The conflict in the Middle East involving the U.S. and Iran has rapidly shifted the narrative for financial markets and the path forward for the U.S. economy. From a market standpoint, the most notable impact has been in energy markets, where crude oil prices moved sharply higher on concerns over potential supply disruptions and elevated geopolitical risk premiums. Oil prices have surged to approximately $87-90 per barrel, the highest levels since mid-2024. U.S. equities experienced significant volatility throughout the week, and fixed income yields moved higher across the curve as market inflation expectations increased.
Looking through this week’s significant geopolitical events, headlining this week’s economic data calendar was the release of the February jobs report. US employers cut jobs in February, and the unemployment rate rose. Nonfarm payrolls decreased 92,000 last month falling well below the consensus expectations after a strong start to the year. It is important to note that context matters for this weak employment headline. A strike at Kaiser Permanente, which sidelined more than 30,000 workers during the survey reference week before resolution, accounted for a loss of 28,000 healthcare jobs; federal government payrolls fell 10,000 and information services shed 11,000 as AI related restructuring continued. The unemployment rate edged up to 4.4%, with average hourly earnings rising 0.4% month over month and 3.8% year over year. In additional labor-related news, applications for unemployment benefits held steady, with initial claims unchanged at 213,000.
Meanwhile, the Institute for Supply Management’s manufacturing and services indexes both indicated expansion. The Institute for Supply Management’s (ISM) Services Purchasing Managers’ Index (PMI) surged to 56.1 in February, the highest since July 2022 and the first time all ten tracked components were simultaneously in expansion since March 2021. The ISM Manufacturing PMI extended its expansion for a second consecutive month at 52.4, though the prices paid component jumped to 70.5, its highest level since June 2022, underscoring the tariff and energy driven cost pressures building in the economy. January retail sales declined 0.2%, slightly better than expected, with the control group measure advancing to a solid 0.3%.
Treasury yields rose for the week despite the weak employment data, as oil price-driven inflation concerns outweighed the typical flight to quality response. The 2-year U.S. Treasury yield climbed to approximately 3.56% and the 10-year to approximately 4.15% at the time of this writing.
Although the confluence of events this week added significant uncertainty to the economic picture, the Chandler team maintains its view that the Federal Reserve will likely prioritize supporting the labor market.
Looking ahead to next week, markets will remain in a fragile risk environment, with investors closely watching oil prices, geopolitical developments, and U.S. inflation data. Against this backdrop, Chandler continues to manage fixed income portfolios prioritizing safety and liquidity. Our investment process is consistent through economic cycles and particularly well suited for periods of geopolitical stress and market volatility.
Next week: NY Fed 1-Year Inflation Expectations, ADP Weekly Employment Change, Existing Home Sales, Consumer Price Index (CPI), Housing Starts, Building Permits, Personal Income/Spending, Personal Consumption Expenditures (PCE), Durable Goods Orders, University of Michigan Sentiment Index, Job Openings and Labor Turnover Survey (JOLTS).
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Data source: Bloomberg, Federal Reserve, and ADP. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rate.