S&P 500 Drops Two Percent As Iran War Sends Oil Prices Up

Geopolitical events dominated the first trading week of March 2026. The start of U.S. and Israeli military operations against Iran prompted a sharp rise in oil prices as Iran's military launched ballistic missile attacks against Persian Gulf nations and threatened shipping traffic through the strategic chokepoint of the Strait of Hormuz.

That escalation prompted marine insurers to cancel war risk coverage for oil container ships, which in turn, sharply reduced shipments of oil out of the Persian Gulf as shippers were unwilling to risk transiting the strait. The resulting new constraint on the 20% of global oil supply that is transported from the oil-rich nations of the Persian Gulf caused the global price of oil to jump over ten percent.

The increase in oil prices put central banks on notice to combat inflation. In the U.S., the prospects for additional interest rate cuts by the Federal Reserve during 2026 dimmed in response to the development. The CME Group's FedWatch Tool projects the Fed will delay an expected quarter point reduction in the Federal Funds Rate steady until 29 July (2026-Q3), six weeks later than what was anticipated a week earlier. The tool also projects another quarter point rate cut on 9 December (2026-Q4).

The effect on stock prices however was more muted. The S&P 500 (Index: SPX) declined 2.0% from its previous week's close to end the trading week at 6,740.02.

The latest update of the alternative futures chart shows the trajectory of the index is still within the redzone forecast range we introduced in the previous edition of the S&P 500 chaos series, but instead of being in the middle, it moved near the lower end of the range.

Although geopolitics delivered the week's biggest news, other news influenced investor expectations of the future as well. Here are the week's market-moving headlines:

Monday, 2 March 2026

• Signs and portents for the U.S. economy:

  • Oil jumps to multiyear high as Hormuz disruption shakes global supply

    • Brent surges after Iran strikes, with analysts eyeing $100 oil

    • Oil and gas majors and traders suspend shipments via Hormuz

    • OPEC+ agrees modest oil output boost

  • US manufacturing activity steady, factory gate inflation surges

• Fed minions trying to grasp what AI technologies mean for monetary policies:

  • Fed races to adapt to AI promises and pitfalls for jobs, inflation

• Bigger trouble, stimulus developing in China:

  • China's factory activity set to shrink for second month, hit by depressed demand

  • China oil refiners cushioned from Iran conflict with ample Iranian, Russian supply at hand

• BOJ minions still excited to hike Japan's interest rates:

  • Bank of Japan deputy governor says rate hikes likely to continue

  • Japan faces risks from Iran conflict that complicates BOJ rate path

• Nasdaq ends higher as U.S. stocks recover amid U.S.-Israel-Iran conflict escalation

  • Wall Street ends narrowly mixed, trading volatile after air strikes on Iran

  • Investors seek harbour in gold as US and Israel strike Iran

Tuesday, 3 March 2026

• Signs and portents for the U.S. economy:

  • Oil prices jump 4.7%, settle at highest since January 2025 on Middle East conflict

    • Geopolitical shocks rarely derail equities unless oil spikes 75–100% Y/Y, Morgan Stanley says

    • Trump orders oil tanker insurance support, says Navy could escort ships in Gulf

  • US banks on high alert for cyberattacks as Iran war escalates

  • US Treasury vows 'fresh look' at bank liquidity rules

• Fed minions say they might not cut rates when expected if oil prices rise too much:

  • Fed rate-cut doubts rise as Middle East conflict drives up energy prices

    • Fed's Schmid: inflation too hot, no room to be complacent

    • Fed's Williams says rate cuts still possible, does not address Iran war

    • Fed's Kashkari says Iran war obscures monetary policy outlook

  • Fed faces new inflation, growth risks despite US energy resilience

• Bigger trouble, stimulus developing in China:

  • Chinese refiners begin run cuts as Iran war tightens oil supply

  • China vows to ensure energy security following US military actions

  • How China could boost its weak consumption

• BOJ minions suddenly not so sure they'll hike Japan's interest rates so soon, thinking about getting into blockchain:

  • Iran conflict raises odds BOJ will forgo rate hike in March, sources say

    • Japan faces risks from Iran conflict that complicates BOJ rate path

  • BOJ to experiment with blockchain settlement for reserves

• ECB minions still thinking they leave Eurozone interest rates alone, suddenly worried about inflation:

  • ECB should sit tight on rates amid uncertain war fallout, Kazaks says

  • Euro zone inflation jumps, faces quick hit from surging oil price

    • Euro zone inflation could surge on lengthy Iran war, ECB's chief economist warns

• U.S. stocks ended lower amid Middle East conflict and South Korea chip selling

  • Wall Street tumbles as South Korea triggers chip selling

  • Wall Street indexes end lower as Middle East conflict fans inflation fears

Wednesday, 4 March 2026

• Signs and portents for the U.S. economy:

  • Oil settles at highest in over a year for second straight day as Iran crisis escalates, snarls Hormuz flows

    • Americas heavy crude prices hit multi-year highs as Iran conflict disrupts oil markets

    • Gulf shipping crisis deepens as tankers stranded for fifth day, US sinks Iranian warship

