Dongwu Securities: Easing Expectations Sharply Pulled Back, US Stocks Accelerating Downward

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Wu Securities released a research report stating that the Federal Reserve’s meeting signals a hawkish stance, combined with the escalation of US-Iran conflicts, leading to a rapid decline in US stocks. In the short term, the firm believes the Fed’s decision marks the temporary end of the “easy monetary policy era.” This week’s global central bank week has concluded, and market expectations for Fed rate cuts have basically disappeared. It is the first time since the start of the easing cycle in 2024 that the market is no longer pricing in rate cuts for the upcoming quarters. Global macro policies are shifting from “expectations of rate cuts” to “pricing in rate hikes.” If there is no substantial geopolitical positive news next week, US stocks may test lower support levels.

Wu Securities’ main views are as follows:

This week’s (March 16–20, 2026) market review: Developed markets led declines (-2.0%), emerging markets fell (-0.4%).

US stocks: The Dow Jones Industrial Average led the decline, down 2.1%; the Nasdaq fell 2.1%; the S&P 500 declined 1.9%. Sector-wise, energy and financials rose, while materials and utilities lagged. 32% of S&P 500 components gained, marginally increasing; leading stocks included APA, Baker Hughes, Halliburton, Delta Air Lines, Western Digital, among others.

The Federal Reserve’s meeting signaled a hawkish stance, coupled with the escalation of US-Iran conflicts, accelerating the decline in US stocks. Specifically:

First, the Fed did not cut rates but signaled a hawkish bias. The March meeting kept rates unchanged, as expected. The dot plot largely maintained last December’s guidance, indicating one rate cut this year, but more voters showed hawkish tendencies (especially Waller, who no longer opposed rate hikes). The outlook for the economy was upgraded, with higher forecasts for growth and inflation, while unemployment remained unchanged. The focus of the meeting was the press conference; amid rising oil prices, Powell maintained a cautious, hawkish stance. He stated that the impact of Middle East developments remains uncertain, and it is premature to judge their effect on the economy. Regarding inflation, he said it is not stagflation like in the 1970s; most long-term inflation expectations are stable, and energy supply shocks are temporary, with some oil price impacts reflected in core inflation. On interest rates, he indicated no rate cuts before inflation shows progress and did not rule out future hikes, though current rate hikes remain unlikely.

Second, the escalation of US-Iran conflict. Geopolitical tensions have significantly intensified, expanding from military targets to Gulf energy infrastructure. Israel attacked Iran’s South Pars gas field, affecting Qatar’s LNG facilities and causing large fires; Iran described the escalation as a “new phase of war” and declared Gulf oil facilities legitimate targets, raising conflict to the energy core zone. Trump publicly distanced himself from Israel’s unilateral actions; meanwhile, the US is considering deploying thousands of troops to the Middle East, including air and naval forces escorting oil tankers through the Strait of Hormuz. On energy supply, Saudi Arabia has rerouted oil shipments to the Red Sea’s Yanbu port, restoring exports to about 4.19 million barrels per day, with emergency rerouting showing initial effectiveness. Despite the escalation cooling on Friday after attacks on energy infrastructure, tensions remain high. For example, Trump asked Israel to “pause” further strikes on Iranian gas fields, distanced himself from the South Pars attack, and plans to release strategic oil reserves to stabilize high energy prices. The conflict remains intense, and the attack on Qatar’s Ras Laffan base is expected to significantly weaken LNG export capacity, continuing to challenge the Gulf region’s energy security.

Outlook: In the short term, the firm believes the Fed’s decision signals a temporary end to the “easy monetary policy” era. This week’s global central bank week has concluded, and market expectations for Fed rate cuts have largely vanished. It is the first time since the start of the 2024 easing cycle that the market is no longer pricing in rate cuts for the coming quarters. Global macro policy is shifting from “expectations of rate cuts” to “pricing in rate hikes.” Although expectations have shrunk significantly, the Fed remains the only G10 central bank still subtly considering a rate cut, albeit very unlikely. In contrast, the ECB and Bank of England have significantly increased their rate hike expectations. The core reason for the Fed’s “cold” stance is that Qatar’s LNG facilities are expected to take 3–5 years to repair, which sustains long-term energy costs and keeps inflation from falling back. This shifts the Fed’s focus from employment to inflation, making rate cuts more difficult. Additionally, after the large-scale “quadruple witching” on Friday, markets will enter a policy vacuum. If next week lacks substantial geopolitical positive news, US stocks may test lower support levels.

Key data and events next week:

Fundamentals: 1) March 24, Japan February CPI YoY, Eurozone March Manufacturing PMI preliminary; 2) March 26, US weekly initial jobless claims (in ten-thousands).

Earnings reports: 1) March 25, Kingsoft Cloud, Zhihu-W annual reports; 2) March 26, Pony.ai annual report.

Risk warnings: Rapid US economic recession, unexpected Fed policy moves, heightened global geopolitical risks, policy reversals by Trump, historical experience not indicative of future results, errors in data statistics and calculations.