Overview
March 2026 delivered the worst monthly performance for U.S. equities since September 2022. The S&P 500 lost 4.98%, the Nasdaq posted a similar decline, and all major global indices finished negative. The dominant driver was energy: U.S. and Israeli strikes on Iran launched February 28 triggered closure of the Strait of Hormuz, sending Brent crude surging past $120 per barrel before settling near $113 by month end, a 55% increase from pre conflict levels. Canadian equities proved more resilient given the country’s resource exposure. Both central banks held rates unchanged, each confronting the same dilemma: softening growth alongside reaccelerating inflation.
U.S. Market Performance & Policy
The S&P 500 broke below its 50 day moving average on February 27 and its 200 day on March 19. Energy was the clear outperformer as oil names surged with crude, while technology, consumer discretionary, and financials bore the brunt of the selloff as higher for longer rate expectations were repriced sharply upward.
The Fed held at 3.50% to 3.75%. Markets priced virtually no probability of a cut at the April 28 and 29 FOMC meeting and a 77.5% chance of no movement through year end. The era of anticipated cuts has given way to a hawkish holding pattern, with the March CPI print, which is expected to show annual inflation approaching 3.4%, set to confirm the trend.
Key U.S. Economic Data
Federal funds rate: Held at 3.50% to 3.75%. Rate hikes, while not the base case, are no longer off the table. Payrolls: +178,000 in March, well above the 60,000 consensus and a sharp reversal from February’s revised loss of 133,000. Unemployment edged down to 4.3%. Health care led with 76,000 jobs, partly reflecting the return of Kaiser Permanente strike workers. Federal government payrolls fell another 18,000.
CPI: February held at 2.4% headline / 2.5% core. March expected at ~3.4% as the oil shock flows through. ISM Manufacturing: Rose to 52.7; Prices Paid surged to 78.3, a four year high. ISM Services: Slipped to 54.0 from 56.1, remaining in expansion. Prices Paid soared to 70.7, the highest since October 2022, on surging fuel, lumber, copper, and steel costs.
Canadian Market Update
The TSX outperformed U.S. peers, anchored by Energy and Materials, the two sectors most directly benefiting from the oil surge. Gold continued to attract safe haven capital, providing further cushion to Materials even as broader sentiment deteriorated.
The Bank of Canada held at 2.25% on March 18, citing weaker than expected near term growth, an unemployment rate of 6.7%, and February CPI of 1.8%. The BoC flagged that rising energy prices will push inflation higher in coming months, keeping a rate hike on the table. The next decision is April 29, 2026.
Outlook
The Iran conflict has introduced a genuine stagflationary risk vector that is unlikely to resolve quickly. For Canada, the energy windfall provides a structural buffer, though rising fuel costs weigh on consumers and import dependent businesses simultaneously. The current environment favors energy producers, defence and aerospace, commodity linked industrials, and investment grade fixed income. Discipline is warranted on high multiple growth, rate sensitive real estate, and consumer discretionary names.