Key Technical Signals and Correction Territory
The broad risk-off bid in equities was notable last week, as selling nearly across the board pushed the S&P 500 below long-term technical support at the 200-day moving average. The breach of the 200-day was also seen in the Dow and the Nasdaq Composite. The small-cap Russell 2000 managed to remain above its 200-day moving average; however, small caps are now also officially in correction territory, as they’ve fallen more than 10% from their recent closing high on January 22. Both the Dow and Nasdaq managed to barely evade closing in official correction territory, although both dipped their toes into correction waters during Friday’s volatile session.
Ultimately, both closed just shy of the 10% threshold. The selling in markets since the Iran war began is almost entirely due to higher oil prices, and higher oil prices are nearly entirely a consequence of the virtual closure of the Strait of Hormuz. Until some material developments in the war allow a reopening of tanker transit through the Strait, oil prices will almost certainly remain elevated. That will keep the fear quotient in markets foremost in mind, and that will keep the fear bid in risk assets alive and thriving.
Stocks finished the week markedly lower, as volatility was exacerbated by quadruple witching in the options markets, surging oil prices, and a jump in bond yields. The volatile selling sent the S&P 500 down sharply in the final hour, and when the closing bell rang on an action-packed week, the S&P 500 had lost 1.51%. Notably, all three benchmark domestic indices finished the week below long-term technical support.
As for the Fed, the FOMC made no change to interest rates, as expected. The decision also largely met our “What’s Expected” scenario, as the committee made no change to interest rates, and minimal changes to the March FOMC statement and the “dots.” Most importantly, both forward guidance and the balance of risks remained the same from previous meetings. That’s important because it tells investors that the Fed does still view itself as in an easing cycle, meaning it still expects to cut rates, it’s just a question of when. Meanwhile, the dot plot showed the median dot still indicating one rate cut in 2026 and one rate cut in 2027. And while the composition of the individual projections changed slightly, the reality is that a majority of federal members still see one rate cut this year. Positively, the Fed did not get more hawkish, despite the uptick in inflation metrics and the war-inspired spike in oil prices. Investors are still expecting another rate cut this year, and again, that will continue to serve as important support for this market.
Bottom line, the market is responding to short-term events and short-term negatives. The economy is still strong, and the earnings are still double-digit. I expect that volatility will persist throughout the year, but will rotate to different uncertainties such as mid-term elections and AI earnings. Keep the seat belts on because, as I predicted, this is going to be a bumpy road. Stay patient because next year promises to be a light at the end of the tunnel.
Source: Sevens Report 3/23/26