Monthly S&P 500 forecast for March 2026
March 1st, 2026
Our monthly S&P 500 forecast for March is a 2.04 percent drop over the average of February 2025.
The model-based forecast takes into account the changes in oil prices and wages. However, a forecast model cannot possibly capture the full impact of uncertainty caused by tariff wars and geopolitical tensions, such as the war in Middle East.
Stocks sold off in February
After nine consecutive months of gains, the longest monthly winning streak since 2017 ended in February. The S&P 500 dropped 0.9%, the sharpest fall since March 2025.
Despite some recovery in consumer and producer confidence, the rising geopolitical risks and slowing US economic growth have been the main sources of anxiety for investors.
The Magnificent 7’s Alphabet (Google) and Nvidia reported their earnings in February. Both companies reported stellar earnings. However, with the AI companies, investors are looking for clues to justify the lofty P/E multiples. Despite their blockbuster results, investor reaction to the forward guidance of high capital expenditures can lead to a sell-off in such stocks, given their elevated valuations. Indeed, Nvidia’s announcement of investment in OpenAI triggered such a reaction.
As February ended with a military conflict breaking out involving Iran, the US, and Israel, we expect a sell-off once the stock markets open. We expect a big surge in the price of oil and also in precious metals such as gold and silver.
After the US Supreme Court ruling that limits President Trump’s power in imposing tariffs, the markets were already jittery about Trump signing a proclamation that enabled him to bypass Congress by imposing duties of up to 15% for 150 days. The impact of the latest war in the Middle East is expected to be much more severe.
Both PMI and consumer confidence improve
The Chicago Purchasing Managers’ Index (PMI) rose to 57.7 percent in February from 54 percent in January 2025, above the market estimates of 52.8. This is the second time the index has been above the 50 mark since November 2023. The contraction in business activity has been a theme over the last two years. The latest data indicates a strong turnaround, with new orders surging to levels not seen since March 2022.
The Conference Board’s consumer confidence index increased by 2.2 points in February to 91.2 (1985=100), from an upwardly revised 89.0 in January. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—decreased by 1.8 points to 120.0 in February. The Expectations Index—based on consumers’ short-term outlook for income, business, and labor market conditions—rose by 4.8 points to 72.0. The Expectations Index has tracked below 80 for 13 consecutive months, normally indicating a recession ahead.
Consumers are slightly less pessimistic about future job availability and business conditions than they were in January, when confidence fell sharply amid concerns over household income and job prospects.
Steady inflation, slower Q4 GDP growth
The annual inflation rate in the US came in at 2.4% in January 2025, the lowest level since May 2025, down from 2.7% in December. This was also below the market’s 2.5% forecast. Falling energy prices were the biggest contributor to cool inflation.
The personal consumption expenditures (PCE) index, a key barometer of inflation and consumer spending, rose at a 3% annual pace in December, compared with 2.8% in November. The market forecast was 2.9%. January’s PCE inflation data will be released on March 13. The reports have been delayed due to last year’s government shutdown.
Core PCE, which excludes the more volatile food and energy categories, grew 3% in December, up from 2.8% in November, in line with market forecasts. Both inflation indicators are above the Federal Reserve’s annual inflation target of 2%.
In January, the Producer Price Index data (PPI) was up 2.9% from a year ago, above the market expectations. This index is closely watched as a potential indicator for the prices consumers may see in the coming months as producers pass the impact of tariffs on to consumer prices.
After growing at a robust annual rate of 4.4 % in 2025 Q3, US economic growth sharply slowed to 1.4% in Q4 2025, below the market forecast of 2.9% (Source: the Bureau of Economic Analysis (BEA)).
Personal consumption expenditures rose 2.4% in the quarter, down from the 3.5% gain in the prior period. Exports fell 0.9% after surging 9.6% in Q3. Apart from the slowing in consumer spending, the government spending and investment slipped 5.1 % after the government shutdown in Q4. The much slower GDP growth took investors by surprise, as the early estimate by the Federal Reserve Bank of Atlanta was close to that of Q3.
A rate cut in March becomes unlikely
After the 25 bp rate cut in December, the Fed’s target range for interest rates is 3.50% to 3.75%. As expected, the Fed’s January 28 decision kept the U.S. short-term interest rate target in a range of 3.5% to 3.75%, the lowest since 2022.
The Core Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation gauge—remains sticky at 2.8%. The latest PPI index came out above the market’s expectations. The unemployment remains below the 4.5% mark. A relatively strong labor market and the prospect of higher future inflation are the main considerations for being hawkish.
As a result of the war in the Middle East, Brent crude has rallied sharply, climbing toward $80 per barrel in over-the-counter trading on Sunday, its highest level since July. Despite some output increase by the OPEC countries, the near-term price path of energy prices is currently uncertain. We believe the Fed officials will be hawkish in the March 17-18 meeting and keep the interest rates unchanged.
S&P 500 index remains overvalued
According to Factset Insights from February 27, the forward 12-month P/E ratio for the S&P 500 is 21.6. This P/E ratio is above the 5-year average (20) and above the 10-year average (18.8).
FactSet reports that the blended (year-over-year) earnings growth rate for the S&P 500 is 14.2%. If 14.2% is the actual growth rate for the quarter, it will mark the 5th consecutive quarter of double-digit earnings growth
The latest forward 12-month P/E ratio is well below the P/E values from the previous month. before the dotcom bust (over 25). Our monthly S&P 500 forecast for March indicates a 2.04% drop over the average of February. We expect the forward P/E value not to fall below 20 in March.
Our monthly S&P 500 forecast is a model-based fair-value estimate. Announcements of tariffs and cancellations cannot be captured in our model unless the impact appears in historical data. The possible impact of geopolitical tensions is fed into the model through keyword searches (Google clicks) and the advanced retail sales index. However, these variables perform better in normal times. Our quarterly S&P 500 forecast discusses these issues in more detail.
