Weekly Newsletter: March 30, 2026
Goodbye and good riddance to March and winter. Winter has not yet given up its grip on various parts of the upper US, while the markets have yet to record a winning week during March. Like the temperatures, investors are hoping to see some higher readings on the indices in the Spring. The rhetoric around a potential ceasefire, an agreement to open the Straits of Hormuz, or any other various attempts to quell the fighting continues to move all of the markets sharply in both directions. The financial markets are beginning to price in an extended war and potentially higher energy prices, along with much higher inflation prints in the months ahead. The first glimpse does not come for another week, but expectations are for overall inflation to be well above 3% and potentially touching 4% by summer. Interest rates have reacted as well, as yields are at their highest levels since last summer, gradually building in a potential rate increase from the Fed later this year. Whether that comes to pass is entirely dependent on the course of the war in the weeks ahead. For now, many of the Fed governors are not willing to change monetary policy based solely on higher energy prices caused by this conflict.
The economic data was minimal this past week, with the weekly jobless claims garnering the spotlight for a few seconds before turning back to the events of the Middle East. The jobless claims continue to show a slow-hire/slow-fire economy, where many companies are standing pat. The implications for the unemployment rate, set to be released on Friday, are for a still good, not great, job market. Wages will be in focus, especially given the dramatic rise in fuel costs. The average worker was just beginning to catch up to the inflation spike following Covid, and the jump in fuel costs could ripple through the retail side of the economy as more is spent at the pump and less in the store. Economists generally believe the coming inflation spike will be temporary, but the length of “temporary” is very dependent on when/how the war ends. The next two months will be important to watch how the consumers react to higher energy prices, as well as companies’ ability to pass on any higher costs as well.
As stocks have declined all month, so too have bond prices, pushing yields to their highest levels since last summer. Typically, investors look at the 2-year yield for an indication of the direction of interest rates. Early in the year, the yield was below the Fed’s target interest rate, indicating investors believed the direction of rates was lower. Today, that has completely flipped, and now investors are expecting the Fed to hike rates sometime later this year. Again, that depends on the direction and length of the war. What has been surprising has been the calm in the high-yield market. Yield differences to the treasury market have been fairly stable in the face of private credit concerns and a volatile equity/energy market. IF that changes, it may signal more panic in the markets that, today, is not yet evident.
The sharp rise in the energy sector makes it ripe for some profit-taking. Similar to the move in gold late last year and into January, oil prices are likely to fall over the course of this year, following a 40% jump just in March. Other parts of the market are beginning to look interesting as many technology stocks enter their own bear market by dropping more than 20% from recent highs. March has been ugly for equities across the board, from international to domestic. However, the relatively better performance by the value portion of the market has allowed investors to experience much smaller losses than the broad averages. Sentiment is very bearish in the markets, and the persistent selling is creating some good long-term opportunities in the market. That said, volatility and further losses are always possible, but the valuation of many sectors of the market is relatively inexpensive for the first time in a couple of years.
Employment will be the focus of the week, along with the (now) usual events of the Middle East. Wage growth will be a key component of the employment report, providing some insight into the consumer’s ability to maintain spending as energy prices rise.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.