Hello, I'm Eric Criscuolo, Market Strategist at the New York Stock Exchange, and this is Market Storylines. Every week we’re here to keep you up to date on the key trends and events driving global markets. We’re recording on Thursday, March 19. Now let’s dive in.
Escalation and Uncertainty. Those two words are the driving forces in markets right now. This week the war with Iran expanded to include strikes on vital energy infrastructure, with both sides attacking key resources.
Israel struck Iran’s South Pars natural gas field- the biggest source of Iran’s domestic energy. Iran responded with strikes on refineries in Saudi Arabia and Kuwait as well as Qatar’s giant Ras Laffan, the world’s largest liquified natural gas plant. President Trump took to social media urging an end to attacks on South Pars, but with the condition that if Iran attacks Qatar again the U.S will, quote “massively blow up the entirety of the South Pars Gas Field”, end quote. Beyond this escalation, other reports said the US was considering deploying thousands of US forces to the Middle East. This morning, Defense Secretary Pete Hegseth held a press conference in which he said no time has been set for ending the conflict. As we said, Escalation and Uncertainty. Until there is de-escalation and/or the Strait of Hormuz is re-opened, pressure across assets outside of energy will continue.
Speaking of energy commodities, they responded in the expected fashion. Brent Crude is up close to 10% for the week, putting year-to-date gains at about 85%. European natural gas is up over 20%, putting gains at over 100% so far this year.
This leads us into this week’s other key storyline. There were at least half a dozen central banks that held their policy rate meetings this week, with the Federal Reserve the highlight Wednesday afternoon. The Fed held the policy rate unchanged as expected, but the numerous details showed a convoluted path for rate cuts in the future. Economic projections from the participants were full of hawkish changes- including Governor Waller changing his vote from being in favor of a rate cut last time, to voting for no change this time. Chair Powell’s commentary during the Q&A session highlighted the need to bring inflation back down to 2% much more than any expressed concern about the labor market. He also pulled out his most cited word- Uncertainty- and all its synonyms, to describe the current situation. Remember he has been Fed Chair through COVID, Tariffs and now Iran.
Markets responded by driving yields higher and stocks lower, increasing the weakness that equities were under leading into the event. The market is now pricing in a 70% probability that the Fed keeps rates unchanged for the remainder of the year to combat inflation, compared just a 5% chance a month ago.
Spiking oil and gas prices would lead to nearer-term inflation. The impact could be even more pronounced, since the consumer has already been struggling with inflation since COVID. That brings up the second-order effect: when will those higher prices create demand destruction that could trigger a recession, in which markets are then repricing the yield curve back down, as we switch to rate cuts to spur growth, and not hikes to tame inflation. As Powell said, “we just don’t know.”
Powell also addressed his future at the Fed, saying he would stay on as Chair until his successor, which should be Kevin Warsh if his nomination proceeds, gets confirmed. He also said he has no intention of leaving the Fed board of governors until the ongoing Justice Department investigation is quote, “well and truly over”, end quote. If it is concluded, he hasn’t made up his mind what he would do. Just…More…Uncertainty….
Short term Treasury yields started the week by moving lower but ripped higher on all the Fed news. The 2-year is up about 15bp this week to about 3.85%, but that is off its highs of almost 4%. The US moves are at least partially in response to much bigger international moves, including 2yr yields in the UK ripping 30bp today as BOE policy expectations get completely repriced for inflation fears. One thing to call out though is that longer-term rates in the US are flat to down this week.
Equities are absolutely under pressure but the market has exhibited an impressive resiliency. The S&P is down less than 1% this week and down about 4% on the year. With that said, we had already broken below the bottom end of the 6700-7000 trading range we were in since November, and today we have broken below the important 200 day moving average for the first time in over 200 days. What’s more, tomorrow is a big options expiration, and as positions and hedges roll that could trigger more movement. Below the 200-day, the November low around 6540 will be a key test for support.
On a positive note, we’ll give out a shout out to MAC Desk friend Jay Woods at Freedom Capital, who mentions that 71% of the time when the S&P breaks below the 200 day after spending at least 200 days above it, our current situation, it recaptures that average within 10 days, with the largest drawdown being only 3%. Trying to not be all depressing today.
Briefly on the sectors, its no surprise that Energy is leading this week, but the gains are relatively modest after rising 30% already this year. Tech is holding on, flat for the week with strength in semiconductors. Speaking of, Micron had an absolute blow out earnings report last night, but the stock is trading lower today, much like we saw happen to Nvidia. The hurdle rates are in the stratosphere for some of these names.
Consumer Staples is not holding up as a Defensive play as it’s the worst performing sector, along with Materials as energy and input prices strain costs.
Precious metals have sold off this week on the big rise in rates as well as monetization of earlier gains. Bitcoin and Ether are slightly lower, holding up relatively well, though bitcoin looks to be breaking down a little today.
Now, let’s take a look at what’s coming up. We don’t care what Punxsutawney Phil said, Friday March 20th is the vernal equinox for us northern hemisphere folks, which means its good bye Winter, hello Spring. It also means baseball is back, and the New York Yankees and their former neighbor, the San Francisco Giants, kick off the 2026 season next Wednesday, March 25 on Opening Night, the earliest opener in league history. For those that like brackets, the NCAA basketball tournaments will be in full swing.
We noted Friday’s option expiration. FedEx reports Thursday night, providing an important read on the global economy and trade. The Fed’s media blackout comes to an end, so we’ll hear a lot of discussion about each members outlook and reasoning. Flash PMIs for March will be released next week, which should include events after the war with Iran started. Earnings will include KB Home, Paychex, Winnebago, Jefferies and Carnival.
That’s a wrap for this week. You can watch Market Storylines on TV.NYSE.com or on the NYSE YouTube Channel. You can also listen on the Inside the ICE House Podcast feed. Thanks for joining me. I’m Eric Criscuolo. We’ll see ya next week. Happy Spring!