The Top Line
The war between the U.S. and Iran is dominating markets right now — oil prices spiked, stocks fell, and nerves are high. Wednesday brought some relief after reports of a possible peace proposal, but nothing is settled yet.
We are operating in a transitional/mixed macroeconomic regime, characterized by durable labor market resilience colliding with structurally elevated inflation and a geopolitical energy shock of historic proportions. The U.S.-Iran war, now entering its fourth week, has upended the 2026 growth narrative: WTI crude peaked above $112/barrel before retreating, the VIX doubled from 13 to a peak above 35, and the S&P 500 fell roughly 6% from its January 27th all-time high of 7,002. The Fed held the federal funds rate at 3.50–3.75% at its March 18th meeting and revised its 2026 core PCE forecast upward to 2.7%, while projecting GDP growth of 2.4%—a combination that leaves the committee firmly on hold. The structural question dominating the outlook is whether the energy shock proves transitory and negotiable, or becomes embedded in services inflation and long-term rate expectations.
Inflation
Prices were already rising a bit faster than the Fed — the central bank that controls borrowing costs — would like, before the Iran war made things more complicated. In February, everyday prices were up 2.4% from a year ago, which is close to normal but still above the Fed's 2% goal. The bigger concern is that oil prices have surged during the conflict, which tends to push up the cost of gas, shipping, and eventually groceries. The Fed left interest rates unchanged last week and signaled it needs to see prices cool further before it will consider cutting rates — meaning mortgages, car loans, and credit cards stay expensive for now.
Key Takeaway
Inflation was already stubborn before oil prices jumped — your borrowing costs are not coming down anytime soon.
The inflation picture entering 2026 was already complicated before the Iran war rewrote the calculus entirely. February CPI printed in line with expectations at 0.3% month-over-month and 2.4% year-over-year, with core CPI holding at 2.5% annually—showing stability but not progress toward the Fed's 2% target. The more consequential development came from the Fed's preferred metric: core PCE surged to 3.0% on an annualized basis ahead of the March 18th FOMC meeting, driven not by shelter costs (which are finally normalizing) but by structural acceleration in services inflation—particularly healthcare and insurance premiums, which carry a far heavier weight in the PCE basket than in CPI. This divergence between CPI cooling and PCE accelerating has created what analysts are calling a "weighting wedge" that complicates both policy signaling and market pricing.
The Iran war has now layered an acute energy shock on top of this pre-existing inflation problem. Brent crude surged from $72 at the start of March to a peak above $113 before retreating to approximately $102 on Wednesday's ceasefire-hope rally. WTI settled near $90–91. The ripple effects are already visible: the February PPI rose 0.7% month-over-month, with core PPI up 0.5%—flagging upstream cost pressures that typically transmit to consumer prices within 60–90 days. Mortgage rates have surged at their fastest pace in 11 months. CPU prices have risen 10–15% on supply constraints. If crude stabilizes near current levels, March and April CPI prints are likely to reflect meaningful energy passthrough, potentially pushing headline CPI toward 3.0% or above—well above the February baseline.
The Federal Reserve's response at March 18th was deliberate patience under duress. The FOMC maintained rates at 3.50–3.75% in an 11-1 vote and notably added language acknowledging that "the implications of developments in the Middle East for the U.S. economy are uncertain"—the first time geopolitical conflict has been explicitly embedded in policy language in recent memory. Fed Governor Michael Barr, speaking Wednesday, reinforced that "the central bank may need to keep rates elevated for some time." J.P. Morgan's chief economist Michael Feroli has broken ranks with the Fed's own dot plot, projecting zero cuts in 2026 and flagging the risk of a hike in 2027. The next SEP update is not until the June FOMC meeting, leaving markets without authoritative guidance through the duration of the conflict.
Key Takeaway
The Fed is in a hawkish hold, with financial conditions tightening materially from the energy shock and elevated yields. Core PCE at 3.0% and oil above $100 make any near-term cut functionally impossible; markets now price the first cut no earlier than September, with a 35% probability of a second move by year-end. The May 6–7 FOMC is the next scheduled decision point, and Jerome Powell's chairmanship expires May 15th—adding a leadership transition risk layer to an already fraught policy landscape.
