March 2026 Market Update

At the March FOMC meeting the Fed once again decided not to cut interest rates. Since the December meeting when the Fed decided to restart asset purchases (QE) on a small scale, liquidity has improved, but as previously hypothesized, these actions have not prevented employment growth from declining or helped the hiring rate to rise.

Reserve Balances

The Fed cited risks from the labor market, inflation expectations, and the war with Iran as reasons not to cut. As commodity prices such as oil and gas have risen, longer term inflation expectations have not, stemming from the theory, rising gasoline prices function as a tax on consumers already experiencing weakness in their purchasing power. While the hiring rate continues to decline, credit conditions have begun to tighten, raising questions about a bubble bursting in the private credit markets. If credit conditions continue to tighten, the Fed may at some point be forced to increase the current small scale asset purchases otherwise known as (QE) into large scale asset purchases in the weeks and months ahead.

Hiring Rate

The market now sees fewer interest rate cuts this year, if any, and occurring later in the year than previously expected. Rising commodities prices such as oil and gas along with rising interest rates have shifted the markets’ view. Mortgage rates have risen higher, shattering the hopes of a strengthening housing market this spring. The combination of rising commodities prices, interest rates and credit tightening is likely the reason longer-term inflation expectations have moved lower, contrary to popular belief. Real personal incomes have continued to move lower and the share of new homes for sale which have already been completed has risen to its highest level since March of 2009.

Inflation Expectations

Real Personal Income Growth

Newly Constructed Completed Homes for Sale

The stock market has begun to take notice of the above data points and has declined -6.75% from its recent all-time high near 7,000 down to 6528. From a technical perspective the S&P 500 has entered a bearish trend now that it has closed below its 200-day moving average of 6640. This is the first time a bearish trend has been confirmed since March 10^th, 2025. The Dow Jones Industrial Average is down -8.24%, the Nasdaq QQQ is down -9.13%, and the Russell 2000 small cap index is down -6.55% from their recent highs.

S&P 500 below 200 day Moving Average

Most notable is the fact that interest rates have not come down as the stock market has sold off. The market now believes that if stock prices come down then the government will increase spending and/or the Fed will increase its balance sheet quickly to keep money flowing and credit creation expanding no matter what the cost to the rest of the economy. Throughout history when stocks sold off investors would flock to safe haven assets such as U.S. treasuries, which would push interest rates lower along with stock prices. But the market has caught on to the government’s new pattern of preventing stock prices from declining. Now interest rates are moving higher as stock prices decline. This is unsustainable. At some point the government is going to have to choose between saving stock prices or preventing interest rates from rising.

U.S. Government Interest Expense as % of GDP vs 10 Year Interest Rate

The government has nine trillion dollars of debt maturing this year that needs to be refinanced at lower interest rate levels to prevent interest expense from substantially rising. Financial markets are at the point where the only way interest rates will come down so the government can refinance is if the government finds fiscal discipline, which would probably cause a short-term economic recession.

The incoming Fed Chair, Kevin Warsh, wants to reduce communication with investors and the public and reduce the size of the federal reserve’s balance sheet. Warsh believes the Fed has made serious policy errors from creating and maintain too large a balance sheet since the 2008 financial crisis. This style of discipline returning to markets would be viewed as a large transition and disrupt the current imbalances between stock and bond markets.

An economic transition is underway, and there is high complacency in financial markets amidst extremely high stock and real estate market valuations. For those who do not understand the real economy, its real problems, and believe all is well simply because the prices of assets are up, the following charts are important to consider when choosing their asset allocation mix.

S&P 500 10 Year P/E Ratio & Buffett Indicator Standard Deviation From Long Term Trend

Our MacroVex Capital, S&P 500 fair value estimate model currently indicates fair value for 2025 earnings of $272 and 2026 earnings of $312 between 4,155 and 4,920, down -36% and -25% from the S&P 500, 2026 Q1 closing price of 6,528.

We believe throughout the rest of 2026 there will be major fiscal and monetary changes that provide great investment opportunities. Our recommendation is to position portfolios to endure a recession, in a defensive manor, risk off, cash, T-bills, money market funds, short to mid-term 1-10 year U.S. treasury bonds and 10-30 year U.S. treasury bonds at positive carry, 10-year minus 2-year yield curve re-steepening, 10-year minus 3-month yield curve re-steepening, Short USDJPY from 153, and select low duration U.S. equities.

Getting paid to wait for growth assets to be priced at discounts, while being positioned to benefit from bond price appreciation as interest rates decline from downward economic pressure, continues to be a profitable and rewarding strategy. We remain patient and focused on managing risk through 2026.

Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This letter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Macrovex Capital, LLC to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projection, and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon the information in this letter is at the sole discretion of the reader. Please consult with a Macrovex Capital, LLC financial advisor to ensure that any contemplated transaction in any securities or investment strategy aligns with your overall investment goals, objectives, and tolerance for risk. Additional information about Macrovex Capital, LLC is available in its current disclosure documents, Form ADV and Form ADV Part 2A Brochure, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD #300692. Macrovex Capital, LLC is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice