Market sentiment shifted abruptly. Overnight, the US stock market faced another sell-off, with the three major indices rising initially before collectively plunging and closing lower. Large-cap technology stocks fell across the board. European markets also reversed gains and closed down, with all major indices finishing in negative territory. The escalation of tensions in the Middle East is a key factor, as US President Trump vowed to impose "very severe strikes" on Iran next week. Additionally, as Iran continues to block the Strait of Hormuz, the Pentagon is deploying more Marine Corps units and warships to the Middle East, dashing hopes for a de-escalation. On the macroeconomic data front, the US Bureau of Economic Analysis significantly revised down the GDP growth rate for the fourth quarter of 2025, heightening concerns about a continued slowdown in the US economy. Furthermore, the Personal Consumption Expenditures (PCE) report showed little change in the inflation gauge favored by the Federal Reserve. Markets now expect the Fed to likely pause interest rate cuts at next week's policy meeting. With soaring oil prices further threatening to fuel inflation, the likelihood of future rate cuts is diminishing.
European and US stock markets experienced a broad sell-off. On March 13, Eastern Time, the three major US indices opened higher but closed lower. The Dow fell 0.26%, the Nasdaq dropped 0.93%, and the S&P 500 declined 0.61%. Major US tech stocks broadly declined: Broadcom fell over 4%, Meta dropped over 3%, Apple slid over 2%, while Nvidia and Microsoft each lost over 1%. Google, Tesla, and Amazon closed slightly lower. European markets also plunged, with France's CAC 40 index down nearly 1%, Germany's DAX 30 falling 0.6%, the UK's FTSE 100 declining 0.43%, and the Euro Stoxx 50 dropping 0.54%.
Analysts point out that ongoing Middle East tensions continue to drive up international crude oil prices, exacerbating market worries that high oil costs could reignite inflation. As of the close on March 13, WTI crude for April delivery surged 3.11% to $98.71 per barrel, up over 8.59% for the week. Brent crude for May delivery rose 2.67% to $103.14 per barrel, accumulating a gain of over 11.27% for the week.
Paul Nolte, Senior Wealth Advisor and Market Strategist at Murphy & Sylvest, stated, "The recent volatility in the energy market is almost comparable to any two-week period of extreme swings in cryptocurrency history. Therefore, it's difficult to say this volatility is driven by fundamentals." He added that current market sentiment is highly emotional, making rational judgment for trading or investing challenging in such an environment. A better approach might be to wait and observe, allowing the situation to develop and stabilize, which could take several weeks.
Regarding the Middle East situation, according to reports, on March 13, local time, US President Trump stated that US forces would conduct "fierce airstrikes" on Iran next week. Trump reiterated in an interview that, if necessary, the US military would escort tankers through the Strait of Hormuz. Separately, US officials revealed on March 13 that, as Iran continues to block the Strait of Hormuz, the Pentagon is dispatching additional Marine Corps units and warships to the Middle East. Three US officials disclosed that Defense Secretary Hagerty has approved a request from US Central Command to deploy an amphibious readiness group and its accompanying Marine Expeditionary Unit. This force typically consists of several warships and 5,000 Marines. It is reported that the USS Tripoli, an amphibious assault ship stationed in Japan, along with its embarked Marines, is heading to the Middle East. It is unclear if this is part of the aforementioned reinforcements. Around 22:00 local time on March 13, explosions occurred in Tehran, Iran's capital, with thick smoke rising from the scene. Reporters captured footage of an explosion site in the area of Iran's Ministry of Defense. The Israeli Defense Forces subsequently announced that the Israeli Air Force had launched a new round of large-scale airstrikes on targets in Tehran.
Latest US inflation data shows price pressures remain resilient while consumer demand weakens, complicating the Fed's rate cut outlook. Data released on March 13, Eastern Time, by the US Bureau of Economic Analysis showed the core PCE price index rose 3.1% year-over-year in January, largely in line with expectations and marking the highest level since March 2024. Month-over-month, it increased 0.4%, matching expectations and the previous value. The headline PCE price index rose 2.8% year-over-year, slightly below expectations and the previous reading of 2.9%. Month-over-month, it increased 0.3%, matching expectations and showing a slight moderation from the previous month. Structurally, service prices remain the core driver of this inflationary wave, while goods prices saw only a slight decline in January, providing almost no significant offset to overall inflation. This pattern continues recent trends, reflecting the persistent stickiness of prices in labor-intensive services, which are unlikely to cool rapidly in the short term.
Analysis suggests this data further limits the Fed's room for policy easing. The Fed is expected to hold rates steady at next week's monetary policy meeting. If inflationary pressures persist, the window for resuming rate cuts could be pushed back further. TD Securities has delayed its forecast for the Fed's first rate cut from June to September this year, citing uncertainties about the inflation trajectory due to the Middle East conflict. Strategists, including Oscar Munoz, wrote in a client note that they expect the Fed to stand pat in March and "may not provide much guidance to the market" while awaiting further assessment of the war's impact on inflation. TD Securities now expects cumulative Fed rate cuts of 50 basis points this year, down from a previous forecast of 75 basis points.
Bank of America stated that the Fed will have to contend with another supply shock—the surge in oil prices. The bank wrote that ahead of the March Fed meeting, the Summary of Economic Projections (SEP) should show increases in both headline and core inflation rates. "We expect the median dot for the longer-run to move higher, particularly if longer-run growth expectations are also revised up," the report said. Given this, Fed Chair Powell is likely to acknowledge stagflation risks while emphasizing a wait-and-see approach.
Peter Cardillo, Chief Market Economist at Spartan Capital Securities, said, "Inflation remains elevated, and once energy prices gradually feed through the economy, the Fed is likely to keep rates higher for longer."
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