Last Week
The Middle East erupted in war after the U.S. and Israel unleashed Operation Epic Fury, launching a joint military strike against Iran, decimating military targets, and killing Supreme Leader Ayatollah Ali Khamenei. Iran responded with a wave of missile and drone attacks throughout the Middle East, disrupting traffic in the Strait of Hormuz.
Oil prices rose more than 36% reaching a high of $92.61 per barrel, and the yield on the 10-Year Treasury jumped 17 basis points to 4.13%. The cost of the war, the surge in energy prices, and the imposition of the 15% global tariffs all contributed to increasing inflationary concerns. Additionally, U.S. nonfarm payrolls fell by a stunning 92,000 in February, while the unemployment rate ticked up.
Stocks held steady on Monday, but selling pressure built as the narrative shifted toward a longer, more costly war. Declining issues outnumbered advancing issues by a factor of 3-1, with the Energy sector gaining 1% and all the other sectors in the red. The S&P 500 lost 2%, the Nasdaq dropped 1.2%, and the Russell 2000 slid 4%. The Dollar posted a modest gain, while Gold dipped 1.7%, but still held above $5,000 oz. We would continue to hold gold positions, unless the position size has grown to too high a percentage of one’s portfolio, although rising bond yields will create a headwind for the precious metals.
In short, it was a very tough week in the world and the markets. We would expect the markets to remain under pressure. At the same time, the war continues, suggesting that de-risking would be appropriate if one’s equity allocations have risen above the long-term target range following the past few years of strong stock market performance.
We turn to the Chicago Sports Scene for a distraction from the global chaos. We are happy to highlight the Chicago Maroons basketball team that advanced to the Division 3 Sweet Sixteen following thrilling victories at the Ratner Center over the weekend.
This Week
Developments in the Middle East war will dominate the narrative, with the oil market in focus following its biggest weekly gain in over 40 years. Over the weekend, the conflict escalated with oil infrastructure and water supply targeted across the region, leading to another spike in oil prices significantly above $100/bbl. Global equity prices nosedived in response.
Inflation data will kick off with the February Consumer Price Index report on Wednesday. Economists expect headline and core inflation to come in at a 2.5% annual rate. On Friday, the core PCE price index, the Fed’s favorite inflation gauge, is released alongside January income and spending figures. Since these reports will not reflect the recent surge in energy costs, any inflationary pressure would be especially troubling as the upcoming numbers are likely to magnify the risks.
The earnings calendar is light, with just four S&P 500 companies reporting, most notably Oracle on Tuesday, as investors watch demand trends for AI-related cloud services.
The stocks mentioned above may be holdings in our mutual funds. For more information, please visit www.nsinvest.com.