Risk and Positioning
Markets are nervous but not panicking. The market's fear gauge — the VIX — dropped from about 27 to 25 on Wednesday as ceasefire hopes calmed investors slightly, but it is still nearly double where it was before the Iran conflict began in early March. Think of it like a weather forecast: the storm has eased for now, but the skies are still cloudy. Gold, which people typically buy when they are worried, remains near all-time highs. Government bonds — another traditional "safe" asset — have been in high demand, though recent auctions showed some weakness, suggesting even bond buyers are getting cautious. Wednesday was a relief day, not a recovery day.
Key Takeaway
Markets calmed down a bit Wednesday, but anxiety is still elevated — the relief depends entirely on what happens next in the Middle East.
Risk sentiment on Wednesday was cautiously risk-on, driven by a single geopolitical catalyst: the Associated Press confirmed that Iran received a 15-point U.S. ceasefire proposal delivered through Pakistani intermediaries, sending oil prices sharply lower and equities higher. But the rally was incomplete and contested. Iran's state media simultaneously signaled rejection of the proposal and offered a five-point counteroffer that would grant Tehran control of the Strait of Hormuz—a nonstarter for the U.S.—ensuring that market participants are trading headlines rather than fundamentals. The S&P 500's +0.54% close reflects relief, not resolution; the VIX at 25.33, while down 6% on the day, remains nearly double its January baseline of approximately 13, and the index sits 5.86% below its all-time high. The market is not pricing a clean outcome.
Equity positioning reflects this ambivalence. The S&P 500 is down 3.7% year-to-date on a price basis, while the equal-weight S&P 500 is actually up approximately 3.2%—a striking divergence that signals mega-cap technology underperformance relative to the broader market during the Iran-driven selloff. Since hostilities began on March 1st, Energy is the only S&P 500 sector in positive territory, up approximately 31.8% year-to-date, while technology and AI-exposed names have experienced significant multiple compression. Retail investors are notably not chasing the ceasefire bounce; flow data indicates trimming of AI-concentrated positions into strength. Credit markets are reflecting stress: the 2-year Treasury auction on Tuesday tailed by 1.8 basis points with primary dealers taking 24.12% of supply—the largest dealer takedown since 2022, signaling weak end-investor demand for duration at current yields.
Defensive positioning remains elevated across multiple asset classes. Gold has rallied sharply (futures near $4,500/oz) as a stagflation hedge, though it pulled back modestly Wednesday on de-escalation optimism. Treasury demand in longer maturities has been weak—Wednesday's $70 billion 5-year auction followed the poor 2-year result, with benchmark yields responding to fiscal concerns as war-related spending adds to the deficit. The 10-year yield fell 6 basis points Wednesday to 4.33% on ceasefire hopes, pulling back from 8-month highs near 4.39–4.40%. The 2s10s spread remains positively sloped, reflecting the market's expectation that the Fed stays on hold at the short end while longer-term inflation risk keeps the back end elevated. The 2-year yield settled near 3.88%—meaningfully below the policy rate, implying the market still anticipates eventual easing even if the path is uncertain.
Key Takeaway
Implied volatility at VIX 25.33 remains substantially elevated versus the 13 level that prevailed before the conflict began, while realized 20-day volatility has surged. The primary tail risks are: ceasefire talks collapsing and crude ripping back above $110 (stagflation acceleration), a weak Treasury auction cycle driving yields to new cycle highs and repricing equity multiples, and—a subtler risk—the Fed leadership transition in May creating policy uncertainty at the worst possible moment.
Sector and Cross-Asset Analysis
Oil and gas companies have been the standout winners of 2026, up over 30% since January, because conflict in the Middle East disrupted oil supplies and drove prices sharply higher. Tech companies bounced back Wednesday as oil prices pulled back, since lower energy costs ease inflation fears and make future earnings look more attractive. On the other side, housing-related businesses like KB Home cut their sales forecasts, citing high mortgage rates and nervous buyers — a reminder that elevated borrowing costs are squeezing the real economy. International markets also rallied Wednesday, particularly in Asia and Europe, as ceasefire hopes lifted sentiment globally.
