Commodity prices remains the focus
The ongoing conflict continues to drive stocks and bonds lower and oil prices higher, despite efforts to the contrary. The IEA’s announcement ordering the largest-ever release of stockpiled oil to reduce oil prices failed to have any effect; indeed, oil prices rose on the news. The latest move to help ease oil prices by temporarily lifting sanctions on Russian oil already at sea has also had little impact. The longer the war continues, the longer the potential impact on the US economy and, by default, the rest of the world. Higher fuel prices also add to inflation, which in turn dampens the odds of an interest-rate cut. Reduced chances of rate cuts due to a potential inflationary spike hurt both bond and equity markets. While stock markets historically shrug off geopolitical conflict, when it impacts commodity prices, stock investors take fright. Was ever thus.
There is little more one can add; looking at current economic reports is meaningless, as they are all historic. The impact of higher energy prices is yet to be reflected in any economic reports. Bonds often provide a balanced portfolio with some protection when stocks are weak, but not currently. We also experienced this between 2021 and 2023, following the economic effects of governments’ pandemic responses. Traditionally, when economic growth is strong, equities perform well, and bonds not so well, as investors fear that central banks will eventually want to cool that growth by raising rates to manage the inflationary implications. In contrast, when economic activity is weak, stocks are weak, and central banks use interest rates to stimulate the economy, and rates go lower, bond prices go higher. The thesis behind the protection that a 70/30 investment portfolio offers. A spike in commodity prices has a negative impact on growth, effectively it acts as a tax, as it pushes up costs, central banks are powerless to cut rates as it further risks pushing prices up even further. A good example is today’s weak UK economic report should add to hopes of the Bank of England cutting rates this month, but not in the current climate.
The term bear market is often associated with a collapse in prices, but in fact, most bear markets are defined by stocks going sideways for an extended period of time. Developed stock markets have marked time since last October, so one could argue we have been in a bear market for some time already.
How much lower could the US go? The 200-day moving average is about 3% lower from here, a 10% correction from the peak, about another 5%. Both are very possible. However, fear is starting to take hold of greed. The latest IMI’s Risk Appetite Index has fallen further from +13% in February to -16% in March, the first instance of net risk aversion since September 2025. The Vix is trading closer to 30. We wait for the Merrill Lynch fund manager survey out next week.
