The S&P 500 closed out the week at 6,506 — its fourth consecutive week of declines and a 7% pullback from its recent high. The index is now trading below its 200-day moving average for the first time in months. That is not a number to ignore.
The culprit is no mystery. The U.S.-Israel attack on Iran has sent oil prices surging, stoking concerns about persistent inflation at exactly the wrong moment. The Fed held rates steady at 3.5–3.75% and signaled only one cut of 25 basis points for all of 2026 — markets had hoped for more. The result: investors are stuck between geopolitical risk, sticky inflation, and a central bank with limited room to maneuver.
The Russell 2000 became the first major U.S. equity index to enter correction territory this week, falling 2.3% on Friday alone to close at 2,437. Small caps are always the first to feel the pressure when liquidity tightens — and right now, liquidity is tightening.
The one bright spot: energy. It was unanimously the only sector flashing green on Friday, up over 1.5% as oil prices held elevated. Defense stocks have also outperformed. Everything else — tech, real estate, utilities, consumer discretionary — has taken hits.
The week ahead brings PMI data, labor costs, and Michigan Sentiment on Friday. None of these will resolve the Iran situation. But they will tell us whether the domestic economy is holding up underneath all the geopolitical noise. Watch the VIX — it closed at 24, which is elevated but not yet in panic territory. If it breaks above 30, the selloff has a new leg lower.