Key Takeaway
Oil and gas companies are winning big; tech is recovering; anyone tied to housing or borrowing is still hurting.
Wednesday's sector performance reflected the oil-driven relief trade in concentrated form. Technology led the advance with Nasdaq up 0.77% versus SPX's 0.54%, as lower crude prices reduced the immediacy of the inflation-driven rate hike narrative and gave AI-exposed names room to breathe. AMD and Intel gained on separate news—Nikkei Asia reported both companies are raising CPU prices 10–15% due to a supply crunch—signaling that semiconductor pricing power is intact even as demand narratives remain contested. Memory names had been under pressure earlier in the week after Alphabet published research on more efficient AI models, a development that theoretically reduces training compute intensity. That dynamic illustrates the binary, headline-driven nature of tech positioning: AI efficiency gains are simultaneously deflationary for hyperscalers and deflationary for chip demand, yet supply constraints are creating near-term pricing power regardless. Meta, which carries its own headline risk from a $3 million jury verdict finding it liable for social media harms to youth, saw choppy trading but managed a modest gain Wednesday.
Energy's dominance as the only sector with meaningful year-to-date gains (+31.8% YTD) reflects the structural reality that Persian Gulf disruption has repriced the entire energy complex. WTI settled near $90–91 Wednesday on ceasefire optimism—down sharply from the $112 peak but still up dramatically from the $72 pre-conflict level. Brent settled near $102. Oppenheimer's technical team has recommended maintaining energy exposure, observing a pattern similar to the 1990s in which energy stocks consolidate on oil dips and make higher highs on rallies. The risk of a single ceasefire headline causing a sharp reversal is real, however—the sector is crowded and event-driven. International markets staged their own relief rally: South Korea's KOSPI gained 1.59%, Japan's Nikkei rose 0.9%, and Europe's Euro Stoxx 600 advanced 1.1%, with European defense stocks pulling back 2–3% on de-escalation speculation after a massive multi-week run-up.
Cross-asset dynamics on Wednesday told a coherent story of geopolitical hope pricing: equities up, oil down, gold up modestly (a stagflation hedge still intact even as war risk partially priced out), and Treasuries rallying (yields falling) on reduced inflation expectations from lower crude. The dollar index (DXY) remained firm near 99.63, up modestly on the day, as traders scaled back Fed rate-cut expectations while simultaneously watching ceasefire talks that could eventually ease dollar-supportive inflation dynamics. The 2s10s spread—the difference between 2-year and 10-year Treasury yields—remains positively sloped at approximately 45 basis points, a healthy curve structure that argues against immediate recession risk but reflects a market that has repriced the short end lower than the Fed's current policy rate.
Key Takeaway
Market leadership has bifurcated sharply: Energy dominates YTD performance while mega-cap technology is underperforming its January positioning. Equal-weight SPX is outpacing cap-weighted SPX YTD, an unusual rotation suggesting the AI-concentrated megacap trade is in a correction phase. Wednesday's rally was broad but shallow—a headline-driven relief bounce rather than a fundamental re-rating. Sustainable breadth expansion requires either a durable ceasefire that removes the energy shock or a material easing of Treasury supply dynamics.
Economic Data & Events
Today's Calendar
- 6:30 AM MT — Weekly Jobless Claims (how many people filed for unemployment last week) — Moderate Impact
Expected: ~210K | Prior week: 205K
- 2:00 PM MT — Fed Governor Lisa Cook Speech (a Federal Reserve official commenting on the economy) — Moderate Impact
- 4:00 PM MT — Fed Member Stephen Miran Speech (closely watched because Miran is expected to be the next Fed Chair after Jerome Powell steps down in May) — Moderate Impact
Today is a quiet day for economic data, which means headlines from Iran will likely continue to drive the market's mood. The jobless claims number will tell us whether the job market is still holding up despite the disruption — a healthy number keeps the economy-is-okay story intact. Watch what Fed member Miran says: he may be your next Federal Reserve Chair, and his views on inflation could move markets.
Key Takeaway
Today's biggest market mover is likely to be Iran news — not economic data.