    • Exclusive: Qatar shuts gas liquefaction, will take weeks to restart, sources say

  • US services sector activity hits more than 3-1/2-year high in February

  • US likely to raise temporary global tariff rate to 15% this week, Bessent says

• Fed minions divided over more rate cuts:

  • Fed's Miran: Risks from Iran conflict no reason to delay continued rate cuts - BBG TV

  • Fed's Hammack backs steady interest rates, tells NYT it's too early to gauge Iran war impact

  • Fed report says economy solid, notes disruption from immigration crackdown in Minnesota

• Mixed economic signals, stimulus developing in China:

  • China factory activity contracts for second month in February

  • China's services sector growth races to 33-month high in February, survey shows

  • China parliament to approve growth, policy plans amid growing US rivalry

• BOJ minions locking in on rate hikes no matter what:

  • Bank of Japan chief vows to keep raising rates with eye on Iran conflict

• ECB minions having flashbacks of last time they blew inflation forecast after shock event:

  • ECB wary of Iran-war inflation spike after missing last 'transitory' surge

• U.S. stocks recover Middle East conflict-led losses with better-than-expected labor report, rising chip stocks

  • US stocks close up on Iran diplomacy hopes; tech leads rebound

Thursday, 5 March 2026

• Signs and portents for the U.S. economy:

  • Oil jumps 10% on Iran conflict and could spike to $100 a barrel, analysts say

    • More tankers come under attack as US-Iran conflict spreads in the region

• Fed minions say higher inflation and good jobs data could derail rate cuts, claim they see no big job losses from AI:

  • Fed's Barkin: Sticky inflation, better jobs data could shift the risk outlook for the Fed - BBG TV

  • Fed's Beige Book signals AI productivity push with limited job impact

• Bigger trouble, stimulus developing in China:

  • China Guides Down: Beijing Drops Economic Growth Target To Lowest Level In 35 Years

    • China's parliament rolls out economic, political blue-print; here's what you need to know

    • China again targets overcapacity in commodity sector

      • Explainer: What's in China's new five-year plan for commodity markets

    • China to inject $44 billion into state banks, boost tech financing

  • China in talks with Iran to allow safe oil and gas passage through Hormuz, sources say

    • China urges refiners to suspend fuel exports amid Mideast war, sources say

• ECB minions not sure of next actions, suddenly worried about inflation and potential need to bailout banks in Eurozone:

  • ECB has no preset response to Middle East war, Lagarde says

  • ECB policymakers warn of inflation spike if Iran war lasts

    • ECB's Nagel says long Iran war would push up inflation

  • Exclusive: Euro zone banks face multiple threats from Iran war, ECB supervisor says

• Wall Street sinks as oil prices top $80/bbl after renewed Iran war escalations

  • Wall Street closes down as oil prices spike on Middle East conflict

Friday, 6 March 2026

• Signs and portents for the U.S. economy:

  • Brent crude spikes above $90 as Trump says no deal with Iran except 'unconditional surrender'

    • Just how high will gas prices climb with oil now above $90/barrel?

  • Unexpected job losses, rise in unemployment rate fan US labor market doubts

    • Jobs Shock: US Lost 92K Payrolls In February, Far Below Lowest Estimate, As Unemployment Rate Rises

• Fed minions still divided on which way to go with monetary policies:

  • Fed faced with hard choice on weak jobs, high inflation

    • Fed Governor Miran: The Fed is chasing ‘phantom inflation’ as labor demand weakens

    • Fed's Hammack says interest rates likely on hold for some time

    • Fed's Collins sees rate policy holding steady for some time

    • Fed's Schmid says hiring is on pause amid AI, aging

    • Fed's Daly: job market vulnerable, but risks two-sided

    • Fed's Waller: Don't expect current oil price shock to have persistent impact on inflation - BBG TV

• Bigger stimulus, deals developing in China:

  • China to boost spending to meet growth target amid rising global uncertainty

  • Boeing nears 500-jet order with China ahead of Trump-Xi summit - Bloomberg

  • China's largest provincial economy vows to reshape industry with AI

• BOJ minions suddenly thinking about not hiking Japan's interest rates again, standing by to keep currency from collapsing:

  • BOJ likely to put off rate hike until June or July, ex-top economist says

  • BOJ will be vigilant to yen moves, impact on inflation, deputy governor says

  • Japan ready to act against market swings, economic blow from Iran conflict

• ECB minions worried world events may disrupt their perfect monetary policy:

  • Iran war threatens ECB's 'good place,' Schnabel warns

  • ECB unlikely to change rates in next meeting, Escriva says

  • Oil price surge not ruining ECB's 'good place', Sleijpen says

• S&P 500, Dow end week lower as nonfarm payrolls contract, oil prices accelerate

  • US stocks close down as oil spikes 12%, job market weakens

  • Gold slips despite geopolitical tensions as traders weigh Fed outlook and oil price spike

The Atlanta Fed's GDPNow tool forecast of real GDP growth in 2026-Q1 dropped to +2.1%, down from the +3.0% growth anticipated a week earlier.