Market volatility this week was driven by updates on the war with Iran along with key data releases providing some insight into the war’s impact on inflation and the US consumer. West Texas Intermediate (WTI) crude oil topped $117/barrel prior to Tuesday’s temporary ceasefire announcement and is trading at around $98/barrel as of this writing. It came as no surprise that this morning’s headline Consumer Price Index (CPI) for March surged 0.9%, the highest monthly rate since June 2022, and was up 3.3% on an annual basis primarily due to spikes in energy and airfare prices. Notably, Core CPI was little changed with a monthly increase of 0.2% and an annual rise of 2.6% as costs for services and other goods remained subdued. Personal Consumption Expenditures (PCE) were little changed in February, with the headline PCE Price Index up 0.4% month-over-month and 2.8% year-over-year. The Fed’s preferred metric, Core PCE, which excludes food and energy, rose 0.4% during the month and 3.0% from February of 2025. PCE readings remained elevated due to higher prices for goods prior to the Iran War. Personal income dropped by -0.1% in February versus 0.4% in the prior month while spending accelerated to 0.5%, fueled by motor vehicle sales. The personal savings rate fell to 4.0% from 4.5% in the prior month as additional spending displaced savings.

Meanwhile, the Institute for Supply Management (ISM) Services Index declined to 54.0 for March, while remaining in expansion territory. Prices paid jumped to 70.7 from 63.0 in the prior month, new orders remained elevated at 60.6, while the employment component contracted to 45.2 as employers pulled back on hiring. Durable goods orders for February decreased by -1.3%, dragged down by aircraft, but showed strength in pre-war business investment levels. Defense spending could provide a boost to this metric in upcoming reports. The third and final estimate for fourth quarter US Real GDP was revised lower to 0.5%, reflecting a sharp pullback in government spending and personal consumption expenditures due to the government shutdown.

The University of Michigan Sentiment Index fell 11% to record low of 47.6 in the preliminary reading for April versus 53.3 in March, mostly due to one year inflation expectations increasing to 4.8% versus 3.8% in the previous report. It is noteworthy that survey responses were almost entirely collected prior to the ceasefire announcement on April 7, after which market conditions improved significantly.

The minutes from the March 17-18 Federal Open Market Committee (FOMC) meeting were released this week, revealing that if inflation persists some members would consider raising short term interest rates. US Treasury yields eased lower this week to 3.80% on the 2-year US Treasury note, 3.95% for the 5-year, and the 10-year yield at 4.32% as of this writing. Chandler continues to anticipate that Fed rate cuts will be delayed due to inflationary pressures, with the next cut possible in the second half of 2026 if energy costs normalize. Portfolios remain positioned with a focus on safety, liquidity and disciplined risk management.

Next Week: Existing Home Sales, Producer Price Index (PPI), Empire Manufacturing, Federal Reserve Beige Book, Industrial Production

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