Today's Calendar
- 6:30 AM MT — Initial Jobless Claims (week ending Mar. 21) — Moderate impact
Consensus: 210–211K | Previous: 205K
Note: This is the highest-priority release today. A print above 215K would signal labor market softening; below 200K reinforces resilience and "higher for longer" Fed posture.
- 6:30 AM MT — Continuing Jobless Claims — Low impact
Consensus: ~1,860K | Previous: 1,857K
- 8:00 AM MT — Kansas City Fed Composite Manufacturing Index (March) — Low impact
Consensus: 3 | Previous: 5
- 2:00 PM MT — Fed Governor Lisa Cook Speech — Moderate impact
Watch for any inflation language relative to the conflict; Cook is considered centrist within the committee.
- 4:00 PM MT — Fed Member Stephen Miran Speech — Moderate impact
Miran's remarks on inflation risks will be closely parsed as a proxy for Kevin Warsh's likely posture when he assumes the chair in May. This is the highest-attention Fed communication today.
Week Ahead
This is a light week for tier-1 economic data, with jobless claims the only significant domestic release. The macro calendar is being eclipsed by Iran ceasefire developments, where each headline is moving equities and crude by 1–3%. Powell's chairmanship expires May 15th; watch for any Warsh confirmation hearings scheduled in the coming weeks. The next major data catalyst is March CPI, expected in mid-April, which will be the first inflation print to capture the full energy passthrough from the conflict.
What We're Watching
Monetary Policy: Fed on Hold, Chair Transition Looms
The FOMC is parked at 3.50–3.75% with core PCE at 3.0% and the energy shock still live. Markets price the first cut no earlier than September; J.P. Morgan sees zero cuts in 2026. Jerome Powell's term expires May 15th—the Warsh transition adds a policy uncertainty layer that is underpriced.
Rates: Auction Dynamics and the 4.40% Test
Back-to-back weak Treasury auctions (2-year tailed 1.8bps; 5-year also disappointed) signal fiscal concerns and insufficient end-investor demand at current yields. The 10Y yield's ceiling near 4.40–4.45% is the critical level; a sustained break higher would reprice equity multiples and mortgage borrowing costs materially.
Equities: Ceasefire Binary and AI Model Risk
The market is trading the Iran war as a binary event; resolution could unlock 4–6% upside as the risk premium unwinds, while collapse in talks risks retesting the 6,300–6,400 zone. Separately, Alphabet's more-efficient AI model research creates a structural risk for semiconductor demand assumptions that is independent of geopolitics.
Key Risks: Stagflation Entrenchment and Gulf Escalation
The primary tail risk is crude stabilizing above $100 long enough to embed in March and April CPI, forcing the Fed's hand toward hikes rather than cuts. Gulf states—Saudi Arabia and the UAE—signaling readiness to join the conflict against Tehran is the most acute escalation risk; any confirmed entry widens the conflict structurally.
The Bottom Line
Markets got a boost Wednesday from hopes that the U.S. and Iran are talking — but Iran quickly rejected the proposal, so nothing is resolved. Expect another day of big swings driven by ceasefire headlines, with oil prices as the key number to watch.
Treasuries consolidated Wednesday after the prior session's surge to 8-month highs, with the 10-year yield retracing to 4.33%—a ceasefire-hope move, not a fundamental shift. The range likely holds between 4.25% and 4.45% absent a material catalyst, with the weak auction backdrop biasing the risk toward the upper end. Equity internals improved modestly: Nasdaq outperformed SPX and breadth was positive on the session, but volume and flows suggest retail is selling into strength rather than adding exposure. Today's session is likely to be headline-dominated—ceasefire news flow from Tehran and Washington will drive intraday moves in energy and technology far more than the jobless claims print. Key levels: S&P 500 support near 6,500 (the prior correction low and 0.786 Fibonacci support), with resistance at the 6,650–6,700 zone that capped the Monday relief rally; a sustained close above 6,700 would signal the geopolitical risk premium is meaningfully unwinding. Fed speakers Miran and Cook should be monitored closely given Powell's impending departure and the market's appetite for any policy signal.
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.
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