By Steve Goldstein
If betting markets are right, increased volatility is likely to drag the S&amp;P 500 lower, say strategists
The oil market is experiencing black-swan-style pricing, but stocks and bonds are not.
If you were only to look at the S&amp;P 500 and not any source of news, you might have trouble identifying when the war in Iran started.
The market peaked three trading days before hostilities broke out, and the S&amp;P 500 SPX didn't break out of a three-month trading range until a week later.
That market tranquility was the theme of an analysis by a team at RBC Capital Markets led by Jason Daw, head of North American rates strategy. If a black swan is a metaphor for rare, unpredictable market events, then it's only the energy market that is seeing black-swan-style price dynamics, they say.
Almost everything else - stocks, interest rates, credit, gold and the U.S. dollar - is having &#34;very normal white swan types of moves.&#34;
The RBC team quantifies this through what are called z-scores. Z-scores measure a price relative to its history - the more technical way of saying that is how many standard deviations away a data point is from its average. In oil's case, it's a seven-deviation move; everything else is in the 1- to 1.5-standard-deviation range.
&#34;There are several, albeit not iron clad, explanations why there [have] been benign moves: (1) markets outside of oil believe that the Iran situation will be resolved, (2) or if it is not, oil will not break the U.S. economy, or (3) investors have given up trading [U.S. President Donald] Trump,&#34; they say.
The moves in U.S. equities and U.S. Treasury securities have been &#34;minuscule&#34; relative not just to the swings in oil but also relative to the rise in the so-called fear gauge, the CBOE volatility index, or &#34;VIX&#34; VIX. They found an equivalent, or larger, six-week surge in the VIX has only happened 5% of the time since 2000 and 8% of the time in the bond-market volatility index called the &#34;MOVE.&#34;
&#34;It is extremely rare for stocks to climb the wall of worry when the VIX has risen as much as now (only twice has it eked out small gains) and even besting the modest 4% drawdown is not the norm (5-15% declines have occurred more often). If the vol shock increases further, U.S. stocks may not be able to weather the storm as well,&#34; the RBC strategists say.
Their analysis of government bonds is similar - the reaction is subdued, not just compared with previous high-volatility times but also relative to the big moves seen in foreign markets like those for U.K. gilts and German bunds.
Where markets go from here is dependent on the war and the related questions of how much energy infrastructure is damaged and how quickly the Strait of Hormuz opens. Betting markets, they note, only suggest a one-in-four chance of strait traffic returning to normal by the end of April.
&#34;Volatility across other asset classes including in the U.S. would surely be higher in this scenario and stocks could move into the more typical vol-price quadrant (5%-20% down on the S&amp;P),&#34; the RBC team says.
The market
U.S. stock-index futures (ES00) (NQ00) rose as oil prices (CL00) fell. Gold (GC00) fell below $5,000 an ounce, a level it hasn't closed beneath in a month.
The buzz
Iraq is going to export oil from the Kirkuk field via a pipeline to the Ceyhan port in Turkey, bringing an initial 250,000 barrels per day of capacity online by avoiding the Strait of Hormuz.
The Federal Reserve interest-rate decision - and, perhaps more importantly, the &#34;dot plot&#34; of interest-rate projections - comes at 2 p.m. Eastern time, and the press conference with Chair Jerome Powell is at 2:30 p.m.
Retailers Macy's (M) and Williams-Sonoma (WSM) were reporting results, with Macy's earnings coming in ahead of estimates, as memory-chip maker Micron Technology (MU) is set to report after the close.
Lululemon Athletica (LULU) issued a profit forecast that underwhelmed expectations.
Nvidia (NVDA) CEO Jensen Huang said the company is restarting production for China.
Best of the web
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03-18-26 0710ET

Strategists from RBC Capital Markets warn that the S&P 500 could face a 20% decline due to increased volatility, despite the oil market experiencing extreme price fluctuations. While oil prices are seeing significant changes, other markets like stocks and bonds are exhibiting normal behavior. The analysis suggests that if volatility continues to rise, U.S. stocks may struggle to maintain stability. The future of the markets is closely tied to the ongoing conflict in Iran and its impact on energy infrastructure.

- Increased volatility is expected to pull the S&P 500 lower, according to strategists from RBC Capital Markets, amidst a contrasting calm in stocks and bonds.  
- The oil market exhibits extreme price movements, labeled as black-swan dynamics, while other asset classes are experiencing typical fluctuations, suggesting a belief that geopolitical tensions might not severely impact the U.S. economy.  
- Future market direction hinges on the Iran conflict and its impact on energy infrastructure, with the potential for increased volatility indicating possible declines in stock values.

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It's a 'black swan' moment in oil but nowhere else. The stock market is at risk of a 20% fall, say these strategists.