March Market Commentary | War, Oil, and What It Means for Markets 

Below is a condensed version of Chief Economist Rob Edel’s Market Commentary, offering key highlights from March's market activity. To read the full commentary, click here.

Markets Surrender Post-Inauguration Gains

The war in Iran dominated headlines and drove oil prices sharply higher, pulling both equities and bonds lower. The S&P 500 fell 5.1% and the S&P/TSX Composite declined 4.6%, with Korean large caps hit hardest–down 25.6%. U.S. stocks have now surrendered all of their post-inauguration gains relative to bonds since January 2025.

According to Bank of America’s (BofA) March Fund Manager Survey, investors overwhelmingly identified geopolitical conflict as the market's number one tail risk. Yet Goldman Sachs notes markets are still pricing in only a modest growth scare, suggesting a degree of complacency about how the conflict could escalate from here.

Volatility in Fed Funds Rate Expectations 

Rate expectations whipsawed through March. At the start of 2026, markets priced in two cuts, a view the Fed broadly endorsed. By mid-March, Fed funds futures had shifted to pricing a hike by year-end, with two-year yields trading well above the effective rate, before that hike pricing faded by month-end.

Treasuries posted their worst month since October 2024, but the rise in 10-year yields was driven mostly by higher real rates and growth expectations rather than inflation, with forward break evens remaining well anchored. Gasoline prices surged more than 35%, pushing headline CPI back above 3% in March.

A Narrow Path to Resolution 

Markets may be underestimating how long the conflict in Iran could drag on. Bloomberg notes stocks were slow to fully grasp the implications of the 1973 oil embargo, and a similar dynamic may be repeating today. BofA's March survey shows 36% of fund managers expect Brent to fall back to $70-$80 by year-end, with only 15% seeing it above $90.

Goldman Sachs, however, outlines a severely adverse scenario in which disruptions to 5% of global oil flows lasting 10 weeks could push crude above $140 per barrel and keep it above $100 through next year. Polymarket currently assigns a 60% probability that the war ends by June 30. However, Bernstein notes conflicts involving major powers tend to be either fleeting or protracted.

Earnings Do the Heavy Lifting 

Growth forecasts have slipped below trend, with Goldman Sachs expecting tighter financial conditions to weigh on the U.S. economy starting in Q3 as the stance shifts from stimulative to restrictive. U.S. payrolls rebounded in March, but underlying hiring remains weak. Layoffs, however, are still low, keeping unemployment relatively stable.

Earnings, meanwhile, are doing the heavy lifting. We are experiencing a historic divergence between U.S. stock prices and earnings expectations, with forecasts still rising even as prices have fallen. While the S&P 500 is down roughly 6% from its January 27 high, the forward P/E multiple has declined more than 15%, a magnitude Morgan Stanley notes is already consistent with prior growth scares.

Beyond Iran: A More Complicated World 

Even if a peace deal were reached, markets could take months to normalize, if they ever fully do. The repercussions are likely to be felt well beyond the current administration. As the Wall Street Journal (WSJ) highlights, the Strait of Hormuz is not the only key maritime chokepoint for oil and global trade. Iran has demonstrated the outsized impact that a weaker militarily can have when applying force to a strategic pressure point.

China, which cannot be characterized as militarily weak, holds its own leverage, most notably a near-monopoly in rare earth minerals. Treasury Secretary Bessent's playbook of a weaker dollar, lower oil, lower yields, and higher stocks is currently moving against him on all four counts. The world has become considerably more complicated, and complexity is something many investors find deeply uncomfortable.