Subject: Control Panel: Black swan trend change?
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Many METARs are old enough to remember the 1973 Arab oil embargo, the stagflation and stock market rout that it caused. Here is the Inflation Adjusted S&P 500 which shows how the SPX declined for a decade after 1970 with nasty drawdowns in 1973 and 1974. Investors who blithely say that they plan to ride out drawdowns may not survive to see the turn back up to a rising SPX.
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Inflation Adjusted S&P 500 - Multpl
Inflation Adjusted S&P 500 chart, historic, and current data. Current Inflation Adjusted S&P 500 is 6,775.10, a change of -92.44 from previous market close.
Will the “black swan” attack on Iran cause a similar trend change in a U.S. economy that has good growth, already slowing employment, stubborn (but low by historic standards) and a stock market in a historic bubble?
It’s really too early to tell but that doesn’t keep analysts from trying.
https://www.wsj.com/economy/wh...
Why the Oil Shock Probably Won’t Derail the Economy. And One Way It Might.
The U.S. is a net petroleum exporter and productivity is improving, but the bigger risk is stubborn inflation
By Greg Ip, The Wall Street Journal, March 8, 2026
It was an ugly week for the economy.
Oil prices surged 39%, all but guaranteeing inflation is about to lurch higher. And it came amid emerging signs of jobs weakness, as payrolls fell and unemployment rose in February.
Those with long memories smell stagflation—a troubling mix of stagnant growth and stubborn inflation—or worse, recession. Higher oil prices helped sink the economy in 1973, 1980, 1990 and 2008…
Higher oil prices are like a tax, cutting into household consumption while boosting inflation and interest rates.
But that effect has shrunk as the U.S. became less energy dependent. The U.S. consumed 4% less gasoline in 2025 than in 2007, while producing 42% more goods and services (as measured by gross domestic product, adjusted for inflation). …
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Prolonged closure of the Strait of Hormuz could send oil prices much higher than the market anticipates…
A financial crackup is another risk. The AI boom, credited for driving growth last year and likely this year, is closely intertwined with bubbly stock valuations. Energy turmoil could unnerve investors already worried about how much tech companies are spending on data centers… [end quote]
Nobody knows yet how long the attacks on Iran will last or how long oil traffic will be stalled in the Strait of Hormuz considering that Iran’s leaders may remain hard-line anti-U.S.
The stock indexes are down and VIX is up but not showing panic. The Fear & Greed Index is in Fear but not Extreme Fear.
The markets aren’t running to buy “risk-off” assets like Treasuries and USD. USD is near the top of its recent channel but not as high as pre-2024. Treasury prices actually fell instead of rising as they usually do during a period of fear. This may reflect increased inflation expectations and/ or a reduced confidence in U.S. Treasuries due to higher than expected spending. Probably the latter since the 10 Year TIPS yield (which removes the inflation concern) was higher.
The trade is risk-off because stock and junk bond prices fell more than Treasury prices even though they fell in tandem. Junk bonds are falling which shows the market is concerned about defaults in a potential recession but also because many zombie companies (including SaaS companies) are being forced to refinance ultra-low interest loans.
Oil is trending sharply higher. Natgas spiked but then fell back to its recent level. Gold and silver spiked and fell in early February. Gold is climbing back toward its record peak but silver has stabilized.
Economic activity in the manufacturing sector expanded in February for the second straight month but only the third time in 40 months, say the nation’s supply executives in the latest ISM® Manufacturing PMI® Report. Three demand indicators (the New Orders, Backlog of Orders and New Export Orders indexes) are in expansion, and the Customers’ Inventories Index remains in ‘too low’ territory, contracting at a slightly slower rate. A ‘too low’ status for the Customers’ Inventories Index is usually considered positive for future production. The overall economy continued in expansion for the 16th month.
Economic activity in the services sector continued to expand in February, say the nation’s purchasing and supply executives in the latest ISM® Services PMI® Report. The Services PMI® registered 56.1 percent, its 20th month in a row in expansion territory. The services sector is heating up, with the Business Activity, New Orders, and New Export Orders indexes at their highest levels since 2024, and the Backlog of Orders Index with its best reading since July 2022.
Since Services comprise 80% of the economy this is a strong reading.
The Atlanta Fed’s Latest GDPNow Estimate for 2026:Q1 is 2.1%. This is a sharp decline from earlier estimates. The reason is a sharp contraction in “Consumer Spending (PCE).” I don’t understand this because PCE is growing strongly. Maybe they are seeing preliminary numbers that are showing a contraction?
fred.stlouisfed.org
Personal Consumption Expenditures
Personal Consumption Expenditures
The Cleveland Fed’s Inflation Nowcasting predicts 1Q26 PCE inflation over 3% which is rising. The Atlanta Fed’s collection of Underlying Inflation is improved over the past year but still showing a lot of red.
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The options market sees little chance that the Federal Reserve will cut the fed funds rate before June. Since Fed Chair Jerome Powell will rotate out of the chairmanship in May this indicates that the markets are betting that his replacement, Kevin Warsh, will not try to force the fed funds rate lower despite pressure from President Trump. The fed funds rate is set by a committee, FOMC, and there would be fierce pushback against political manipulation.
Only a sudden crisis or distinct recession would cause the FOMC to cut the fed funds rate when inflation is increasing like it will be with the Iran oil shock. Even then they would be in a stagflationary box. History would be unkind to an FOMC that repeated the 1970s.
The METAR for next week is unsettled and rather stormy but not a hurricane. Yet.
Wendy
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clevelandfed.org
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The Federal Reserve Bank of Cleveland provides daily “nowcasts” of inflation for two popular price indexes, the price index for personal consumption expenditures (PCE) and the Consumer Price Index (CPI). These nowcasts give a sense of where inflation...
atlantafed.org
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Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis, Inflation-Indexed