One War, Two Market Messages

The Middle East war is nearing its fourth week and the Strait of Hormuz remains a choke point with global consequences. This morning, stock futures pointed lower, volatility ticked higher, and the small-cap Russell 2000 looked especially fragile. The market is trying to process two messages at once. The first is alarming: reports say the Trump administration is considering moves as severe as occupying or blockading Iran's Kharg Island to force Tehran to reopen the Strait of Hormuz. The second message is meant to calm everyone down. Treasury Secretary Scott Bessent has floated possible relief measures: lifting sanctions on Iranian oil already at sea, releasing more crude from the U.S. Strategic Petroleum Reserve, and coordinating with allies such as Japan to do something similar. In other words, Washington is simultaneously helping prosecute a war and hunting for extra barrels to soften the economic backlash from that war.

Kuwait's Mina Al-Ahmadi refinery has already been struck by drones, with parts of it shut down. U.S. aircraft are involved in efforts tied to reopening the strait.

During this week's parade of global central-bank decisions, the Fed, the ECB, and the Bank of England all signaled in different ways that the conflict has made policymaking harder. Everyone knows what pricier energy tends to do: it pushes inflation higher in the short and medium term. What nobody knows is how much central banks should respond when the shock comes from missiles rather than excess demand.

Markets, being markets, have answered with a shrug and a retreat. Traders have pushed expectations for the next Fed rate cut further out, now looking to 2027 instead of late 2026. It means investors are starting to accept a world in which borrowing costs stay higher for longer because energy shocks keep crashing into monetary policy. Central bankers do not enjoy being forced to choose between supporting growth and punishing inflation. They enjoy it even less when crude is sprinting above $110 a barrel and Saudi officials are quietly sketching scenarios in which oil could hit $180 if disruption lasts into late April.

Energy names keep climbing. Halliburton and Cheniere are up. The S&P 500 energy sector is headed toward a thirteenth straight week of gains: one corner of the market has been living in a completely different economy from the rest of it. 

There are, to be fair, a few other islands of good news. FedEx delivered strong results and raised its outlook, sending the stock sharply higher before the bell.  FedEx is often treated as a rough measure of real economic activity and so its results matter. Its message was surprisingly steady: global demand was holding up at the start of March, and fuel surcharges were helping offset rising fuel costs. UPS also moved higher in sympathy.

Yesterday, European stocks were hit much harder than U.S. equities, wiping out their gains for the year. More than 90% of the Stoxx Europe 600 fell. The oil sector was about the only thing smiling. Europe remains more exposed to imported energy shocks, and its central banks have even less room for cheerful improvisation. The U.S., for all its exposure, still has a domestic crude benchmark in WTI that is more insulated from the worst logistical turmoil than Brent, which more directly reflects Middle Eastern production and global seaborne trade. At one point the spread between the two crude benchmarks blew out toward $20 before narrowing again.

That helps explain why U.S. losses yesterday were relatively modest. The S&P 500 ended only slightly lower and well off its intraday lows after comments from Washington and Tel Aviv soothed nerves a bit. Trump said Israel would not strike the South Pars gas field again after an earlier bombardment had helped ignite the latest oil surge. Benjamin Netanyahu said the war would end "much faster than people think." Markets grabbed at both statements because hope is cheaper than hedging.

Still, the technical damage has been real. The S&P 500, the Dow, and the Nasdaq all slipped below their 200-day moving averages, a sign that longer-term momentum has deteriorated. The Russell 2000 briefly fell 10% from its all-time high earlier this week. The Dow and S&P are headed for a fourth straight weekly decline. However, AI-related names such as AMD and Micron offered some support to the Nasdaq.

Elsewhere, Super Micro Computer plunged after people associated with the company were charged in a scheme involving the smuggling of billions of dollars' worth of U.S. AI technology to China in violation of export laws. Tegna jumped after the FCC approved its sale to Nexstar. 

So what should Americans take from all this? First, the coming week is likely to remain hostage to energy headlines. If oil stays elevated, every asset class will keep moving in its shadow. Second, the U.S. is not invulnerable just because it is less exposed than Europe. Yes, WTI is more sheltered than Brent and Washington has levers it can still pull on sanctions and reserves, but if oil remains high, American consumers and businesses will notice. So will the Fed.

Today's economic highlights:

On today's agenda: the 1-year and 5-year Loan Prime Rates in China; the PPI in Germany; the YTD FDI in China; the balance of trade in Italy and the Euro Area; the CBI Industrial Trends Orders in the United Kingdom; retail sales excluding autos, preliminary and final retail sales, and the new housing price index in Canada. See the full calendar here.

