Monday morning, Trump posted on Truth Social that the US and Iran had held "very good and productive conversations regarding a complete and total resolution of our hostilities." Dow futures surged 1,100 points. Brent crude plunged 10.9% to just below $100 — its largest single-day drop since March 10. The S&P 500 rallied 1.15%, closing at 6,581, snapping a four-week losing streak. For a few hours, it felt like the war was ending.
Then Iran spoke. "No negotiations have been held with the US," said Iranian parliament speaker Mohammad Bagher Qalibaf. "Fakenews is used to manipulate financial and oil markets." By Tuesday morning, Brent had clawed back to $103.6, up 3.6% on the day. The Dow was back down 249 points. The relief rally had lasted less than 18 hours.
The war's new escalation vector: Iran has begun charging transit fees of up to $2 million per voyage on commercial vessels passing through Hormuz — an informal toll on the world's most critical energy chokepoint. Some vessels have paid. The currency used is unclear. What is clear is that Iran is monetizing its control of the strait, turning a geopolitical weapon into a revenue stream.
Meanwhile Israel says a deal "does not appear to be tangible." An Israeli official told CNN: "The Iranians do not appear to be in any concession mode — we are not there yet." Israel accelerated strikes on both Iran and Lebanon on Tuesday. The Mag 7 are down 12–13% on the year. The S&P 500 has breached its 200-day moving average. The VIX hit 30 last week — Wall Street's official fear threshold. And the Fed is paralyzed.
Four weeks ago, futures markets were pricing two Fed rate cuts for 2026. As of today, they are pricing a 50% probability of a rate hike by December. That is one of the fastest repricing events in recent Fed history, and it has happened entirely because of $100+ oil.
At its March 19 meeting, the FOMC voted unanimously to hold rates at 3.50–3.75%. But the statement contained a stark acknowledgment: inflation progress has stalled. Fed Chair Powell noted the PCE is now expected to run at 2.7% — both headline and core — in 2026, well above the 2% target. The February PPI report compounded the concern: +0.7% month-over-month, the largest monthly gain since July 2025, with core PPI accelerating to 3.9% year-over-year.
The cruel mathematics of stagflation: the Fed can cut to support slowing growth, but that would pour gasoline on already-hot inflation. It can hike to crush inflation, but that risks a recession when growth is already softening. Powell explicitly said the next move is "more likely a cut" — but only once tariff inflation proves temporary. With oil at $103, that's not happening soon.
The bond market has already voted: 10-year Treasury yields hit 4.39%, their highest since July 2025. BlackRock explicitly states that long-duration government bonds are "no longer the place to hide when conflicts trigger supply shocks and stoke inflation." The 60/40 portfolio is broken again.
The S&P 500 closed below its 200-day moving average for the first time in over 200 sessions last week, ending at approximately 6,606 — roughly 6% below its late-January record high of 6,978. The Dow is −4.79% YTD. These are uncomfortable numbers. But the headline index masks a more complex internal reality.
According to JP Morgan, the average rolling 3-month pairwise correlation among S&P 500 stocks has fallen to just 13% — lower than 98% of the time since 2022. The index is holding up because dispersion is extreme, not because the average stock is fine. Many stocks are not fine.
The divergence is stark: Energy is up 32.8% YTD. Financials are the only other sector positive. Every other sector is red — Utilities the worst at −5% last week alone. The iShares Software ETF (IGV) is down 23% in 2026. Application software, wealth-management tech, and legal-tech AI plays are down double digits. Meanwhile semiconductors and electrical components — AI's picks-and-shovels — remain positive, with the average stock up 13% YTD.
The S&P 500 Equal Weight index outperformed the cap-weighted version last week, suggesting mega-cap names bore the most pressure. Microsoft, Oracle, Palantir, and Salesforce all dropped 2.5–6% on Tuesday alone as credit-cost fears hit AI-dependent growth stocks hard.
The $3.5 trillion private credit market — one of the defining asset classes of the post-2015 era — is showing its first signs of systemic stress. The proximate cause is the Iran war's impact on credit costs: the oil shock has raised inflation expectations, pushed yields higher, and slammed the valuations of software and tech companies that make up the bulk of private credit loan books.
Apollo's $15 billion private credit fund was hit with redemption requests totaling 11.2% of shares — more than twice its 5% quarterly limit. Apollo will distribute roughly 45 cents on the dollar to investors requesting redemptions, sticking to its cap. Shares of Apollo slipped over 3% in premarket Tuesday and are now down nearly 24% year-to-date. Ares Capital has also capped redemptions on its main fund. Blackstone's BCRED — the $48 billion flagship — recorded its first monthly loss since late 2022 in February, with loan markdowns and market declines producing a −0.4% return.
