S&P 500 Continues Falling as Fed's Crystal Ball Gets Foggy

The S&P 500 (Index: SPX) has dropped for four consecutive weeks, coinciding with the market-moving geopolitical event of the Iran war that began on 28 February 2026. In the fourth week since the Iran war began, the index dropped 2.1% to close out the week at 6,368.85.

Through these four weeks, the S&P 500 has been the strongest of the three major U.S. stock market indices in losing 7.4% of its value since the close of trading on 27 February 2026. The S&P 500 is the only one that hasn’t yet confirmed a correction, defined as a 10% decline from its last peak. The index last peaked at 6,978.59 on 27 January 2026 and is now a little over 8.7% below it.

The market moving headlines during the fourth week of March 2026 highlighted the problems Federal Reserve officials are having in reading the state of the U.S. economy to determine the path they will take in setting U.S. interest rates. For its part, the CME Group’s FedWatch Tool cut through the Fed’s foggy analytical clutter to anticipate no interest rate changes through the end of 2026. Instead, the tool indicates a low probability of rate hikes, giving about a 3 out of 10 chance of a quarter point rate hike in the Federal Funds Rate being announced after the Fed’s Open Market Committee meets on 28 October (2026-Q4).

The latest update of the alternative futures chart whose the S&P 500 continued a downward trajectory below the redzone forecast range we added to the chart at the end of February 2026. The centerline of that forecast range is effectively functioning as a counterfactual, indicating where the trajectory the S&P 500 would have taken in the absence of the ongoing geopolitical event.

Through the close of trading on 27 March 2026, the S&P 500 is about 7.3% below that level.

Here are the week’s market moving headlines:

Monday, 23 March 2026

• Signs and portents for the U.S. economy:

• Oil falls over 13% on Trump postponing military strikes on Iran energy infrastructure
• US construction spending unexpectedly falls in January

Fed minions fear inflation, worry about jobs as they debate direction for U.S. interest rates:

• Fed’s Goolsbee: Inflation now the greater risk, watching expectations closely – CNBC
• Fed’s Miran still believes Fed should cut interest rates – Bloomberg TV
• Fed’s Daly: no single most-likely path for rates

Bigger trouble, stimulus developing in China:

• China limits fuel price hike to cushion impact of rising oil prices
• China’s Sinopec will not buy Iranian oil, wants to tap state reserves

BOJ minions not getting the inflation they want, but still want to hike rates:

• Japan’s core inflation slows below BOJ target, complicates rate communication
• BOJ’s narrative shift signals dogged commitment to rate hikes

Bigger trouble developing in Eurozone, ECB minions claim they’ll snap into action if they think they need to fight inflation:

• Iran war deals new blow to Europe’s industrial heartland
• ECB won’t hesitate to act if inflation at risk of getting entrenched, Kazimir says

• ECB must act in case of second-round inflation impacts, VP tells El Mundo

Stock market ends higher as Trump says deal with Iran could be soon

• Wall Street indexes rally after Trump postpones strikes on Iran’s power plants

Tuesday, 24 March 2026

• Signs and portents for the U.S. economy:

• Oil rises, with Brent climbing back above $100 as optimism fades over Iran war de-escalation

• Commentary: Why $100 oil won’t break the American Consumer

US fourth-quarter productivity growth revised down, but trend remains solid

Bigger trouble, stimulus developing in China:

• Feed cost surge from Iran war deepens pain for China’s pig farmers
• China banks eye profit boost as nearly $8 trillion in deposits to be repriced

BOJ minions not sweating small contributors to inflation:

• BOJ chief expects limited impact on inflation from proposed food tax freeze

Bigger trouble developing in Eurozone:

• Euro zone economy close to stalling as war takes its toll

Wall Street ended lower as Iran tensions weighed on market sentiment

• Wall Street indexes fall on worries about Middle East war, interest rates

Wednesday, 25 March 2026

• Signs and portents for the U.S. economy:

• Oil falls as reports of 15-point proposal spurs ceasefire hopes
• US import prices post largest gain in nearly four years in February

• Trump’s tariffs had little impact on GDP in 2025, but raised revenue, academic paper finds

Fed minions thinking they’ve set interest rates just right for now, report they’re losing less money:

• Fed’s Barr sees rates holding steady ‘for some time’ given above-target inflation
• US Fed’s loss narrows sharply to $19.6 billion in 2025

Bigger trouble, stimulus developing in China:

• AI boom accelerates China’s chip industry growth as demand strains supply chain
• Chinese food delivery giants surge as regulator, state media call end to price war

U.S. equities closed higher on talks of a possible U.S.-Iran peace plan

• Wall Street advances as investors bet on Mideast de-escalation

Thursday, 26 March 2026

• Signs and portents for the U.S. economy:

• Oil prices rise 5% as investors fear further Middle East escalation

• Iran war chokes petrochemical supply, sends plastic prices soaring
• US inflation will surge to 4.2% on energy shock, warns OECD

Low US weekly unemployment claims indicate labor market stable

US fixed 30-year mortgage rate jumps to six-month high as Iran war drags on

US population growth falters as immigration falls

Fed minions thinking about maybe cutting rates later in 2026, but are less likely to do so:

• Fed still set to cut US rates late this year, say economists, rejecting market pricing: Reuters poll
• Fed’s Miran Says He Raised Rate Projection Due to Inflation Data

Bigger trouble, stimulus developing in China:

• From beer to cosmetics, Asia feels full force of energy crisis
• Exclusive: China considers easing bank shareholding limits to boost capital

BOJ minions excited to see higher inflation developing in Japan:

• https://www.reuters.com/world/asia-pacific/japans-corporate-service-inflation-perks-up-february-2026-03-26/

ECB minions standing by to maybe change their perfect monetary policy:

• ECB ready to hike rates even if expected inflation surge is short-lived, Lagarde says

• ECB Would Need ‘Forceful’ Response if Inflation Surges, Says Lagarde

Nasdaq dropped more than 2% as investors react to rising Middle East tensions

• Wall Street slides as Mideast de-escalation uncertainty weighs on sentiment

• Nasdaq confirms correction, Wall Street slumps on Middle East uncertainty

Friday, 27 March 2026

• Signs and portents for the U.S. economy:

• U.S. Oil Prices Surge Back Above $100 a Barrel

• Oil, gas exploration is back: Energy giants hunt to replenish reserves

Fed minions worried about inflation arising from Iran war, even though their crystal ball is foggy:

• Fed’s Jefferson: sustained higher energy prices could worsen inflation, spending outlook
• Fed’s Paulson worried about war’s impact on inflation expectations
• Fed’s Barkin says ‘fog’ again obscuring economic outlook
• Fed’s Cook says the balance of risks has shifted toward inflation due to Iran war

Bigger trouble, stimulus developing in China:

• Chinese ships halt attempt to exit Hormuz despite Iran safe passage assurances
• China’s largest banks’ profits virtually flat as property slump continues
• China’s industrial profits jump as Middle East war casts long shadow

BOJ’s former chief minion still excited about more interest rate hikes in Japan:

• Bank of Japan may raise rates by June as Iran war fuels inflation, its ex-top economist says

• Ex-BOJ chief Kuroda sees 3-4 more rate hikes to 1.5% in 2027, Asahi interview shows
• BOJ likely to warn of inflation whiplash from Iran war, ex-central bank executive says

BOJ releases new natural rate estimate as part of communication drive

ECB minions stay they’re ready to keep standing by as long as they can before raising Eurozone interest rates:

• ECB should not be in a rush to raise rates, Schnabel says
• ECB should not rush to hike rates as baseline still holds, Patsalides says

Dow tumbles almost 800 points and enters correction, S&P 500 posts fifth straight losing week

• Nasdaq plunged over 2% as Middle East tensions rattled Wall Street
• Stocks tumble, Dow confirms correction territory, as Middle East tensions drag

The Atlanta Fed’s GDPNow tool forecast of real GDP growth in 2026-Q1 fell to +2.0%, declining from the +2.3% growth anticipated a week earlier.

The upcoming trading week will be short with the Good Friday market holiday on tap.

Image credit: Microsoft Copilot Designer. Prompt: “An editorial cartoon of a Federal Reserve official who is trying to see the future for inflation in a crystal ball that has fogged up”.