• Dollar index: 99,589
• Gold: $4,665
• Crude Oil (BRENT): $110.77 (WTI) $96.07
• United States 10 years: 4.30%
• BITCOIN: $70,359

In corporate news:

• Broadcom is facing an EU antitrust complaint under review after cloud group CISPE alleged its new VMware licensing terms could force smaller European cloud providers out of the market.
• FedEx raised its full-year profit outlook and said shipping demand remains resilient despite Middle East disruption, sending its shares sharply higher premarket.
• Amazon is reportedly developing a new smartphone project centered on Alexa and AI-powered personalization, marking its first phone effort since the failed Fire Phone.
• XPeng posted its first-ever quarterly profit on stronger sales and margins, while also announcing it will launch EVs for the Latin American market at a March 25 event in Mexico.
• Big U.S. banks, especially trading-heavy firms such as Goldman Sachs and Morgan Stanley, could be among the biggest beneficiaries of a proposed U.S. capital-rule overhaul.
• Flipkart's group CFO Sriram Venkataraman is stepping down as the Walmart-owned company prepares for an India IPO.
• Vincorion jumped on its Frankfurt market debut after a heavily oversubscribed IPO, highlighting strong investor appetite for European defense stocks.
• China's commerce minister met Apple CEO Tim Cook, who emphasized the importance of the Chinese market and welcomed government measures to support consumption.
• Elmos Semiconductor is exploring a sale with Morgan Stanley advising, and potential buyers may include Infineon and Qualcomm.
• Adobe received preliminary approval from Germany's cartel office for its planned acquisition of SEMrush Holdings.
• Unilever said it has received an offer for its foods business and is in talks with McCormick over a potential strategic deal.
• Netflix said a livestreamed BTS concert in Seoul could be the start of more live events in South Korea as it expands its investment in Korean entertainment.
• Alibaba shares fell after the company's quarterly profit missed expectations, despite management highlighting AI and cloud as key long-term growth drivers.
• Meta is rolling out its AI assistant globally.
• Three associates of Super Micro Computer charged with smuggling AI chips to China; the stock plunges 11.7% in after-hours trading.
• Ecolab is reportedly set to acquire CoolIt Systems from KKR for between $4.5 billion and $5 billion, according to the WSJ.
• Uber Technologies will invest up to $1.25 billion in Rivian to help launch a fleet of robotaxis.
• Tesla plans to purchase $2.9 billion worth of solar production equipment from Chinese suppliers, according to Reuters.
• Amazon is acquiring the robotics startup Rivr, The Information reports.

Analyst Recommendations:

• Air Products & Chemicals, Inc.: JP Morgan upgrades to overweight from neutral and raises the target price from USD 280 to USD 310.
• Amcor Plc: Wells Fargo downgrades to equalweight from overweight and reduces the target price from USD 48 to USD 43.
• Aptargroup, Inc.: Wells Fargo upgrades to overweight from equalweight and raises the target price from USD 133 to USD 144.
• Chevron Corporation: HSBC upgrades to buy from hold and raises the target price from USD 180 to USD 215.
• Halliburton Company: Evercore ISI upgrades to outperform from in-line with a price target raised from USD 36 to USD 42.
• Mettler-Toledo International, Inc.: Jefferies upgrades to buy from hold and raises the target price from USD 1400 to USD 1450.
• Occidental Petroleum Corporation: JP Morgan upgrades to neutral from underweight and raises the target price from USD 49 to USD 63.
• Oneok, Inc.: Jefferies upgrades to buy from hold and raises the target price from USD 85 to USD 98.
• The Mosaic Company: Freedom Broker downgrades to sell from hold and reduces the target price from USD 30 to USD 24.
• Accenture Plc: Oddo BHF maintains its neutral recommendation and reduces the target price from USD 310 to USD 244.
• Apa Corporation: JP Morgan maintains its neutral recommendation and raises the target price from USD 29 to USD 38.
• Diamondback Energy, Inc.: JP Morgan maintains its overweight recommendation and raises the target price from USD 180 to USD 225.
• Graphic Packaging Holding Company: RBC Capital maintains its sector perform recommendation and reduces the target price from USD 13 to USD 10.
• Micron Technology, Inc.: Huatai Research maintains its buy recommendation and raises the target price from USD 360 to USD 610.
• Murphy Oil Corporation: JP Morgan maintains its neutral recommendation and raises the target price from USD 32 to USD 44.