Weekly Newsletter: March 16, 2026
Money For Nothing, Hormuz, and Walk of Life. All are Dire Straits, two songs and one energy choke point. With energy prices moving like a meme stock or cryptocurrency, it is little wonder that the financial markets are getting pushed around by the hyper-sensitive energy markets. One day, the war is nearly over, the next day bombs are hitting Israel, and another day there are discussions about an exploratory force in the Middle East. As things unfold quickly, it is hard to grasp just how and when this will end. This will end, just as all the various wars, incursions, and bombings that have preceded it have ended. It is this great unknown that investors are grappling with today. Gas prices at the pump seem destined for $5/gal, and inflation will get pushed above 3% as a result, potentially keeping the Fed from cutting rates anytime soon. Those higher pump prices could also slow consumer spending as there will be less in the pocketbook to spend on other “things”. As the news flow remains hot and heavy, the focus will be solely on the Middle East, with earnings, economic data, AI, and private credit concerns all getting buried in online stories. Oh, and a Fed meeting is set for this week, the next to last, as Chair Powell is set to be replaced in time for the June meeting. “After all the violence and double-talk… you do the walk of life”.
Whatever has been written about what may or may not happen with energy prices and the economic impact that those stories will be revised within a day or two. As a result, making investment decisions based on what we know today could be wildly wrong tomorrow. The current economic and earnings backdrop for the markets remains okay. The weekly jobless claims remain stuck, but within a historically “good” range. Inflation is sticky around 2.5-3%, but that has been the very long average rate of inflation in the US. It is only by comparing recent data (since 2010) that inflation today seems high. In the 10 years ending 2019, inflation ran at less than 2%. In the 10 years from 2000 to 2009, inflation ran at 2.5%. While it is an admirable goal to get inflation at or below 2%, there are too many moving parts in the US economy that simple monetary policy cannot address. As has been the case over the past couple of years, the data on the economy remains mixed at best, with plenty of room for improvement. Producer price data is due this week, along with housing data and factory orders. The Fed meeting is likely to dominate (outside of energy) the week. The press conference will be must watch TV!
Interest rates have slowly ticked higher since the bombs began flying. The typical safe haven investing in treasury bonds has not (yet) come to pass. Even gold has given up the mantle of being a disaster hedge. The bond model, which incorporates short and long-term yields, commodity prices, and utility stock prices, is pointing to higher yields in the future. Another model, incorporating economic growth, inflation, as well as short/long term yields, points to treasury yields being “fairly valued” today. The 10-year treasury yield is roughly the same as it was in October 2022, getting as low as 3.75% and up to 4.75%. It is still in the 4.2% range, as it was nearly 4 years ago. In that sense, bonds have provided a cushion to the wild swings in stocks and a consistency that the equity markets lack today.
The averages do not do justice to the goings on within the market. Energy, staples, and utilities, the typical defensive sectors, are doing fine. Financials, consumer discretionary, and technology round out the bottom three. Today, the markets are near historically low “spreads” below their short-term average price. What is remarkable about today’s markets is that to be this “oversold”, the SP500 is usually down over 10%+ at this juncture. The market is down less than 3% this year and is not yet down 5% from the peak in late January. The mood on Wall Street has turned sour as various gauges of sentiment are registering “bearish” readings, meaning investors are pessimistic on the future for stocks. Borrowing from recently retired Warren Buffett, “be fearful when others are greedy and greedy when others are fearful”. That greedy time is likely a bit closer than many expect, and it may be a bit too late to be fearful, as most investors already are and have hit the sell button. The energy sector may be one that investors should be fearful of, as it has rallied over 25% this year. There may be further to go, but investors are getting greedy in the oil patch. What changes that view? A prolonged Middle East war that keeps oil from flowing and trade bottled up for months on end.
Outside of watching the events in Iran, the Fed meeting should garner plenty of interest this week.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.