well, as investors look for stable businesses during uncertain times. The losers have been tech companies and banks — tech is facing the double pressure of high valuations and cautious sentiment, while banks struggle when economic uncertainty rises. Smaller companies actually outperformed larger ones on Thursday, which is a small encouraging sign that the market isn't completely relying on a handful of giant names.
Key Takeaway
Energy and everyday staples are leading; tech and banks are lagging — investors are favoring businesses with predictable cash flows right now.
The sector rotation that began in early 2026 has been supercharged—and complicated—by the Iran conflict. Energy (XLE) is the clear year-to-date leader, up approximately 22–25% since January 1st, with Exxon Mobil and Chevron contributing the lion's share of the sector's gain as oil prices surged above $90 per barrel (WTI) and Brent approached $108. Industrials and consumer staples have also meaningfully outperformed, up 16% and 13% YTD respectively, as investors sought real-economy cash flows over speculative growth multiples. The Dow Jones Industrials' Thursday decline was led by Boeing (-2.28%), McDonald's (-1.95%), and 3M (-1.63%)—cyclical names facing cost pressure—while Chevron (+1.39%) and Cisco Systems (+1.15%) bucked the trend. Technology (XLK), financials (XLF), and consumer discretionary have been the persistent laggards: the S&P technology sector has seen multiple compression from elevated valuations, with XLF declining roughly 13% from its January high as credit and macro uncertainty weigh on bank earnings expectations.
The broadening thesis is the most important structural narrative for portfolio positioning. As of late February (the most recent complete data per S&P Dow Jones Indices), utilities surged 10% in February alone, reflecting both defensive demand and structural power-demand tailwinds from AI data center buildout. Small caps showed early-year outperformance, with the equal-weight S&P meaningfully closing the gap with the cap-weighted index—a sharp departure from 2025's narrow leadership pattern. However, March volatility has muddied this signal; with Micron beating dramatically and still selling off, the market is not yet willing to reward growth at any price in the technology complex. The Russell 2000's relative outperformance on Thursday (+0.65% vs. large-cap indices down 0.27–0.44%) is consistent with the broadening story, though small caps carry their own recession sensitivity risk if the energy shock bites consumer spending.
Cross-asset dynamics have been volatile and at times contradictory. Brent crude's pullback from $119 toward $108 is the most market-relevant development of the week—each $10 move in Brent translates directly to the inflation and Fed trajectory debate. Gold's 4%+ decline Thursday, despite being a textbook geopolitical shock environment, signals that dollar dynamics and real yield levels are dominating precious metals pricing in the near term. The dollar's retreat below 100 on Thursday (DXY ~99.23) after briefly surging above 100 post-FOMC reflects the competing force of other central banks tightening: the BOJ, ECB, and BOE all held but signaled upward pressure on rates, reducing the interest rate differential that supports the dollar. International equities, particularly European stocks, fell sharply—the Stoxx 600 dropped 2.76% and Germany's DAX declined 3%—as higher energy costs hit European manufacturers with particular severity given the continent's greater energy import dependence.
Key Takeaway
Energy, industrials, and consumer staples are the YTD leaders; technology, financials, and consumer discretionary are the laggards—a rotation from speculative growth to real-economy cash flows. Market breadth has improved structurally but remains fragile under geopolitical stress. The crude oil trajectory is now the single most important variable for sector leadership through Q2.
What We're Watching
Monetary Policy: Fed's Next Move
The Fed holds at 5.25–5.50% with a median projection of one 2026 cut. Markets have repriced that cut to December or later, and a 10% probability of a hike has emerged in derivatives markets. Any oil price stabilization that allows March CPI to come in below 0.7% MoM would meaningfully restore easing expectations.
Rates & Fixed Income: The 4.28% Inflection
The 10-year yield at 4.28% is testing a critical technical level. A break above 4.50% would pressure equity valuations and likely accelerate de-risking. We favor a short-duration posture and quality credit; the 2s10s curve steepening is consistent with a stagflationary regime transition.
Equities: Holding the 200-Day
The S&P 500's ability to close above its 200-day moving average near 6,600 is the near-term test. The rotation from mega-cap tech into energy, industrials, and staples is fundamentally sound but must contend with valuation risk. Micron's selloff despite a blowout beat signals that sentiment headwinds are real; quality over momentum is the right posture.
Key Risk: Strait of Hormuz & Oil Trajectory
The Hormuz situation is the primary binary risk. If the Strait remains accessible and Brent stabilizes below $100, the inflation and Fed overhang clears significantly. If escalation closes transit routes and Brent retests $115+, a Fed-on-hold + recession-risk scenario becomes a serious base case. Netanyahu's Hormuz statement Thursday was the week's most market-relevant geopolitical development.
The Bottom Line
Today's session will be driven by whatever happens with oil prices and Middle East headlines — there's no economic data to anchor the market. The S&P 500 is holding on by a thread at a key technical support level; a quiet weekend in the region would help, while any escalation would likely push stocks lower.
Treasuries are consolidating near 4.28% on the 10-year after the post-FOMC surge, with the key technical question being whether yields break higher toward 4.50% (the level that would mechanically pressure equity valuations) or retrace toward 4.10–4.15% if oil prices continue to moderate. Equity internals tell a story of a market fighting to hold the 200-day moving average: Thursday's intraday reversal from near 6,600 back to 6,606 at close was constructive, but four consecutive losing weeks and sustained pressure on technology leadership mean the burden of proof remains with the bulls. Friday's session will be driven primarily by weekend geopolitical risk management—whether oil prices extend Thursday's partial retreat or resume their upward grind—and any developments on the Hormuz situation will be the dominant intraday catalyst. With no major data releases on the calendar and options expiration context worth monitoring, expect lower-volume, event-driven tape with the S&P 500 range anchored between 6,550 support and 6,680 resistance.
Disclosure — AI-Assisted Content & Regulatory Notice
This briefing was drafted with the assistance of artificial intelligence tools. All content has been reviewed and approved by Thomas MacPherson, Investment Adviser Representative (Series 65) and Chief Compliance Officer, River Rose Financial, LLC, prior to publication. AI systems may produce errors, omissions, or outdated information; readers should independently verify data.
Market Currents does not constitute an investment advisory relationship, does not create a fiduciary duty, and does not include personalized investment advice. Subscribers should not rely on Market Currents as a substitute for individualized financial advice. This briefing is for informational purposes only. Market conditions change rapidly; all data and projections are subject to revision without notice.
River Rose Financial, LLC is a registered investment adviser with the State of Colorado. Registration does not imply a certain level of skill or training. Past performance is not indicative of future results. All investment strategies involve risk, including possible loss of principal.
