Macro
The macro story this week was an energy shock colliding with a still-positive but clearly slowing U.S. economy. The Iran conflict remained the dominant driver of cross-asset pricing. Early hopes of de-escalation after Trump cited “productive” discussions and delayed strikes on Iranian energy sites gave way to renewed scepticism as Tehran denied direct talks and markets increasingly treated diplomacy as fragile rather than decisive. Oil moved back above psychologically important levels, and the inflation impulse from fuel, shipping and fertiliser fed directly into macro pricing.
That backdrop is now showing up in real-time activity surveys. S&P Global’s March flash data showed U.S. composite output slipping to 51.4, the weakest in 11 months, with services slowing to 51.1 while manufacturing improved to 52.4. More important than the headline split was the inflation signal: input prices rose at the fastest pace in 10 months, and selling prices posted their strongest increase since August 2022. Reuters also noted that private-sector employment in the survey softened into contraction territory, reinforcing the idea that the economy is not rolling over outright, but is absorbing a supply shock in a way that worsens the growth-inflation mix.
Domestic hard and soft data were mixed, but on balance consistent with cooling growth rather than recession. Initial jobless claims held at a low 210K, and continuing claims fell to 1.819M, suggesting layoffs remain contained. Regional surveys were firmer on the manufacturing side, with Richmond improving to 0 from -10, Kansas City manufacturing rising to 11, and Kansas City services to 15, though not all regional service gauges were strong. At the same time, March consumer sentiment deteriorated materially: the University of Michigan index fell to 53.3, the lowest since December, from 55.5 in the preliminary and 56.6 in February. One-year inflation expectations rose to 3.8%, while long-run expectations edged down to 3.2%. This matters because it suggests households are reacting quickly to the energy shock, even if longer-run credibility is not yet lost.
Policy-wise, the week strengthened the case for a more patient Fed, but not an easier one. The March FOMC kept rates at 3.50%-3.75%, and the SEP still pointed to only one cut this year, with Powell saying GDP is projected at 2.4% for 2026 and unemployment at 4.4% by year-end. Since then, Fed officials have leaned towards inflation vigilance. Michael Barr warned against a rise in inflation expectations; Anna Paulson said the war had increased risks to both growth and inflation, making expectations more fragile; and Lisa Cook said the balance of risks had shifted towards inflation. That argues against markets fully embracing a renewed easing narrative, even if some economists think the hawkish market repricing has overshot because the same energy shock that lifts inflation could also hit hiring and consumption later.
Net, the U.S. macro picture remains one of a soft landing under strain rather than collapse. Labour data are still firm enough to prevent an immediate call for a recession, but sentiment, services momentum, and price surveys all deteriorated as the war extended. The key macro transmission channel is now straightforward: a longer conflict keeps oil, transport and input costs elevated, pushes headline inflation and near-term expectations higher, and delays any Fed easing even as real activity slows. A faster diplomatic turn would quickly unwind part of that shock. Until then, the macro regime is best described as cooling growth, sticky disinflation, and a much fatter stagflation tail than markets were pricing a fortnight ago.
Rates
Treasuries weakened again, with the selloff extending across the curve and the belly under notable pressure as poor auction results compounded the Iran-driven inflation shock. The 10Y yield rose to around 4.42%, its highest since July 2025, while the 2Y briefly traded above 4.0% for the first time since June before retracing. The 30Y tested 5.0%, its highest level since September, underscoring that the move is no longer confined to the front end. March has seen one of the sharpest monthly repricings in recent years, with the 2Y up more than 50 bp as markets swung from expecting cuts to briefly pricing hikes.
The weekly weakness was amplified by a poor Treasury auction cycle. The $69B 2Y sale drew very weak demand, with dealers forced to absorb an unusually large share; the $70B 5Y tailed by 1.4 bp and saw soft indirect and direct demand; and the $44B 7Y auction also cleared weakly, making it three disappointing coupon auctions in one week. That matters because the market is already digesting a heavy refinancing calendar, with roughly $10T of Treasury debt needing to be rolled over over the next year, so soft end-user demand is pushing the market to clear at higher yields.
The front end has led to repricing because the immediate macro impulse remains inflationary. Higher oil prices, rising gasoline costs, and concern over second-round effects pushed market pricing away from cuts and, at one point, toward around 20 bp of hikes by year-end, before that faded back materially. Fed rhetoric has reinforced the higher-for-longer bias: Governor Barr said rates may need to stay steady “for some time,” with inflation still above target and oil-related upside risks complicating the case for renewed easing.
