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Surprising economic data, another batch of earnings reports, and escalating tensions in the Middle East drove significant market volatility last week. The S&P 500 and Nasdaq fell over 2% as investors reacted to stronger-than-expected inflation data, mixed corporate earnings, and renewed geopolitical risks. Energy prices surged due to Middle East conflicts, while tech stocks faced pressure from Fed rate uncertainty. The market's downward movement highlights growing concerns about inflation persistence and central bank policy. Traders are now pricing in a higher terminal Fed funds rate, with the probability of a rate hike in 2024 increasing to 65%. Energy and defense sectors outperformed, while growth stocks underperformed amid shifting risk appetite. For investors, the key focus remains on upcoming Fed statements and regional conflict developments. The Middle East tensions could disrupt global supply chains and energy markets, while earnings season continues to provide critical insights. Traders should monitor the 4,200 level on the S&P 500 as a key support/resistance threshold in the coming sessions.
