Headlines and Highlights
- Iran War weighs on markets: Marketshave struggled in March given the rising economic risk created by the Iran War. Global energy supply is at the root of the risk: West Texas crude oil closed around $94 per barrel on March 16, up 40% from its price before the war started, on worries about Iran’s blockade of oil shipping in the Persian Gulf and its military threats against other Middle East producers. War-related uncertainties undercut stocks so far this month, while bond prices fell on fears that more expensive oil will push up inflation. The iShares Core S&P 500 ETF (large-cap stocks) was down 2.5% month to date (-1.9% in 2026), while iShares Russell 2000 ETF (small caps) have slipped 4.8% (+1.1% year to date). International stocks have been harder hit by the war – ETFs representing developed markets and emerging markets have declined 7.2% and 6.6% in March, respectively, because of their greater reliance on energy from the Middle East and a stronger U.S. dollar. Even with this month’s drop, those international markets are still positive year to date.
- Latest inflation reports mixed: Inflation as measured by the Consumer Price Index (CPI) held steady in February, but a government shutdown-delayed January report of the Federal Reserve’s preferred gauge of prices – Personal Consumption Expenditures (PCE) – rose to its highest level in nearly two years. The Bureau of Labor Statistics reported that CPI increased 0.3% in February and 2.4% over the preceding 12 months. So-called “core CPI” – excluding food and energy – came in at 2.5% for 12 months. Both CPI and core CPI were lower than the latest report of PCE. Core PCE for January showed an annual price hike of 3.1%, the highest since March 2024.
- Weak jobs trend continues: The U.S. economy lost a net 92,000 jobs in February, lifting the national unemployment rate to 4.4%, according to the Bureau of Labor Statistics. The news caught the market by surprise, as consensus forecasts called for a monthly increase of 50,000 to 70,000 jobs. In addition, job creation numbers for the previous two months were revised downward based on additional data: January dipped from +130,000 to +126,000, while December was reduced from +48,000 to -17,000. February’s job losses were blamed in part on bad weather in much of the country and a statewide nurse’s strike in California. Since October 2025, the economy has shed a net 100,000 positions.
Chart of Interest
Crude awakening: While renewables have become a larger source of energy, the Iran War is a reminder of oil’s continued importance in powering the global economy.
Sources: Wall Street Journal, Altair Advisers
Key Takeaways
- Stocks rallied to start this weekand crude oil slid slightly on prospects that the U.S. and its allies can reopen the Strait of Hormuz to tanker traffic. With roughly 20% of world’s oil supply passing through that Iran-controlled choke point, a return to more normal shipping conditions could rapidly reduce the price of crude as supply and demand come into closer balance.
- The CPI reading for February was taken before the initial U.S.-Israel strike on Tehran, so it is reasonable to expect higher headline inflation in March due to the sharp increase in oil prices. One key impact felt across the economy: The average cost of a gallon of regular gasoline in the U.S. was $3.72 on March 16, according to AAA, up about 25% since the war began.
- If higher inflation persists, it could complicate the Federal Reserve’s recent efforts to use monetary policy to support the softening jobs market. The Fed is widely expected to keep short-term interest rates steady at its meeting this week and well into 2026. Futures market activity currently projects no Fed rate cuts until at least October, though a cut could come sooner if the war ends relatively quickly and oil-related inflation eases.
- The U.S. economy grew at an annualized rate of 0.7% in the fourth quarter of 2025, down from an initial estimate of 1.4%, according to the federal Commerce Department. Much of the slow growth pace resulted from the October government shutdown and from reduced inventory spending as businesses stockpiled goods in the second and third quarters to get ahead of steeper tariffs.
- The Trump administration is movingquickly – as expected – to keep its tariffs after the Supreme Court in February struck down its novel use of an emergency powers law to impose the levies. The White House is now relying on the Trade Act of 1974 as the foundation for Trump’s 15% global tariff, but opponents fighting the move say the president is incorrectly interpreting what that law allows.
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