A Week of Two Faces: The Fed Spoke, and Markets Did Not Like What They Heard
The Fed didn't cut, oil didn't fall, and inflation didn't cooperate. Markets adjusted, but the cycle holds. Understand what happened this week and what to watch next.
Last week markets had a lot to process at once. The Fed meeting, an inflation print that surprised to the upside again, oil above USD 100, and growing technical pressure on the major indices. The result was a down week, with the S&P 500 closing Friday at its lowest levels in several months.
This is not a moment for panic, but it is a moment to understand what is happening.
What happened:
Wednesday was the heaviest session. The S&P 500 fell 1.36%, the Nasdaq dropped 1.46%, and the Dow Jones lost 768 points, or 1.63%, hitting new year-to-date lows and closing below its 200-day moving average.
The trigger was the Fed meeting. The FOMC left rates unchanged in the 3.50% to 3.75% range, but revised its inflation projections higher for 2026 and 2027, mainly due to the impact of elevated oil prices. A market that was expecting at least one cut this year started pricing in the opposite.
February PPI came in above expectations for the second consecutive month, driven primarily by services costs. Combined with elevated oil, the word nobody wanted to say started circulating again: stagflation.
The factors that moved markets
The Fed and rates. Market expectations shifted from pricing in a potential 25-basis-point cut to pricing in a possible rate hike in 2026. The probability of a hike in October moved from 30% to over 45% in a single week.
Oil, not backing down. Brent crude closed above USD 103 per barrel, sustained by uncertainty around the Middle East conflict and the situation at the Strait of Hormuz. Until supply normalizes, energy price pressure will continue.
Indices below their long-term averages. The S&P 500, Nasdaq, and Dow Jones all closed the week below their 200-day moving averages, a technical signal analysts read as short-term bearish pressure.
Tech, mixed but showing signs of life. Monday saw a tech-led rebound: Nvidia rose 1.8% after announcing new enterprise partnerships focused on agentic AI. But that momentum was not enough to offset the week's broader losses.
Defense, the sector that keeps winning. In a prolonged conflict environment, aerospace and defense companies continue their positive run, backed by rising global military spending.
The key macro data
The Atlanta Fed's GDPNow model revised its first-quarter growth estimate down, from 2.7% to 2.3%. Not a dramatic drop, but confirmation that the US economy is absorbing the Middle East conflict impact gradually.
The Fed revised its 2026 inflation estimate up to 2.7%, though it still expects the energy price effect to be transitory and housing disinflation to continue.
What comes next
The week of March 23 brings preliminary March PMIs, the first activity indicators to reflect an additional month of conflict impact. The final Q4 GDP report and the University of Michigan Consumer Sentiment index will also be released.
On the geopolitical front, attention stays on the Strait of Hormuz and any signals of negotiation or escalation between the US and Iran. That factor continues to be the heaviest weight on oil and, by extension, on inflation and rate expectations.
What we take away
This week was one of those where markets do not react badly because the news is catastrophic, but because it was not what was expected. The Fed did not cut and is not going to cut anytime soon, oil did not fall, and inflation data did not help. That is enough to move markets lower.
But the underlying picture still matters. Bank of America noted that the energy shock is not enough to trigger a recession, and that the environment more closely resembles the risk episodes the economy absorbed between 2005 and 2009, when the cycle continued.
For the long-term investor, what matters is not whether markets are up or down this week. What matters is having a portfolio that can process weeks like this without changing the plan.
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Sources: Charles Schwab. Weekly Trader's Stock Market Outlook.CNBC. Edward Jones. Financial Content Markets. CSFX Research.