Soochow: Loose expectations sharply retreat, US stocks accelerate decline.

Soochow released a research report stating that the Fed's interest rate decision meeting sent a hawkish signal, combined with further escalation of US-Iran conflict, accelerating the decline of US stocks. In the short term, the bank believes that the Fed's decision marks the temporary end of the "easy money era." The global central bank week of this week has come to a close, and market expectations of a Fed rate cut have largely disappeared. It is the first time in the Fed's accommodative cycle since 2024 that the market is no longer pricing in rate cuts for the next few quarters. There has been a shift in global macro policies from "expectations of rate cuts" to "pricing in rate hikes." If there are no substantial geopolitical positives next week, US stocks may test lower support levels. Main points from Soochow: Market review for this week (March 16, 2026 - March 20, 2026): Developed markets led the decline (-2.0%), while emerging markets fell (-0.4%). US stocks: This week, the Dow Jones Industrial Average led the decline, falling 2.1%, the Nasdaq fell 2.1%, and the S&P fell 1.9%. In terms of industries, energy and finance rose, while materials and utilities lagged. Of the S&P 500 constituents, 32% rose, with top performers including APA, Baker Hughes, Halliburton, Delta Air Lines, and Western Digital. The Fed's interest rate decision meeting sent a hawkish signal, combined with further escalation of US-Iran conflict, leading to accelerated declines in US stocks. Specifically: Firstly, the Fed did not cut rates but had a hawkish tone. The Fed's March interest rate meeting kept rates unchanged, as expected. The dot plot mostly maintained the policy guidance from December last year, indicating there will be one rate cut within the year. However, more voters have shown hawkish tendencies (especially with Bullard no longer dissenting on not cutting rates). Economic growth and inflation forecasts were raised, while the assessment of the unemployment rate remained unchanged. The focus of this meeting was on the press conference, with Powell maintaining a cautious hawkish stance against the backdrop of rising oil prices. He stated that the impact of the Middle East situation on economic judgment is still unclear, and it is too early to make judgments based on this. Regarding inflation, he said the current situation was not stagflation like in the 1970s, with most long-term inflation expectations solid. The energy supply shock is one-off, and some impact on core inflation is reflected in oil price shocks. He said they would not cut rates before making progress on inflation, and did not rule out the possibility of future rate hikes, although a rate hike is still a low probability event. Secondly, the US-Iran conflict escalated. Geopolitical conflicts significantly escalated, with strikes shifting from military targets to Gulf energy infrastructure. Israel launched attacks on Iran's Pars South gas field, leading to a massive fire affecting Qatar's liquefied natural gas facility. Iran characterized this round of escalation as entering a new stage of war, declaring the oil facilities of three Gulf countries as legitimate targets, escalating the conflict to the core energy region. Trump publicly distanced himself from Israel's unilateral actions. At the same time, the US is considering sending thousands of troops to the Middle East, including air and naval forces to escort oil tankers through the Strait of Hormuz. In terms of energy supply, Saudi Arabia rerouted oil to the Red Sea port of Yanbu, with daily exports returning to about 4.19 million barrels, showing initial success in the contingency plan. Despite the escalation of geopolitical conflicts after energy attacks on Friday, Trump requested Israel to "defer" further strikes on Iranian gas fields, distancing himself from the Pars South gas field attack, and planning to release strategic oil reserves for a full-scale high energy price containment. The conflict remains intense, and the expected attack on Qatar's Ras Laffan Base is expected to significantly weaken LNG export capacity, challenging the existing energy security barrier in the Gulf region. Outlook: In the short term, the bank believes that the Fed's decision marks the temporary end of the "easy money era." The global central bank week of this week has come to a close, and market expectations of a Fed rate cut have largely disappeared. It is the first time in the Fed's accommodative cycle since 2024 that the market is no longer pricing in rate cuts for the next few quarters. There has been a shift in global macro policies from "expectations of rate cuts" to "pricing in rate hikes." Although expectations have shrunk significantly, the Fed remains the only G10 central bank that still retains a "very slight" possibility of rate cuts in market pricing. In contrast, expectations of rate hikes from the ECB and the Bank of England have significantly increased. The core reason for the Fed becoming so "resolute" is due to the expectation of a 3-5 year repair period for the damaged Qatar liquefied natural gas facility, which locks in a path of rising energy costs, preventing a downward path of inflation and shifting the focus from employment to inflation, making it harder for the Fed to cut rates. Additionally, after the massive clearing on "Quadruple Witching Day" on Friday, the market will enter a policy vacuum. If there are no substantial geopolitical positives next week, US stocks may test lower support levels. Focus for the upcoming week on data and events: Fundamental aspects: 1) On March 24, Japan's CPI YoY for February, Eurozone's preliminary manufacturing PMI for March; 2) On March 26, US initial jobless claims for the week ending March 21. Earnings reports: 1) On March 25, KINGSOFT CLOUD, ZHIHU-W annual reports; 2) On March 26, Xiaoma Zhixing annual report. Risk warnings: Rapid economic downturn in the US, Fed policy beyond expectations, global geopolitical risks beyond expectations, Trump's policy reversals, historical experience does not guarantee future outcomes, risks of errors in data statistics and calculations.