The Iran war oil shock gave the markets ’70s stagflation vibes

A wartime whiff of stagflation permeated the markets in March. 

Oil and commodities stocks soared. Value stocks outperformed growth favorites. And stocks and bonds, broadly, sank in lockstep over the last month. Heck, even dividends — a tried-and-true defense against both inflation and lousy market performance — are showing signs of coming back into favor. 

A month into the war with Iran, the tilt of the markets suggests some investors have taken defensive measures against the risk of “stagflation,” or the chance that a lasting upsurge in prices — driven by energy costs — undermines a US economy already sluggish before the start of hostilities. 

“If the conflict persists, the combination of slower growth and higher inflation would create a stagflationary environment, historically the worst backdrop for equities,” analysts with Ned Davis Research wrote in a report published Tuesday. 

They aren’t the only analysts to see such risks. 

“The parallels between 2026 and the stagflationary 1970s are the most compelling in four decades,” Renaissance Macro Research wrote in late March. “Oil above $100, a Fed caught between mandates, sticky inflation, slowing growth, a weakening dollar, and a narrow market driven by overvalued technology — all echo the 1970s playbook.” 

That was a particularly brutal decade for stocks. The S&P 500 rose just 17% during those 10 years – about as much as the market gains in a single average positive year – as multiple Mideast oil supply shocks and large government debt kept inflation at a decade-long average of 7%, sometimes much higher. 

Adding to pain for investors was the fact that bond prices also fell during that period. (High inflation makes bonds less attractive.) And that meant fixed income didn’t offset the slump in stock portfolios, and instead added to losses.  

On a much smaller scale, that’s similar to how markets have behaved over the last month, since the joint US-Israeli strikes on Iran ignited the war and sent US oil prices up by more than 50%.  

“The threat of a stagflationary tilt is being reflected in financial markets, where bond yields have moved higher this month, at the same time that equities have incorporated greater growth concerns,” JPMorgan economists wrote in a research note last week. 

Even after the S&P 500 posted its best day of the year on Tuesday on speculation that the Trump administration could end the war with Iran, the blue chips were still down 5.1% in March, their worst monthly performance since the previous March as well as cementing the first quarter of 2026 as the worst for the S&P 500 since Q3 2022.

Meanwhile, the broad bond market also got battered in March. The Bloomberg US aggregate bond index — a broad gauge of the bond market — dropped roughly 2%, its worst month since October 2024.   

Under the hood of such headline indexes, there was more evidence investors are concerned about the outlook for growth and inflation, analysts say.

“The drawdown has been more pronounced in tech, financials, and discretionary as markets reposition for ‘stagflation-lite’ scenarios by seeking exposure to energy, value, and capital return,” Barclays analysts wrote in a note Tuesday. 

Energy and commodity stocks were famous outperformers during the stagflationary era of the 70's. And energy was by far the best performer of the S&P 500’s 11 industry sectors last month, rising 10%, with some individual shares pocketing much larger gains. 

Natural gas driller APA Corporation rose nearly 40%. Marathon Petroleum and Occidental Petroleum both rose roughly 23%. Refiners Valero and Phillips 66 jumped 21% and 18%, respectively. 

Other commodities-related shares such as chemical and fertilizer makers also surged. LyondellBasell rose 40%. Dow, Inc. increased 35%, and CF Industries gained 30%.  

And the characteristics of stocks that performed well over the last month — known as factors — also shifted, as quality companies with little debt and consistent profits gained favor.

Such so-called value stocks are often thought to be better able to weather any potential downturn than companies with flakier fundamentals, which have soared on momentum and retail exuberance in recent months, but many momentum high-flyers had a brutal March.  

Interestingly, of the typical factors that investors spotlight, high-dividend shares were the best performers in March — falling only 3%. That likely reflects the fact that a lot of energy stocks are included in that category. But buying dividend-paying stocks that provide real income growth is also seen as an effective defense in a stagflationary environment.

To be sure, not everything in the market has been reminiscent of the 1970s. For instance, precious metals like gold and silver — huge high performers during the stagflationary ’70s — tumbled over the last month, falling 11% and 20%, respectively. (That likely reflects some structural changes in that market, such as the rise of precious metal ETFs, which have changed the dynamics of gold trading.) Gold miners Newmont and Freeport-McMoRan lost 17% and 14% during the month. 

So, yes, the symmetry with the 1970s isn’t perfect. 

But the posture of the markets, coupled with the reality of US oil prices still hovering near $100, suggests that some think economic risks may just take time to materialize. 

“Supply-led spikes historically tilt toward demand destruction rather than a benign inflation pass-through,” JPMorgan market watchers wrote in a March 20 note, adding that “four of the last five comparable oil surges since the 1970s” were followed by recessions.