March 2026 Financial Market Update

February delivered a mix of steady economic progress and renewed market uncertainty. Job growth remained solid and corporate earnings continued to impress, especially among AI-focused companies. At the same time, inflation ticked higher, reinforcing expectations that the Federal Reserve will remain cautious. Markets stayed near record highs but moved with greater volatility throughout the month.

Below is a clear look at how financial markets performed in February, the forces driving the numbers, and key areas investors are watching as we move into March.

Major U.S. Stock Indices

U.S. markets faced a mild stress test in February, with major indices reacting differently to the mix of strong growth, stubborn inflation, and shifting investor sentiment around AI. Tech stocks—especially software companies—saw notable pressure, while the S&P 500 traded mostly sideways and the Dow outperformed on relative strength.

• The S&P 500 fell 0.87%.
• The Nasdaq 100 led declines with a 2.32% pullback.
• The Dow Jones Industrial Average inched up 0.17%.

A subtle shift in investor preferences drove much of this divergence. Capital flowed away from mega-cap technology and toward areas such as industrials, materials, and consumer staples.

The Economy: Solid Growth, Persistent Inflation

Economic data released in February showed the U.S. entered 2026 with momentum. Employers added 130,000 jobs in January, surpassing expectations, and the unemployment rate dipped to 4.3%. However, inflation remained a concern. Consumer prices, producer prices, and the Fed’s preferred core PCE measure all moved higher, with core PCE rising to 3.0%. While the economy is expanding, inflation continues to resist meaningful improvement.

The Federal Reserve: Staying Patient

With inflation showing renewed strength, the Federal Reserve has little incentive to cut interest rates in the near term. Market expectations for the March Fed meeting reflect a near-zero likelihood of additional cuts. Instead, projections now suggest the possibility of one or two modest cuts later in 2026—provided inflation resumes its downward trend. For now, the Fed appears positioned to hold steady.

Stocks: Earnings Strong, Market More Selective

The S&P 500 remains close to record levels, supported by another strong earnings season. The fourth quarter of 2025 marked the fifth straight quarter of double-digit profit growth, and companies are projected to earn roughly 14% more in 2026. Even so, the market has become more selective. Energy, materials, and industrials are outperforming, while major AI players—despite beating expectations—experienced more volatile trading. Strong earnings matter, but sector positioning is playing a larger role in driving performance.

Interest Rates: Short-Term Yields Rise, Long-Term Yields Ease

The bond market displayed an unusual pattern in February. Short-term yields inched higher as the Fed held its stance, while long-term yields declined, with the 10-year Treasury falling below 4%. This divergence reflects increased investor caution and demand for longer-term safety. The current environment continues to offer appealing income opportunities in short-term bonds and money market investments.

Foreign Policy: U.S. and Israel Strike Iran

On February 28, the U.S. and Israel launched a joint strike against Iran. Iran responded militarily, effectively closing the Strait of Hormuz. The immediate fallout included rising oil prices and declining equity markets as geopolitical risk surged. While it is too early to know the long-term impact, investors should anticipate additional volatility as the situation evolves.

Putting It All Together

February highlighted that strong fundamentals can still coexist with meaningful volatility. Economic growth and corporate earnings remain encouraging, but inflation is proving stubborn, keeping the Fed on hold and driving more selective market leadership. The month also ended with a significant geopolitical event that could influence markets in the near term.

As conditions continue to shift, staying informed and aligned with your long-term strategy is key.