By Martin Baccardax
U.S. stocks have absorbed a host of shocks over the past two years, from the development of China's artificial-intelligence threat, President Donald Trump's tariffs, a regional banking crisis, and currency market chaos. Stocks largely have held their ground.
That mettle is being tested again this week and might be into the spring and summer months as the U.S. war with Iran takes a worrying turn toward energy infrastructure, the Federal Reserve hints toward the need for interest rate hikes, and investors see troubling parallels to the bear market of 2022.
Global oil prices powered higher again on Thursday, taking Brent crude futures closer to $120 a barrel as Iran and Israel traded blows in the U.S.-led war by targeting oil and gas installations in the Persian Gulf region. Reports also have suggested the U.S. could consider exports levies on crude, or an outright ban on international sales, in order to tame the surge in domestic energy costs.
Inflation pressures from the oil price spike, which has added more than 50% to Brent crude costs since the start of the war, as well as the effective closure of the Strait of Hormuz, have seeped into both headline economic data and the Fed's rate path.
"The possibility, rather, that our next move might be an increase did come up at the meeting, as it did at the last meeting," Fed Chairman Jerome Powell told reporters in Washington on Wednesday after the central bank left its benchmark lending rate unchanged at between 3.5% and 3.75%.
"The vast majority of participants don't see that as their base case and, of course, we don't take things off the table," he added.
Powell's remarks, alongside a hotter-than-expected reading for producer price inflation in February, stoked a massive move in 2-year Treasury note yields as rate cut bets were pared sharply for both this year and next.
The S&P 500, meanwhile, extended it late-quarter slump with a 1.4% decline that dragged the benchmark to its lowest levels since November and wiped out all its gains for the past six months.
"From the market's point of view, oil prices are now driving not just stock prices, but Fed policy," said Dennis Follmer, chief investment officer at Montis Financial. "While $100 oil is jarring for markets even for a few days, it would be even more jarring for stocks and the economy if these oil price levels persisted for even a few weeks or even a few months."
The backdrop may not exactly resemble that of 2022, when Russia's invasion of Ukraine triggered a massive surge in oil prices that added to Covid-related inflation pressures and renewed the Fed's rate hiking cycle. But it's eerily similar.
Stocks fell more than 20% in 2022, with the market bottoming out in the autumn and only resuming its existing rally thanks to the massive performance of megacap tech names tied to the launch of ChatGPT that same year.
Markets aren't there yet, however. The S&P 500 has weakened but remains just 5.4% from its late January peak, with nearly all of those declines pegged to the first U.S. attacks on Iran at the end of last month.
Corporate earnings forecasts remain solid, with double-digit gains expected this year and next, and the economy is in a much healthier place in terms of GDP growth and productivity advances than it was in the spring of 2022.
But the legs that underpin the stool of Wall Street's still-bullish forecasts, in the form of Fed rate cuts, slowing inflation pressures, and a resilient economy, have started o wobble.
A sustained run of oil prices north of $100, or higher, may tip it over completely.
Write to Martin Baccardax at martin.baccardax@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 19, 2026 07:12 ET (11:12 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments