US stock indices have been riding a roller-coaster for days. The S&P 500 initially rallied on reports that IEA member countries would release 400 million barrels from strategic reserves. According to Donald Trump, that move will materially lower oil prices. The president repeated that the Middle East conflict will end soon and the opponent will surrender. But markets are no longer focused on the outcome of the US-Israel-Iran confrontation. They are more concerned about the timeline.

US stock dynamics

The Dow Jones closed at its lowest level so far this year. Investors' worries about the conflict's negative impact on the US economy are mounting. They might have been reassured by consumer?price inflation holding at 2.4% and core inflation at 2.5% in February. In theory, given a cooling labour market, that should give the Fed room to resume an easing cycle.

Alas, the derivatives market has instead cut the probability of two 25-bp Fed cuts in 2026 from 51% to 40%. The latest inflation data failed to impress investors. CPI is almost certain to accelerate in March on the back of soaring energy prices. Moreover, the Fed's preferred inflation gauge — the personal consumption expenditures index (PCE) — risks picking up speed. It is rising faster than headline CPI, an unusual development.

Dynamics of PCE vs CPI

Markets doubt the health of the US economy — and it is worse elsewhere. The Middle East conflict threatens to cripple Europe and Japan, which are heavily dependent on energy supplies from the region. As a result, Donald Trump's April 2025 "sell America" process is running in reverse. US stock indices have underperformed worse than their global peers.

Investors understand that the US is the place for innovation and that the American market is the largest and most liquid. Besides, Trump has stopped attacking the Fed, and the Supreme Court's ruling that the tariffs were unlawful suggests that US democracy is functioning. Reduced political instability and the geopolitical backdrop have enabled the trade "sell Asia and Europe, buy America."

Consequently, even amid rising oil prices and a growing stagflation risk in the US, the S&P 500 is not rushing into a corrective move within the uptrend. Bulls are not ready to throw in the towel. As long as money keeps flowing in from abroad, sentiment holds.

Technically, on the daily chart, the bears attempted to play out a pin-bar reversal. But the battle with the bulls is still centered on the pivot level at 6,770. A drop below that support would be a trigger to sell. Conversely, a close of the broad index above that pivot would be a signal to build long positions.