Middle East jitters and fading Fed rate cut hopes sink US stocks

US stock decline amid Iran conflict and inflation risks

United States (US) equity markets closed lower on Friday and for the week, weighed down by uncertainty from the Iran conflict. Investors grappled with the inflationary implications of higher energy prices and fading hopes of Federal Reserve (Fed) rate cuts.

Conversely, the US dollar index (DXY), had a stellar run. It surged above 100, posting its best weekly gain (+1.66%) since September 2024. Not to be outdone, the US 10-year yield jumped 14.5 basis points (bp) for the week, landing at 4.28% – a considerable leap of 33.5bp over the past fortnight.

Central banks meet as Middle East tensions dominate

While this week marks a busy calendar for central bank meetings – no fewer than seven are scheduled, including the Bank of England (BoE), European Central Bank (ECB), Bank of Japan (BoJ), Bank of Canada (BoC), Swiss National Bank (SNB), and, of course, the Fed – the headlines out of the Middle East are set to dominate once again.

Over the weekend, US forces struck military sites on Iran’s Kharg Island – the country’s primary oil export terminal, handling over 90% of its crude oil shipments. President Trump announced the strikes had successfully destroyed military targets, thankfully sparing oil infrastructure for now, but warned of further action if Iran continues to block the Strait of Hormuz.

Following these strikes, Iran’s Foreign Minister is reported to have said in an interview with MS Now (an American cable news channel) that the Strait of Hormuz is open to all nations except the United States, Israel, and their allies. While the definition of 'allies' remains vague, the implication is that non-allied nations – likely including China, perhaps India, and other countries – would still have access.

This context is crucial: China and India alone account for approximately 50% of all oil that normally transits the Strait of Hormuz. Additionally, Saudi Arabia's East-West pipeline is rerouting 7 million barrels per day, bypassing Hormuz entirely, with reports indicating tankers are lined up ready to collect this redirected cargo.

Further mitigating factors include the Strategic Petroleum Reserve (SPR) release, which is expected to commence late next week, and reports that the US intends to announce a coalition this week to escort ships through the Strait. Collectively, these factors suggest the prospect of a complete 'closure' looks considerably overstated.

Oil market reactions reflect measured optimism

Indeed, we have seen some comfort emerge in the crude oil market this morning. WTI crude oil reopened at $100.93, hit a high of $102.44, before tumbling back below $100 to trade around $98.04 (-0.72%). It's certainly not the $120 'doomsday scenario' that many feared would follow the Kharg Island strikes. For now, it seems cooler heads are prevailing.

Federal Open Market Committee meeting

Date: Thursday, 19 March, at 5.00am AEDT

At its January meeting, the Federal Open Market Committee (FOMC) kept the target range for the federal funds rate at 3.50% – 3.75%, emphasising a data-dependent approach in the face of resilient growth and lingering core inflation pressures.

However, the conflict in the Middle East and surging energy prices have dramatically repriced expectations around further Fed easing this year. With futures markets now pricing in a near 100% probability of a hold this week, all attention will turn to the updated Summary of Economic Projections, the new 'dot plot', and Chair Powell’s press conference.

The updated FOMC forecasts are likely to show inflation lifting towards 3% this year without fundamentally altering the path for core inflation. We'll probably see net growth forecasts trimmed slightly, while the median voter is still expected to anticipate just one rate cut in 2026.

Looking further out, the market is now pricing in just 20 bp of easing for the entirety of 2026 – a sharp reduction from the 50 bp of cuts priced in at the end of February.

Federal funds rate chart

Nasdaq 100 technical analysis

The Nasdaq 100 has been in a corrective phase since hitting its late-October peak of 26,182, with that pattern reinforced by a clear double top formed in late January. Over the past fortnight, the index has tested the critical 24,250 – 23,850 support band we've been watching closely – a feat it repeated earlier this week. This crucial support zone includes the 200-day moving average (MA) at 24,284 and the 21 November low of 23,854.

If the Nasdaq 100 can continue to hold this support band and then clear short-term resistance at 25,380 – 25,390, it would provide a strong indication that the correction is complete and the uptrend has resumed, opening the door for a retest and potential break of the 26,182 high.

However, should the Nasdaq 100 sustain a break below that 24,250 – 23,850 support zone, it would warn of a significantly deeper correction towards 23,000.

Nasdaq 100 daily candlestick chart

Dow Jones technical analysis

In our Wall Street updates this month, we have noted that the Dow Jones – after hitting a record high in mid-February – sketched out a classic head-and-shoulders topping pattern, with the neckline hovering around 48,500 – 48,400.

Sure enough, the break below that 48,500 – 48,400 support zone (the neckline) triggered a decisive slide lower, dragging the Dow Jones last week to test almost exactly our 46,500 target for the pattern – bolstered by the 200-day MA at 46,461.

Looking ahead, it's crucial for the Dow to hold above that 200-day MA on a sustained basis if it's going to repair some of the technical damage from the past three weeks.

Otherwise, the door opens to a deeper pullback towards the next band of medium-term support at 45,500 – 45,000.

Dow Jones daily candlestick chart

• _{Source: TradingView. The figures stated are as of 16 March 2026. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}