U.S. CPI jumped from 2.4% in February 2026 to 3.3% in March 2026.1 That re-acceleration has locked in a higher-for-longer Federal Reserve posture. Cloud and AI software equities are paying the price.
The inflation spike was partly fueled by the Iran war's energy-supply shock.1 Strait of Hormuz disruptions tightened global oil supply, pushing energy costs higher.
Rate expectations have deteriorated sharply. Futures markets now price in just a 1-in-3 chance of any Fed cut in 2026.2
Cloud ETFs Bear the Brunt
Year-to-date losses in cloud ETFs are severe. WCLD has fallen 22%.1 CLOD is down 14%. SKYY has shed 10%. These funds hold high-multiple software names whose valuations depend on discounting future cash flows at low rates. When rates stay elevated, the math turns punishing.
Cloud and AI software companies trade at large premiums to revenue. With inflation anchoring rates higher, investors are compressing multiples across the sector.
Broader Market Signals
The rate regime is leaving marks beyond equities. Thirty-year mortgage rates remain above 6.3%, suppressing housing activity.1 Treasury yields have compressed to 4.23%.1 Gold is surging alongside that yield move, signaling a flight to safety—not confidence in a growth rebound.
These cross-asset moves tell a consistent story. Markets are not pricing a soft landing or an imminent Fed pivot. They are pricing persistent inflation with no near-term relief.
What Traders Are Watching
For cloud and AI software equities, the key variable is the inflation trajectory. A sustained move back toward 2% would reopen the Fed's cutting window and provide multiple expansion. Until then, the discount-rate headwind persists.
Futures odds of a 2026 cut stand at roughly 1-in-3.2 That leaves investors in a difficult position: AI spending tailwinds support long-term fundamentals, but valuations remain exposed to further inflation surprises.
The Iran war adds a geopolitical wildcard. If Hormuz disruptions ease, energy inflation could unwind and shift the rate calculus. If they persist or escalate, CPI pressure may not have peaked.