The redemption wave has a self-reinforcing quality: as funds cap withdrawals, investors become more anxious and demand for new allocations falls. This is occurring simultaneously with the broader private market backdrop deteriorating — the Hamilton Lane Credit Income Fund (HLCIF) just launched its first interval fund, targeting middle-market senior loans — suggesting even new entrants are trying to catch the last money before the cycle turns.
| Central Bank | Current Rate | Stance | Updated View — Post War |
|---|---|---|---|
| 🇺🇸 Federal Reserve | 3.50–3.75% | HOLD (paralyzed) | PCE at 2.7%, PPI +3.9% core, oil at $103. March cut off the table. Markets now 50% pricing a hike by Dec. Powell says next move "more likely a cut" — but only if tariff inflation proves temporary. It isn't, yet. |
| 🇪🇺 ECB | 2.40% | HIKE RISK | BlackRock says ECB rate expectations "turned to multiple hikes" in Europe. Energy price shock threatens to re-ignite eurozone CPI. ECB watching Brent pass-through intensely before any move. |
| 🇬🇧 Bank of England | 4.50% | HIKE RISK | Like ECB, 2026 cut expectations have "evaporated" per BlackRock, replaced by multiple hike expectations. UK imports LNG and is exposed to energy price spikes directly into CPI. |
| 🇯🇵 Bank of Japan | 0.50% | HIKING | Only major CB still in hiking mode. Target: 1.25% in 2026. War has strengthened yen safe-haven demand but spiked Japan's import energy costs. Hiking path intact but pace may moderate. |
| 🇨🇳 People's Bank of China | 3.10% | EASING | China is the largest buyer of Gulf oil. Hormuz toll + supply uncertainty = direct energy security crisis. Beijing told refiners to halt fuel exports. PBoC easing to cushion energy shock impact on growth. |
| 🇨🇦 Bank of Canada | 3.00% | PAUSED | Canada benefits as oil exporter. But PM Carney's comments about possible military participation create political uncertainty. Norges Bank (Norway) also watching oil windfall vs. inflation dynamics closely. |
Morgan Stanley to Issue Its Own Bitcoin ETF. In a landmark move, Morgan Stanley is filing for a spot Bitcoin ETF directly under the bank's own name — MSBT — not through a subsidiary. Every existing spot BTC ETF (BlackRock, Fidelity, Invesco, VanEck) was issued by an asset management firm. If approved, MSBT would be the first spot Bitcoin ETF issued by a major US bank outright. This matters for distribution: Morgan Stanley's ~16,000 financial advisors would be able to recommend it directly to clients.
Coinbase USDC Drama. Circle's USDC stablecoin suffered a sharp decline, dragging Coinbase shares down 8.78% on Tuesday. Critics argue that if crypto apps like Coinbase offer yield on stablecoins, customers could move cash out of banks — triggering regulatory backlash. The FCC's ban on Netgear router imports (Chinese tech restrictions) added to the geopolitical tech-decoupling anxiety driving parts of the crypto market.
Private Credit Contagion Risk. AMINA Bank continues to warn that BlackRock's $26B private credit fund withdrawal caps could ripple into tokenized credit markets. With Apollo and Ares now also capping redemptions, the concern is systemic: if private credit marks down significantly, tokenized versions of these instruments would reprice instantly — with no circuit breakers.
S&P Global has published a formal scenario in which Brent peaks at $200/bbl in Q2 2026 if Hormuz disruptions become entrenched. In that scenario, output losses would be "very large across all major economies" and Germany, Japan, and the UK would tip into recession. Oil futures are already pricing in disruptions into 2027. The gap between market pricing and equity pricing is the risk.
Apollo (11.2% redemptions), Ares (capped), BlackRock (capped), BCRED (first loss) — four of the largest private credit funds are now under simultaneous stress. The $3.5T private credit market has never been tested by a geopolitical energy shock. If software loan books are marked down further and redemption requests accelerate into Q2, this becomes a systemic credit event that equity markets are not pricing.
Futures markets say 50% chance of a Fed hike by December. Equities are not pricing a hike. The last time the Fed hiked into a weakening economy — 1980 — it caused a double-dip recession. If PPI at 3.9% and oil near $100 forces Powell's hand, the S&P's current 6,500 level would look very rich versus a 20× forward P/E in a 5%+ rate environment. This is the market's biggest unpriced tail.