By Teresa Rivas
"Goldilocks" was the byword for the bull market of the past few years, but now the three bears -- oil, gold, and the Fed -- are on the prowl, and there may be no happy ending.
All three major indexes ended lower for the week, with the Dow Jones Industrial Average down 2.1%, the S&P 500 index off 1.9%, and the Nasdaq Composite 2.1% lower. The small-cap Russell 2000 index, down 1.7%, entered correction territory. This being the stock market, such losses should be expected. What's more painful is the extent of the drops -- the Dow has fallen for four weeks, its longest losing streak in three years, for example.
Oil remains a problem. Even if the Strait of Hormuz reopened tomorrow, it would take months for global supply to rebound as oil fields and refineries slowly come back online. That means the outlook for oil prices, like the duration of the conflict itself, continues to go up.
Sometimes higher gas prices can bolster the S&P 500, as Americans simply save less to maintain spending, and any loss in consumer companies' profit is offset by commodity producers' gains. "However, there is a point of no return where the spike in oil starts to work in reverse resulting in a negative impact on equities," writes J.P. Morgan strategist Dubravko Lakos-Bujas, typically when oil spikes around 30% in a short period. Brent and West Texas Intermediate prices are up 55% and 47% this month, respectively.
But the Iran war isn't the only stress factor. The Federal Reserve, which held rates steady following the conclusion of its Federal Open Market Committee meeting on Wednesday, is in a pickle, too. Oil's rise could boost inflation, but higher prices could also dampen growth.
Theoretically, that means the central bank should look through the move and focus on boosting the economy. With federal-funds futures prices forecasting a greater likelihood of rate hikes than cuts this year, financial markets don't expect that to happen. And for good reason.
"The optics of such a move are terrible," explains 3Fourteen Research co-founder Warren Pies. "The Fed must be seen as tending to inflation, or it risks getting blamed for allowing runaway price increases."
Worse still, there's no place to turn for safety. Treasuries took a hit as interest rates rose, with the iShares 20+ Year Treasury Bond exchange-traded fund falling 1.6% this past week. Gold just had its worst weekly dollar decline on record, proving to be no haven either despite its reputation for safety. It dropped 9.5%, hurt by a rising U.S. dollar, those higher-for-longer interest-rate expectations, and potential asset sales by Middle East governments and companies dealing with higher oil prices. Investors who had loaded up on gold, meanwhile, are getting hit elsewhere, forcing them to sell.
"[Gold's major catalysts] now appear to be weakening, even as gold prices look extremely stretched," warns Gavekal Research Chief U.S. Economist Will Denyer. "That is a dangerous combination."
Most strategists are still calling for the S&P 500 to end the year higher -- J.P. Morgan, for one, still sees the index ending the year at 7200, even after cutting its target from 7500 on Wednesday -- but at its current 6506, the path to that outcome is getting steeper. The Magnificent Seven stocks, down 2.6% this past week, are still getting clobbered; private credit remains a concern; and investors are learning that President Donald Trump doesn't always chicken out.
It may be time to stop believing in fairy tales.
Write to Teresa Rivas at teresa.rivas@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
March 20, 2026 16:42 ET (20:42 GMT)
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