Author: Zac Martin, Senior Investment Analyst
Week Ending March 6th – Back to the Middle
War with Iran: The S&P 500, and other major indexes, have traded lower over the past week due to increased escalation with Iran. Geopolitical concerns have begun to boil over and the news cycle is beginning to shift its concerns to the economic impact. First, and most obvious, is higher oil prices and how that will affect CPI reports as well as FOMC rate decisions. While the near-term impact on oil prices is meaningful, the market is not pricing in a long duration for this increase. Below is the current futures curve for WTI Crude, as the expiration date increases the futures price decreases, implying a near-term bump but normalization lower over the coming year.
Despite the bump, this could cause CPI to report higher than expected for the next several reporting periods. FOMC rate cut probabilities have moved slightly lower since the initial strikes and US Treasury rates have moved higher. Below highlights last week’s shift in US Treasury yields:
While markets in the near-term have sold off, an analysis of historical conflicts would suggest that markets could rally after an initial drawdown. We have discussed this at length in a recent post. Below is a chart from JPMorgan that highlights this relationship:
The Employment Situation: Nonfarm payrolls for February fell below the consensus estimates, with payrolls declining by -92K. The decline follows an increase in January of 126K, primarily due to a decrease in health care payrolls as strike activity increased in February. Generally, no sectors faired much better as no sector posted positive payroll growth. Additionally, December’s report was revised down to a decline of -17K from +48K. The Unemployment Rate also ticked up to 4.4% from 4.3%, as the labor market continues to weaken. To be clear this weakness is seemingly from the hiring side as firms continue to delay hiring programs. This becomes more evident as Initial Unemployment Insurance Claims have remained relatively stable. Additionally, Challenger Job Cuts have also been reporting in a more ‘normal’ range, barring DOGE effects from early 2025.
The Week Ahead:
- NFIB Small Business Index (3/10)
- Consumer Price Index (3/11)
- GDP Q4 2025 & Personal Consumption Expenditures (3/13)
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