Weekly Commentary (3/16/26) – Counting the Wolves

Weekly Commentary (3/16/26) – Counting the Wolves
Last week the S&P 500 fell about 1.3 percent for its third straight weekly loss. The 10-year Treasury yield rose roughly 13 basis points to close near 4.27 percent. Brent crude briefly pushed above $100 per barrel before pulling back.
What made last week confusing was not the size of the moves but the direction. In a typical geopolitical shock, you would expect investors to rush into safe havens. Gold goes up. Government bonds go up. The dollar strengthens. Instead, we saw something closer to the opposite. Gold was flat to down. Bonds weakened. Borrowing costs rose. The assets that sold off hardest were not in the U.S. but in Asia and Europe, markets that had been popular destinations for investors diversifying away from American equities.
What this may tell us is that investors were not treating this as the end of the world. They were taking some profits on trades that had worked well and pulling a little risk off the table. But the one reaction that does deserve close attention is what happened in the bond market. Bonds hate inflation. When oil prices spike and inflation expectations rise, bond prices fall, and yields move higher. That dynamic showed up clearly last week and it matters more than the headlines about stocks.
There is a story from the memoirs of Ulysses S. Grant that I think about in weeks like this. As a young officer during the Mexican War, Grant was riding across a Texas prairie one evening with a companion, Lieutenant Benjamin. As they moved through the darkness, they began to hear wolves howling ahead of them. The sound was enormous. It echoed across the open grass and seemed to come from every direction. Grant later wrote that it sounded like enough wolves to devour the entire party, horses and all.
When they reached the source of the noise they found just two wolves. Seated on their haunches with their mouths close together, two animals had produced all that sound.
Markets often work the same way. When oil prices, inflation data, and geopolitical tension all show up at once it can feel like a pack is closing in. From our experience, the better move is to pause and count.
In our view, the economy still has real strengths supporting it. AI and data center investment remains strong. Industrial spending tied to reshoring and defense continues to build. These are a big part of why we remain constructive on the outlook.
But the range of outcomes has widened. If growth stays strong while energy prices rise, inflation can move higher again, and the Fed has little choice but to keep rates elevated. Higher rates create pressure across the system, from corporate borrowing costs to emerging markets to the cost of servicing our national debt.
The other scenario getting attention is stagflation. Q4 GDP was just revised down sharply and core PCE inflation is still running above three percent. That is a difficult combination for the Fed because the tools used to fight inflation can further slow growth.
This is why the bond market reaction last week matters so much for diversification. For a long time, investors relied on a simple idea: when stocks fall, bonds provide stability. But bonds are on a knife’s edge right now, deeply sensitive to any sign of resurgent inflation. When inflation rises that old relationship breaks down and stocks and bonds can fall together. Last week was a small example.
Diversification today means more than traditional stock and bond split. It also means looking beyond the most crowded trades. AI is a defining trend, but many portfolios have become more concentrated around that theme than investors realize. Some of the better opportunities right now may be in areas that have been overshadowed by that excitement. Companies that are tied to industrial investment, infrastructure, and energy production.
Grant's lesson from the prairie still holds. Before reacting to the sound of wolves it helps to count them.
Right now, there are certainly a few wolves out there. But it is still premature to assume we are surrounded.
"The stock market is a device for transferring money from the impatient to the patient." — Warren Buffett