What’s on our radar of stock market, economic conditions, and market insights.
As we delve into current trends in asset pricing, one must consider various themes that influence market behaviors and economic indicators. As we assess this date, it’s essential to reflect on historical market data and compare it to the present to gain insights into potential future trends.
As we head into spring 2026, market dynamics have shifted meaningfully from the tariff-dominated narrative of early 2025. The S&P 500 is down 6.2% YTD, the Fed is on pause at 3.50–3.75%, and a new geopolitical shock — the Iran conflict — is adding energy cost pressures to an already-fragile backdrop. AI capital expenditure remains the one structural tailwind bucking these broader headwinds.
| Indicator | Level (Mar 2026) | Trend | Signal |
|---|---|---|---|
| S&P 500 YTD | −6.2% | ↓ Correcting | ⚠️ Post-euphoria selloff |
| CPI Headline / Core | 2.4% / 2.5% YoY | → Sticky | ⚠️ Above 2% Fed target |
| Fed Funds Rate | 3.50–3.75% | → Paused | → 1 cut priced Dec 2026 |
| Unemployment | 4.4% | ↑ Rising | ⚠️ −92K payrolls Feb shock |
| 10Y Treasury Yield | 4.42% | ↑ Rising | ⚠️ Iran geopolitical premium |
| S&P 500 Fwd P/E | 19.9x | → Elevated | ⚠️ Above 18.9x 10-yr avg |
| CAPE | 39.3x | ↑ Elevated | ⚠️ ~90% above modern-era avg |
| AI Capex | On track | ↑ Accelerating | ✅ One clear structural tailwind |
- Economic Uncertainty: Left chart above showing an index of global (GDP weighted) economic uncertainty using NLP techniques, which stays at elevated level even after some de-escalation of tariffs conflict. Investment and big ticket consumption decisions are likely to be negatively impacted in the near term. Simply put, the elevated uncertainty requires some risk premium in the market. In addition, front running of tariffs have pulled demand forward and 2025H2 GDP growths across developed countries have remained subdued. <Read More>
- Update 07/03/25: The Big Beautiful Act at the center of the economic policy for the rest of 2025. Reduction in tax and increase in budget has been received Ok by the market so far. Deregulation for financial sector will benefit share prices in H2.
- Geopolitical risk: while tariff risks are related to geopolitical risk, they do not entirely share the same dynamics. A withdraw of US impact is a more profound and longer term risk to global asset prices. The ongoing wars are de-escalating as well.
- Update 03/27/26: S&P 500 down 6.2% YTD as post-election euphoria fades. US labor market deteriorated — payrolls unexpectedly cut 92K in February, unemployment at 4.4%. Eurozone near stagnation (Composite PMI 50.1); France in outright contraction. Recession risk is squarely on the radar for European economies. Iran military conflict is the newest macro wildcard.
- Update 07/03/25: The Big Beautiful Act at the center of the economic policy for the rest of 2025. Reduction in tax and increase in budget has been received Ok by the market so far. Deregulation for financial sector will benefit share prices in H2.
- Valuation: equity market valuation is still rich but not stretched, on standalone basis or relative to treasury yield. The recent drawdown and subsequent recovery is comparable to the 2021-2022 inflation spike episode but so far these moves are reflecting valuation compression and earnings so far remains strong.
- Update 03/27/26: Despite the Q1 correction, valuations remain stretched. Forward P/E at 19.9x (above 10-year average of 18.9x); CAPE at 39.3x — nearly double the modern-era average. Q1 2026 earnings revisions are tracking lower. Margin for error is thin; any earnings miss could accelerate the drawdown.
- Tariffs impact: Even at 10% universal tariffs, the effective tariff rate(weighted by value of imports) for the US is about 20% compared to less than 5% over the past decade. So material impact to inflation and corporate margins are still at risk. But so far we have not seen the pass-through to US inflation. Read more about tariffs <here>.
- Update 05/03/25: As tariff talks resumes between US and China, which is viewed as the hardest negotiation to be done. Market sentiment has priced in a truce of the trade war, but the outcome could surprise to the downside.
- Update 07/03/25: TACO (Trump Always Chicken Out) trades have been the playbook for the year. Deadlines are likely to get extended as more reasonable negotiation results are expected. We are lowering the actual inflation impact and focus on growth impact.
- Update 03/27/26: Legal inflection point — US Supreme Court ruled IEEPA-based tariffs unlawful on Feb 20, 2026. Administration replaced them with Section 301 and Section 232 investigations, maintaining protectionist stance under new legal authority. China now faces an effective tariff rate of ~34.7%, highest among major trading partners. Legal limbo and bilateral tensions persist; near-term resolution is unlikely.
- US exceptionalism: global investors have been fading the idea of US exceptionalism manifested on currency, treasury and stock market. With long term international investors being the marginal seller, risks of higher yield in treasury market, and lower dollar is to the upside.
- Update 03/27/26: Iran conflict (escalated March 2026) has created a new geopolitical risk premium — 10Y Treasury yield climbed to 4.42%, highest since July 2025. OBBBA fiscal stimulus (~$500B added to 2026 deficit) provides near-term growth cushion but raises long-term debt sustainability concerns and limits Fed flexibility. Dollar weakened on growth disappointment and fading US exceptionalism narrative.
- Inflation volatility: what the market may be under appreciating is that the fragile supply chain and potential trade diversion resulting from near-shoring or friend-shoring can create a lot of short term price spikes here and there. One can expect inflation to have more up and downs from time to time. It may be tricky to find direct hedge for this other than rates vol products.
- Update 03/27/26: Feb 2026 CPI at 2.4% headline / 2.5% core — sticky above the Fed’s 2% target despite three rate cuts in late 2025. Iran conflict is disrupting energy supply chains, adding inflationary pressure not seen since 2023. Fed held rates at 3.50–3.75% at the March FOMC; markets pricing just one 25bp cut in December 2026. “Higher for longer” extended into 2026.
- AI Capital Expenditure: The one clear positive structural theme in 2026: AI infrastructure spending by hyperscalers (Microsoft, Google, Amazon, Meta) remains on track despite macro headwinds. BlackRock notes AI will “keep trumping tariffs and traditional macro drivers” for select sectors. The divergence between AI-exposed and non-AI equities is widening — a K-shaped market within equities. <Read More>
📈 Bottom Line: The macro picture is broadly cautious — rising unemployment, sticky inflation, elevated valuations, and a new geopolitical risk premium. The single exception is AI capital expenditure, where hyperscaler spending is creating a K-shaped outcome within equities. Investors distinguishing between companies with genuine AI revenue exposure and those riding thematic momentum are best positioned for 2026.
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