The Week in Charts (3/17/26)
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Over the last 30 years, the purchasing power of the US Consumer Dollar has been cut in half due to inflation. At the same time, the S&P 500 has gained 789% (7.6% per year) AFTER adjusting for inflation. Why you need to invest for the long run, in one chart…
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The most important charts and themes in markets and investing…
1) An Inflationary Correction
The US stock market has now declined 5.4% from its January peak, marking the 32nd correction since the March 2009 low.
What’s different about this correction?
Bonds are also moving lower as both inflation expectations and interest rates have been rising since the start of the Iran war.
While Gasoline (+74% YTD) and Crude Oil (+69% YTD) futures have spiked higher, both stocks and bonds are now down on the year.
This is a milder version of what we saw in the 2022 bear market, when both stocks and bonds declined as inflation in the US spiked to a 40-year high.
What was the leading sector back in 2022?
Energy, as Crude Oil surged well above $100/barrel after Russia invaded Ukraine and gas prices hit a record high (above $5.00/gallon). And Energy is once again the leading sector today, up 29% on the year.
What’s lagging? Tech (-5%), Consumer Discretionary (-7%), and Financials (-11%).
Why are Consumer Discretionary stocks being hit?
The expectation that higher gas prices are going to cut into discretionary spending. The math is simple: the more you spend at the pump, the less you have to spend elsewhere (travel, restaurants, clothing, etc.).
The average price of gasoline in the US has spiked to $3.79/gallon, a 30% increase over the last month. That’s the biggest one-month spike that we’ve seen in the past 30 years.
What’s the reason for this? The supply shock induced by the continued closure of the Strait of Hormuz (20% of global oil supply passes through the Strait). Crude Oil prices have increased 47% over the past two weeks, the 2nd biggest 2-week spike on record.
2) Why Have Stocks Been So Resilient?
Despite all of the turmoil in recent weeks, the S&P 500 is only down 3% on the year while Value stocks, International stocks, and Small/Mid Cap stocks are still up on the year.
Why have stocks been so resilient?
My best guess is that investors are assuming the Crude Oil spike is only temporary and that the Iran War will soon come to an end. If that’s the case, then investors are looking past the conflict and focusing instead on corporate earnings.
And those earnings continue be strong, with S&P 500 profits once again hitting a record high in the 4th quarter of 2025, rising 13% year-over-year.
Judging by the outlook for 2026 (extremely strong 16% earnings growth according to FactSet), investors seem to be betting on little to no impairment to earnings from the war.
But what happens if investors are wrong and earnings fall short of these lofty expectations?
The market would appear in a vulnerable position, with the S&P 500’s P/E entering the year at 26. That was 40% above the historical median (18.6) going back to 1988.
3) Don’t Try This at Home
In the first 5 months of the 2026 Fiscal Year the US Federal Government took in $2.1 trillion and spent $3.1 trillion. That’s a $1 trillion deficit.
Why is this happening, year after year?
Milton Friedman said it best:
“If I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get. And that’s government.”
What impact will the Iran War have on the deficit? Since we are not raising taxes to fund it, the deficit will widen further. The longer the war goes on, the more impact it will have.
In the first 12 days, the estimated cost was $16.5 billion and some have said that the cost going forward could be $1 billion per day.
But the actual cost of war is very hard to predict (mainly because you don’t know how long it will last) and often underestimated.
One example: back in 2003, the Bush administration estimated a cost of $50-$60 billion for the Iraq war.
What did it actually cost?
3) Slip, Slidin’ Away
Expectations for Fed rate cuts in 2026 are, in the words of Paul Simon, “slip, slidin’ away.”
At the start of the year, the market was pricing in 2 Fed rate cuts.
And today: just 1 cut, and not until the December meeting.
Why the change?
Rising inflation with the expectation that we’re going to see further increases to come.
The Fed’s preferred measure of inflation (Core PCE) moved up to 3.1% in January, the highest level in 22 months. That was the 59th consecutive reading above the Fed’s 2% target level.
The Cleveland Fed is now forecasting a 2.87% CPI inflation rate for March, up from 2.4% in February. That will be the 60th consecutive month (5 straight years) with inflation above the Fed’s 2% target.
And during the last 5 years, we’ve seen CPI inflation average more than 2x the Fed’s target.
The March CPI report will likely feature higher food price inflation in addition to Oil and Gas.
Why?
Fertilizer prices have moved up to their highest levels since October 2022, rising 35% YoY. About a third of global fertilizer supply passes through the Strait of Hormuz.
When the Fed meets tomorrow, they will hold rates steady at 3.50-3.75% and the market is expecting them to do the same in April (97% probability). What happens in June under the new Fed chair (likely to be Kevin Warsh) will be dependent on what happens with inflation from here. But as of now, the bond market is saying the Fed will continue to hold (77% probability).
4) More Affordable Housing
Home Prices in the US increased 1% in 2025, their smallest gain since 2011.
With wages rising over 3% in 2025 and interest rates falling (30-year mortgage rate: 6.9% -> 6.2%), that made the housing market slightly more affordable for the average buyer.
I say “slightly” because after adjusting for inflation, prices are still extremely elevated and above the peak levels from the housing bubble of the mid-2000s.
This had created a wide gap (44%) between the number of sellers (1.96 million) and the number of buyers (1.36 million).
Which means that absent intervention from the Federal Reserve or Federal Government, we should see prices continue to move lower relative to inflation. The record appreciation above the rate of inflation that we saw in the first half of this decade is simply unsustainable. And the most powerful force in markets is reversion to the mean.
5) A Few Interesting Stats…
a) The total # of jobs in the US increased by just 0.1% over the past year. In the last 50 years, this same slowdown in the labor market has ONLY occurred during recessions (1974/1980/1981/1991/2001/2008/2020).
b) Data centers now consume roughly 7% of US power demand – up more than 10x in two decades.
c) There are now 665,000 401(k) millionaires at Fidelity alone, a record high and more than double the number from three years ago.
d) The last 2 times BDCs were in a bear market (2020 & 2022), the S&P 500 was in one as well. Interesting divergence today with the S&P 500 down only 5% off its January high.
e) All 7 members of the Magnificent Seven are down on the year and underperforming the S&P 500.
And that’s it for this week. Thanks for reading!
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Disclaimer: All information provided is for educational purposes only and does not constitute investment, legal or tax advice, or an offer to buy or sell any security. Read our full disclosures here.
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