Still, this is not a clean replay of 2022. U.S. growth was already cooling before the energy shock; financial conditions have tightened, with lower equities, wider credit spreads, higher yields, and a firmer dollar; and labour-market momentum is softer than during the post-pandemic inflation surge. Consumer sentiment fell to 53.3 in March from 56.6, while 1Y inflation expectations rose to 3.8%; importantly, longer-run expectations remained better anchored at 3.2%. That combination argues for caution in mechanically extrapolating the inflation shock into a sustained hiking cycle.
That leaves the curve at an important juncture. Near term, yields can remain elevated, and the recent flattening bias can persist if oil remains high, supply continues to meet weak demand, and systematic sellers still have room to put pressure on. But the more durable medium-term move is likely to be a re-steepening rather than a fresh front-end-led flattening. The front end has already repriced the inflation shock aggressively; if the conflict drags on without a further oil spike, attention should increasingly shift toward weaker growth, softer hiring, and the eventual return of Fed easing. In that scenario, short-end yields would have more room to reverse lower than long-end yields, steepening the curve even if the term premium remains elevated.
The long end remains the key risk. Unlike the early phase of the selloff, when the market was primarily repricing inflation and policy, longer-dated yields are now also starting to reflect supply indigestion, fiscal concerns, and uncertainty over who ultimately absorbs duration at current levels. That is why the 30Y testing 5.0% matters: even if the next macro move is eventually steeper via lower front-end yields, the long end is unlikely to rally cleanly while oil risk, refunding needs, and auction fatigue remain in focus. Net: cuts have been pushed out, the market is more fragile, and rates remain vulnerable until either energy prices stabilise or labour-market weakness becomes impossible for the Fed to ignore.
Credit
Credit conditions deteriorated beneath the surface last week. U.S. IG issuance slowed to $34.3B from $37.4B the prior week, spreads widened modestly, and total returns turned negative, while HY spreads moved more aggressively, widening 19 bps even as issuance rebounded to $9.3B from $1.3B. The message was not that markets shut; it was that funding remained available, but the clearing price for risk moved higher as rate volatility, weak Treasury auction tone and geopolitical uncertainty fed through to credit. Month-to-date supply still remained heavy, underscoring that primary access for higher-quality borrowers is intact even as secondary conditions have become less forgiving. Reuters and Bloomberg reporting also showed March remained one of the heaviest IG months on record, despite the late-month wobble.
Treasuries remain central to the credit story. The market is now trying to absorb a very large fixed-income supply burden into an environment already strained by higher oil prices, weaker auction demand, and an elevated term premium. Apollo’s Torsten Slok estimates roughly $14T of IG-quality supply over the next year, comprising about $10T of Treasury refinancing, a roughly $2T federal deficit and around $2T of gross corporate issuance. That does not automatically imply a credit break, but it does argue for persistent pressure on all-in yields and less room for spreads to compress materially, especially if Treasury indigestion keeps bleeding into corporate discount rates.
Private credit remains the clearest pocket of stress, but it still looks more like a liquidity and confidence shock than a systemic unwind. Apollo’s ADS capped withdrawals at 5% after investors sought to redeem 11.2% of shares; Ares also limited redemptions; Reuters reported widening concern across the roughly $2T private-credit complex. Oaktree took the other side, fulfilling redemption requests equal to 8.5% of its fund, with the vehicle itself buying back 6.8% of outstanding shares and Brookfield taking the remainder. Public credit had already been flagging the strain: Reuters reported spreads on bonds issued by semi-liquid private-credit vehicles widened before the most recent redemption headlines, suggesting listed markets were marking the stress earlier than NAV-based products.
Sector dispersion inside private credit matters. Software remains a key fault line, both because of historic lender concentration and because AI disruption has made business-model durability harder to underwrite. That concern is now feeding into public proxies as well: Moody’s cut FS KKR Capital Corp. to Ba1, citing continued asset-quality pressure, while broader BDC valuations and sentiment have weakened. The market is no longer treating private credit as a monolithic yield product; it is starting to distinguish stronger senior-secured lenders and liquid managers from vehicles with weaker marks, greater software exposure, or tighter liquidity terms.
At the same time, leveraged finance showed a more constructive signal than the headlines imply. Banks led by JPMorgan sold almost $15B of risky debt for the Electronic Arts LBO and drew roughly $45B in orders, which later rose above $50B. More broadly, Bloomberg reported that much of the roughly $30B in buyout debt that banks had been trying to clear has now moved through the market. That matters because it suggests the market can still digest large, complex risks when the structure and pricing are right. In other words, the floor under leveraged credit is being rebuilt, even if lower-quality names and stressed sectors continue to trade defensively.
Mortgage credit also bears watching. Bloomberg reported that Fannie Mae and Freddie Mac began placing sizable bids for MBS as spreads widened and volatility surged. That is not the same as a formal intervention, but it does suggest quasi-public balance sheets are willing to add support at cheaper levels when dislocations emerge. The broader read-through for credit is that some parts of spread product are starting to attract value-sensitive buyers, even as flows and market tone remain fragile.
