Outlook We suspect inflation may rise from current levels, causing the Federal Reserve to maintain the Fed Fund policy rates for now - with a chance of rate hikes over the next few months. Our suspicion that the rate of consumer price increases could rise is based on a combination of factors, including the dreaded tariff-related price hikes, rising global energy prices related to the War with Iran, the AI datacenter boom, and fiscal spending. While the next official Consumer Price Index (CPI) report will be out on Friday, real-time forecasting from the Cleveland Federal Reserve Bank shows a slight pickup in current levels.1 However, the trend since 2022 has been that of declining inflation, so a reversal to rising inflation is still far from certain.2 Nevertheless, should our suspicion prove correct, many of these fundamental factors (tariffs, geopolitics & energy, fiscal spending) appear to be longer-term in nature - putting upward pressure on long-term inflation expectations and in-turn possibly long-term interest rates. In this scenario, an opportunity may arise by allowing long-term conservative investors to allocate assets to higher long-term bond yields. The good news is that investors can take a wait-and-see approach, allowing yields to rise first before adjusting their portfolios. . . . U.S. financial markets navigated a volatile week as geopolitical escalation, surging oil prices, and a weaker-than-expected labor report shaped investor sentiment. Despite the heightened uncertainty, underlying corporate fundamentals, reflected through a strong earnings season, offered a degree of stability amid the volatility. Geopolitical Tensions: Iran Conflict Drives Market Volatility The global risk backdrop was dominated by escalating military conflict involving the U.S., Israel, and Iran. Following coordinated U.S.-Israeli strikes that killed Iran’s Supreme Leader Ayatollah Ali Khamenei, Iran retaliated with attacks across the region, prompting concerns over a broader and prolonged confrontation. As conflict deepened, concerns rose around a potential closure of the Strait of Hormuz, a vital shipping conduit for roughly 20% of global crude. Tankers are already reported stalled near the strait due to heightened risk, amplifying fears of broad supply shortages. The conflict also directly disrupted about one-fifth of global crude and natural gas supply, as infrastructure across the region came under attack. This has implications for global supply chains, particularly for developing economies heavily reliant on maritime trade. Oil Prices Surge on Supply Disruptions Oil markets experienced significant turbulence, driven by both actual supply disruptions and fears of future constraints. Early in the week, traders reacted to attacks on vessels near the Strait of Hormuz and anticipated disruptions to Middle Eastern exports. WTI opened the week around $72–$73, while Brent climbed to about $79–$80 on Monday’s open, reflecting the market’s immediate reaction to rising geopolitical danger. By Friday, WTI settled at $90.90 and Brent at $92.69, with WTI logging its largest weekly gain on record in futures data back to 1983. As the conflict intensified, both benchmarks briefly traded above $100 and even approached $119 intraday before pulling back when headlines suggested G7 nations might release emergency reserves. The surge in oil prices renewed concerns about inflation and pushed Treasury yields higher, contributing to a broader pullback in equity markets heading into the weekend. U.S. Labor Market: A Weaker-Than-Expected February Jobs Report Economic data added to the week’s uncertainty. The February U.S. labor market report, released Friday, came in weaker than expected:3 - Nonfarm payrolls fell by 92,000, surprising analysts who had anticipated an increase of 58,000.
- The unemployment rate rose to 4.4%, slightly above expectations.
- Wage pressures remained firm, with average hourly earnings rising 0.4% month over month and 3.8% year over year, both marginally above forecasts.
While softer employment growth suggests some cooling in the labor market, resilient wage gains may continue to complicate the Federal Reserve’s inflation outlook. Markets appeared to interpret the report as a mixed signal, yet reinforcing concerns about underlying inflation, especially against the backdrop of surging energy prices. Economic Resilience: ISM Manufacturing & Services Show Strength While markets wrestled with inflation fears, ISM data offered a welcome dose of macro stability.4 Manufacturing PMI came in at 52.4, marking the second straight month of expansion and ahead of expectations. While Services PMI came in at 56.1, the strongest reading since July 2022, supported by broad gains in orders, activity, and employment. Earnings Season Takeaways: Fundamentals Remain a Key Anchor In a week defined by uncertainty, corporate earnings provided clarity and reassurance about the health of the underlying market. Out of 493 S&P 500 companies that reported results so far, 65% beat revenue estimates, while an even stronger 74% topped earnings expectations. Revenue growth averaged 9.23% year-over-year, with EPS growth at an impressive 13.65%. All in all, this week underscored the market’s sensitivity to geopolitical risk, energy-driven inflation, and economic data surprises. With tensions in the Middle East unlikely to recede immediately, energy markets may remain a key volatility driver in the weeks ahead. Meanwhile, investors will be watching upcoming inflation releases and corporate earnings for signs of how businesses are navigating rising input costs and a softening labor landscape.
[1] https://www.clevelandfed.org/indicators-and-data/inflation-nowcasting [2] https://en.macromicro.me/collections/5/us-price-relative/27688/us-cleveland-inflation-cpi [3] Employment Situation Summary - 2026 M02 Results [4] ISM® PMI® Reports | 
