Conflict Extended
Global equities posted broadly negative results last week as the conflict in the Middle East continued into its fourth week. Smaller-capitalization, value and developed international stocks outperformed, while the Nasdaq Composite Index fell into correction territory, down more than 10% from its October 2025 peak. West Texas Intermediate crude oil prices ended the week near $99 per barrel, the highest since 2022. U.S. gasoline prices approached $4 per gallon as a result, up approximately $1 per gallon since the end of February. Measures of both stock and bond market volatility increased over the course of the week amid the uncertainty.
Market Outlook
Headlines last week brought hope of de-escalation, but inconsistent messages gave way to a Middle East conflict that continues to drag on and create significant uncertainty for investors. We expect volatility to remain heightened until clarity around de-escalation efforts prevail. Therefore, we believe elevated energy prices will remain a critical factor for the global economy. With earnings season still weeks away, investors may not return their focus on strong fundamentals until there is some degree of resolution to the conflict.
Chart of the Week
Last week, the 10-year U.S. Treasury yield rose to its highest level since the conflict began, following a pattern similar to prior geopolitical events.
The rise in yields provides evidence that investors are currently pricing in inflation risk over recession risk.
U.S. deficit concerns related to the potential costs tied to the conflict and fears of elevated energy prices passing through to inflation are likely drivers of higher yields.
