Iran Conflict Derails Recent Market Progress, Equities and Bonds Fall in March

• Oil prices spiked as the Strait of Hormuz closure cut off roughly 20% of global oil supply, causing U.S. retail gasoline prices to increase by approximately $1 per gallon and hitting international markets harder than domestic ones
• The 10-year U.S. Treasury yield jumped from below 4% in late February to a 2025 high of 4.44% on March 27, with the market shifting from pricing two rate cuts to pricing zero cuts in 2025 based on inflation concerns
• Economic data showed mixed signals with payrolls falling 92,000 in February (versus expectations of 55,000 jobs added), unemployment rising to 4.4%, and Q4 2025 GDP revised sharply lower to just 0.7% annualized growth

Summary: Iran Conflict Derails Markets in March 2026

Key Market Performance

March 2026 marked the worst month for the S&P 500 since 2022, as conflict with Iran triggered broad equity and bond market declines. The Nasdaq Composite showed the weakest year-to-date results, while small caps and equal-weighted S&P 500 maintained modest positive gains. International markets experienced more severe impacts due to greater dependence on Middle Eastern oil.

Iran Conflict Impact

The closure of the Strait of Hormuz disrupted approximately 20% of global oil supply, causing oil prices to spike. U.S. retail gasoline prices increased by roughly $1 per gallon, despite the country being a net oil exporter. Market volatility intensified as investors worried about inflation pressures and economic growth implications.

Fixed Income Markets

The 10-year U.S. Treasury yield surged from below 4% on February 28 to 4.44% on March 27—its 2026 high. Bond prices fell across all sectors, with municipal bonds particularly hard hit. The market completely priced out rate cuts for 2026, with the CME FedWatch tool showing 72% probability of no Fed action.

Economic Data

• Employment: February payrolls fell 92,000 versus expectations of 55,000 gains; unemployment rose to 4.4%
• GDP: Q4 2025 revised sharply lower to 0.7% annualized (from 1.4% preliminary); Q1 2026 forecast at 2.0%
• Inflation: Mixed signals with PPI rising 3.4% annually, while CPI remained subdued at 2.4%
• Manufacturing: ISM Manufacturing Index showed expansion at 52.7 in March

Federal Reserve

The FOMC maintained current policy rates at its March meeting. Fed Chair nomination process for Kevin Warsh remains stalled pending investigation completion.