Market Report: March 2026

Lions and Lambs

February is now behind us, and all eyes are on the weather as spring draws near. March is a month of transition, and many look to the old proverb “in like a lion and out like a lamb” when it comes to the weather hoping for a shift from winter’s cold and snow to spring’s sunshine and warmth. All too often, though, the opposite is true as the weather fools us by giving us a few warm days and then slamming us later in the month and into April with a spring blizzard.  While not directly related to investing, the proverb might be used to describe what is happening in the markets right now. Volatility has spiked due to the war in Iran and equity prices have fallen by about 5% from their recent peak. The rapidity of the drop has left many wondering if we are headed for a correction, a full-blown bear market, and/or a recession. The answer so far is no, at least in terms of a bear market and a recession, but that could change pending a deterioration of market and economic conditions. This month’s commentary will end with some advice on how to ride through the volatility caused by current events. Read on…

Financial Markets

While the markets may have entered March like a lion, they certainly were not a lamb in February either. Tech heavy indices such as the NASDAQ (down 3.33% for the month) and the S&P 500 (down 0.76% for the month) suffered as AI fears dominated the sector. Monthly returns for the DJIA (up 0.31%) and the S&P 500 Equal Weighted (up 3.55%) indices were better, as were the S&P 400 (up 4.12%) and the S&P 600 (up 2.17%). International stocks again led the way during February as they soared 4.50% and are up 9.93% year-to-date. Even bonds got in on the party gaining 1.64% in February. Although the returns generally look quite good, they mask the volatility experienced during the month.

The outlook continues to be cloudy as valuations remain elevated (see below) and the war adds uncertainty to the mix.  The markets are searching for a reason to correct, which could reset longer term expectations, but any such correction should not last long (think last March and April or October and November) due to strong earnings growth.

Here is the most recent data regarding several market valuation indicators. Note that the data is as of February 28th, 2026 (Buffet Indicator as of March 7^th, 2026), and while some have improved slightly, they still indicate that the markets are strongly overvalued.

The Economy

There are many economic data points, but none seem as important right now as inflation. This was not necessarily the case a couple of weeks ago, but the war in Iran and the spike in oil and gas prices have elevated inflation back to the top of economists’  watch lists. While that is appropriate in the short run, it may not have as big of an impact over time as it feels in the moment. But the longer energy prices remain high, especially prices at the pump, the more likely that consumers could curtail their spending. There is, however, strength in the manufacturing sector, as new orders continue to increase, and the PMI has stayed above 50 (expansion) for seven straight months. While AI related layoffs have dominated the headlines, we are in the early stages of seeing the benefits of AI, such as productivity growth. Personal income continues to outpace personal spending data and that is why the consumer continues to spend even though consumer sentiment remains at very low levels. Should spending follow sentiment, however, the economy will suffer. So, for now, we have short-term issues such as the energy price spike due to the war in Iran, stubborn inflation data, and a weak jobs picture combined with a strong manufacturing sector, rising wages, and increased tax and regulatory benefits all leading to a slowing, but growing, economy. If the war ends soon (or at least the impact on energy prices), the consumer remains resilient, tax refunds hit wallets, and the benefits of lower corporate taxes and regulation kick in to a greater degree, the economy should be able to weather the storm. That would lead to further gains in earnings helping stabilize, or boost, stock prices over the longer term.

GDP (Gross Domestic Product) – While the economy may feel a bit uneasy, when measured by our gross domestic product, we are doing reasonably well. GDP grew by 1.4% in the fourth quarter according to the advance estimates after rising 4.4% in the third quarter. Due to the slow start to the year (negative 0.6% in the first quarter), our GDP grew by 2.2% in 2025 after reaching 2.8% in 2024. GDPNow’s first quarter GDP estimate is 2.1% as of March 6^th, 2026, and full year estimates are a bit higher than in 2025 (currently at 2.5%). How the war impacts this data remains to be seen but given the mixed bag of economic data as described above, estimates should not change much unless the war deepens and consumers pull back on their spending.

Inflation – Fears over inflation are roaring (like a lion) right now due to the war in Iran and the impact on energy prices. While it should not last for long, the impact could be significant in the short run as approximately one-fifth of global oil consumption passes through the Strait of Hormuz. While most of that supply goes to the Far East (China, etc.) and we are not dependent upon it per se, prices at the pump are impacted here as well. The latest official data has the CPI at 2.4% after rising 0.2% in January. Truflation stands at 0.87% as of March 7^th, 2026. If energy prices remain elevated that number will climb in the coming months, putting pressure on the markets. Once things are resolved, energy prices will fall back quickly, and the markets will likewise recover.

Employment – The mess here continues, although not just in terms of lack of data (the partial shutdown continues to affect things), but also in terms of the number of jobs being created (or lack thereof). February saw a drop in employment of 92,000 jobs, but due to the partial shutdown, the data represented two monthly surveys instead of the typical one. The unemployment rate held steady at 4.4%. Healthcare jobs (nurses strike) declined along with federal government and information sector positions. While the data was worse than expected, the markets took it in stride as the jobless expansion continues. The unemployment data for Madison (2.4%) and Wisconsin (3.1%), have not changed since December, again due to the partial shutdown. Given the weak report, one would expect the Sahm Rule to have increased and perhaps point to a recession, but the Rule declined in February to 0.27 from 0.35 which, in theory, means a recession is less imminent.

The Fed Watch

The Fed, like the economy, is in a state of flux right now – a new Chairman (Kevin Warsh) will take over soon and economic data and the war are making the decision about what to do with interest rates more difficult. With energy prices spiking due to the war, inflation (at least in the short run) will head higher as well, meaning the decision to cut rates further could cause inflation to go even higher, while the weak jobs picture, and a slowing economy, argue for cutting rates. Certainly, President Trump wants lower interest rates, and it will be interesting to watch how Mr. Warsh works to maintain the Fed’s independence. The Fed will likely continue to hold rates steady until energy prices calm down and the change in leadership occurs. After that, the Fed will stay data dependent and keep a close eye on inflation, the jobs picture, and the overall strength of the economy but will probably cut rates at least once yet this year.

Outlook/Summary

In last month’s commentary we discussed how the economy and markets felt like a day at Disney World with all the thrills and chills that can come with it. The war in Iran may make investors feel like they are stuck on the Tower of Terror heightening anxiety levels. With spiking energy costs hitting stock prices due to inflationary fears, it is no wonder that volatility has increased. The lion is roaring when all we want is the calm and quiet of the lamb.

So, what are investors to do? First, do not panic. Sometimes it is easier to say that than to do so, but one thing that might help is to not focus on the market’s impact on your portfolio constantly. Studies have shown that investors that review their portfolio monthly are happier than those who do so daily, those that review it quarterly are happier than those that do so monthly, and so on. Second, zoom out on the economic data and realize that the economy is still growing, inflation is down from a couple of years ago, tax refunds are bigger this year, and paychecks are still growing. Certainly not a bad recipe, even if it is not a great one. Third, do not try and time the markets. As we have said here many times in the past, studies have shown that those that try and time the markets lose out over time as missing just a few of the up days can cause significant damage to returns. Fourth, stay diversified. The Mag Seven stocks seemed like a great idea, and they were for a time, but fundamentals argue for a more diversified approach, and that is working right now as the broader markets are outperforming (international, mid, and small caps, etc.) as their valuations are less lofty.  Finally, if needed, re-evaluate your overall risk tolerance and adjust long-term asset allocation targets considering that reflection. However, do not make emotional decisions that look good in the short term but fail over the longer term.

While the potential for a correction or other market drawdown has increased, it also could create some opportunities that have not been there for some time as valuations improve. Our approach has not changed, and we will continue to try and protect against the downside while also seeking upside return. We will not time the markets but will continue to utilize diversified portfolios that can take advantage of market rallies and be protective during market pullbacks. This has been a proven winner in the long run, and we are confident that it will continue to do so in the future, while perhaps not outperforming in a rapidly rising market.

Should you like to discuss your portfolio or learn if our strategy can work for you, please call the Wealth Management division of Lake Ridge Bank at (608)826-3570. We look forward to speaking with you.

Market/Economic Data

As of February 28th, 2026…. Unemployment data is through February for national, December for Wisconsin (preliminary) and Madison (preliminary); inflation data is through January, Truflation as of 3/7/26:

Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of.

Investment Products: Are Not FDIC Insured | Are Not Bank Guaranteed | May Lose Value