Equities
U.S. equities extended their decline, with the Dow -0.90%, S&P 500 -2.12%, and Nasdaq -3.23%, while the Russell 2000 outperformed with a +0.46% gain. The S&P 500 recorded its fifth consecutive weekly loss and is now trading at its lowest level since early September, while the Nasdaq has fallen in 10 of the past 11 weeks and remains >12% below its October peak. Importantly, the Nasdaq 100 has now broken below its 200-day moving average, reinforcing a shift into a negative momentum regime in which rallies fade quickly and dip-buying remains notably weak.
Volatility re-emerged as a core theme, with VIX briefly touching ~30 for the first time since 9-Mar and MOVE approaching 100 after hitting that level last Friday for the first time since Jun-25, marking a coordinated rise in both equity and rates volatility. At these levels, VIX implies ~±1.8–2.0% daily S&P 500 moves and confirms a sustained high-vol regime, with spot holding >20 since late Feb, while MOVE near 100 places rates volatility back into a top-decile macro-uncertainty regime. The move remains macro-driven, with energy and geopolitics dominating. Oil near/above $100 and Iran-related Strait of Hormuz risk have forced a repricing of inflation expectations and the policy path. Notably, the rise in VIX, alongside an increase in the VIX/VIXEQ ratio, suggests index-level hedging is driving the move rather than stock-specific stress, pointing to broad macro uncertainty rather than idiosyncratic dislocations.
Technically, the market is weakening further. The S&P 500 is breaking below the 6,500 support zone and approaching the widely referenced ~6,475 JPM collar strike. While this level previously attracted dip-buying and short-dated vol selling, it is not a stable support. Dealer positioning remains in negative gamma, meaning hedging flows are likely to amplify downside as the index approaches and potentially breaches this level, forcing incremental futures selling. This dynamic is increasingly shifting price action from stock-level dispersion toward index-driven moves, reinforcing downside momentum.
Valuation compression is underway, but has not yet stabilised the market. The S&P 500 blended forward P/E has declined to ~19.2–19.3, down materially from late-2025 highs but still above the long-term average of ~16.8 since 2000, leaving room for further derating. Importantly, the equity selloff has largely kept pace with the rise in Treasury yields, leaving equity risk premia broadly unchanged. The forward earnings yield spread versus Treasuries sits around ~74 bps, effectively flat versus ~75 bps at the end of February, indicating that equities have not become materially more attractive on a relative basis despite the drawdown. Sector dispersion within risk premia is also notable, with energy now offering the lowest premium in years, while information technology has moved back to a positive premium versus Treasuries, an unusual shift that reflects both yield pressure and equity derating.
Positioning and technical indicators suggest the market is not yet at capitulation. Only ~6% of S&P 500 constituents are oversold on a 14-day RSI basis, well below levels typically associated with durable bottoms. This lack of broad-based selling pressure indicates that the move has not yet reached panic conditions, and historically, such setups tend to precede further downside before a sustainable low is formed. Combined with weak retail participation, with dip-buying flows down ~70% from pre-conflict levels, the demand side remains insufficient to stabilise the market.
Sector performance reflects this macro and positioning shift. Energy (+6.22%) and Materials (+4.18%) outperformed on commodity strength, while defensives such as Utilities (+2.94%) and Consumer Staples (+1.24%) also outperformed. Real Estate (+0.74%) and Healthcare (+1.01%) also held up relatively well. In contrast, Communication Services (-7.17%) and Technology (-3.46%) led declines, with broad weakness across mega-cap tech, semis, software, and memory. Outside equities, gold declined -1.8%, silver rose +0.2%, Bitcoin futures fell -5.7%, and WTI crude gained +1.4% in volatile trading.
The underlying narrative remains dominated by second-order effects of the geopolitical shock. Beyond higher energy prices, markets are pricing supply chain disruptions, including helium constraints affecting semiconductor production, metals hoarding, and demand destruction risks linked to elevated oil prices. LNG supply dynamics have tightened, while AI-driven disruption continues to pressure software and infrastructure names. Private credit concerns remain unresolved, and retail participation has weakened materially.
Offsetting this, positioning and forward expectations provide some support. Equity allocations have moved into underweight territory, the lowest in nine months, reducing crowding risk. Earnings sentiment remains constructive ahead of Q1, with upward revisions to index targets, while M&A activity is picking up, signalling corporate confidence. Any credible de-escalation in the Iran conflict could trigger a sharp relief rally; however, underlying structural risks in software and private credit would remain. Net, the market is in a macro-dominated negative-momentum regime, with further downside likely unless either positioning resets or a clear catalyst emerges to stabilise expectations.