Weekly Commentary (3/23/26) – Oil Shock and Inflation Fears Put Markets on Edge

Weekly Commentary (3/23/26) – Oil Shock and Inflation Fears Put Markets on Edge
Last week, investors were forced to weigh solid corporate fundamentals against a fast-rising geopolitical risk premium. Escalating hostilities involving Iran,  uncertainty about cargo passage through the Strait of Hormuz, and damage to regional energy infrastructure pushed oil sharply higher, kept volatility elevated, and raised concern that a new energy shock could lift inflation expectations just as the Federal Reserve was trying to hold policy steady. At the same time, earnings season has generally remained constructive, which has helped prevent a much deeper equity drawdown even as markets have become more defensive. 
For the week, the DJIA fell 2.09% and the S&P 500 declined 1.87%. The tech-heavy Nasdaq dropped 2.06%. International equities were also lower, with the MSCI EAFE Index down 2.06% and MSCI EM off 0.35%. Small company stocks, represented by the Russell 2000, fell 1.65%. Fixed income, represented by the Bloomberg Aggregate, lost 0.51% as yields moved higher. As a result, the 10 Year Treasury closed at 4.39%, up 11 basis points on the week. Gold suffered a very sharp decline of 9.54% and settled near $4,570.40/oz, while Oil closed at $98.32 after another volatile week driven by Middle East tensions and supply concerns. 
The most important economic report of the week was the Producer Price Index. Headline PPI rose 0.7% in February, more than double the 0.3% consensus forecast, while core PPI rose 0.5%, also above expectations. That higher-than-expected inflation data, combined with the jump in oil prices, fed the market’s concern that inflation expectations may move higher and that hopes for Fed cuts may need to be pushed further out. The Fed left rates unchanged on Wednesday, but its updated outlook acknowledged firmer inflation risks, and markets finished the week much less confident that easing is close at hand. 
One offsetting support for the market is that earnings season has been reasonably solid, and valuations have come in modestly from the extremes seen earlier in the quarter. FactSet’s latest data shows the forward 12-month P/E ratio for the S&P 500 around 20.3, down from 22.0 at the end of the fourth quarter, though still above long-term averages. In other words, valuations are no longer quite as stretched, but they still leave less room for error if oil stays high, inflation proves sticky, or bond yields continue rising. 
The coming week is lighter on headline data, but the market will still have important signals to digest. Preliminary PMI reports, weekly jobless claims, and Friday’s consumer sentiment reading should offer an early sense of whether higher energy prices and geopolitical uncertainty are beginning to affect business activity, hiring confidence, and household psychology. With the Volatility Index (VIX) still above 20 and investors highly sensitive to every Iran-related headline, markets are likely to remain reactive. 
The trend of market leadership narrowing beneath the index level continues. Dispersion across sectors and stocks has widened materially, which can make the major averages look more stable than many portfolios feel underneath the surface. This could become more important if the AI trade keeps fragmenting (investors paying greater attention to fundamentals and discriminating more sharply amongst the AI and AI-adjacent companies) and if energy-driven inflation pressure starts to hit margins unevenly.
We continue to advise investors to be disciplined in adhering to their investment policy and patient when the markets’ winds are pushing against the planned course.  If you have any questions, concerns, or you would like to discuss this commentary, please contact us by phone or email.
“Adversity is the first path to truth.” – Lord Byron