March 16, 2026

March 16, 2026

“No matter what political reasons are given for war, the underlying reason is always economic.” 

A.J.P. Taylor (historian) 

Happy St. Patrick’s Day!

With the continuation of the events in Iran, I thought it appropriate that this quote be used (economic along with thermo-nuclear war aversion). But first here are the numbers. The S&P 500 finished down 1.01%, the Dow a little better off .91%, and Nasdaq did the best off .35%. International the FTSE 100 was off .23 and the MSCI-EAFA has a tough week down 2.19%. The 2-Year treasury paid 3.729 and the 10-Year rose to pay 4.283%.

So, what happened? In a nutshell, great military success and a nervous market.

Why global markets and the FED become so sensitive to the Strait of Hormuz. While tanker traffic through the strait is not the only variable tied to oil prices, the sharp drop in crossings in late February and early March coincided with Brent surging toward $100 as investors began pricing in a genuine supply shock rather than routine geopolitical noise. In short, the conflict with Iran and the disruption to regional shipping flows have shown how geopolitical tension can quickly shift from a background risk to a force with real consequences for inflation, investor sentiment, and broader financial conditions. As Barron’s Alex Rule reports, The Fed’s Dilemma. The week closed as it began, with oil prices setting the direction for stocks. Last Thursday, Brent crude, the global benchmark, closed at $103.14 a barrel, its highest level since August 2022. Brent is up 17% over the last three days. West Texas Intermediate crude, the primary U.S. measure, has followed a similar trajectory. It ended the day at $98.71. For U.S. consumers, the rapid rise has shown up at the pump, with the price of gas now averaging $3.63 a gallon according to AAA, up from less than $3.00 at the end of February.” For investors, the pain comes in their portfolios, with the major indexes closing Friday at their lowest levels since November. 

The good news? The President and most allied countries are releasing strategic reserves into the market to offset the disruption, and bring down gas prices, intense military operations to end this conflict asap, and the offer of insurance and protection to the tankers traversing the Strait of Hormuz.  We believe it to be temporary, and once stability is achieved markets will recover quickly. 

On to the Federal Reserve, the Fed’s Dilemma. The week closed as it began, with oil prices setting the direction for stocks.  Brent is up 17% over the last three days. West Texas Intermediate crude, the primary U.S. measure, has followed a similar trajectory. It ended the day at $98.71. After initially showing resilience following the Iran attacks, stocks are now looking far more fragile.  Normally the Federal Reserve might come to the rescue, but its hands are tied. The other data report out today showed hotter inflation in January. The core measure of the personal consumption expenditures price index, which strips out food and energy and is closely watched by the Fed, rose 3.1% in January, ahead of December’s 3.0% pace. 

Last Friday’s revised figure for fourth-quarter gross domestic product shows an economy in worse shape than previously thought. U.S. GDP grew 0.7% last quarter, down from a previous estimate of 1.4%. We believe the slowdown is temporary since it’s partly related to the government shutdown last year, but it was also partly caused by reduced consumer spending. The net effect is a Fed that’s likely to stand still on rates, even as the stock market reels from uncertainty. Traders now universally expect no change from policymakers at next week’s Fed rate meeting. And the latest Fed futures odds suggest the Fed will hold firm at its April meeting too. (Remember in May we will get a new Federal Reserve Chairman) Higher energy prices and sticky interest rates are a new reality for markets—and it’s why the major indexes are down for three consecutive weeks. 

Consumer sentiment was improving in late February before the military action in Iran, but has since turned sour, the University of Michigan reported last Friday. Consumer spending has moderated in recent months as consumers are feeling an affordability crunch. Cheap gas has been one of the few reliefs for middle- and moderate-income family budgets and now that’s temporarily gone, however with the situation in Iran resolved this will quickly turn as US Energy policy will again fuel (no pun intended) the significant decline in oil and gas prices. The good news is that spending appears to have recovered since then, credit cards and other data show. Higher tax refunds could also boost spending in February. 

What going on in the Housing market? U.S. mortgage rates have ticked up slightly but remain in a relatively favorable range compared to recent years, especially versus peaks above 7% in prior cycles. 

The benchmark 30-year fixed-rate mortgage averaged 6.11% according to Freddie Mac’s Primary Mortgage Market Survey for the week ending March 12, 2026 (up 0.11% from the prior week’s 6.00%). This marks a return to levels seen last month and is down notably from 6.65% a year ago. The 15-year fixed-rate mortgage averaged 5.50% (up from 5.43% the prior week), still offering lower payments for those who can afford higher monthly amounts. Rates are influenced by factors like the 10-year Treasury yield, inflation expectations, geopolitical tensions (e.g., oil prices and Middle East developments), and Federal Reserve policy signals. They’ve been volatile but generally trended lower year-over-year, boosting affordability somewhat.

The U.S. housing market in early 2026 shows signs of gradual rebalancing toward more buyer-friendly conditions, though challenges like affordability and inventory constraints persist. Existing-home sales rose unexpectedly by 1.7% month-over-month in February 2026 to an annualized pace of 4.09 million units (per National Association of Realtors data released in March). This beat expectations but remained down year-over-year. Sales picked up as rates eased briefly, signaling buyers responding to better conditions heading into spring. Home prices are moderating significantly.  Inventory continues to improve, though slowly.  Overall, spring 2026 could see increased activity if rates stabilize or dip further—offering more options for buyers—but high absolute rates and lingering affordability issues keep many on the sidelines. This is a more normalized environment than the extreme low-inventory/low-rate frenzy of prior years.  

So, patience and faith are the watch words, if the administration is correct soon, we should see the storm clouds dissipate and the Sun come shining through.

Mike