Weekly Investment Update (03/06/2026)

Markets faced a challenging backdrop this week as a softer-than-expected employment report and escalating tensions in the Middle East weighed on sentiment. February payrolls declined, and the unemployment rate ticked modestly higher, but several details suggest a labor market that is cooling rather than collapsing. Initial jobless claims remained stable, layoffs fell sharply from January’s elevated levels, and hiring plans rebounded month-over-month. Wage growth held firm, and productivity data continued to point to improving efficiency. While the headline jobs number disappointed, underlying conditions appear consistent with moderation, not contraction.

Consumer data told a similar story. Headline retail sales dipped slightly, yet the control group measure that feeds into GDP beat consensus, rising 0.35% month over month. Importantly, markets responded to the softer jobs report by pricing in a greater likelihood of policy easing later this year, which could provide a cushion if growth continues to slow modestly.

The most acute risk this week came from the conflict with Iran, which drove oil prices sharply higher amid concerns about potential disruptions in the Strait of Hormuz. Energy prices remain a key variable, but policymakers are actively exploring mitigation measures. Taken together, the economic backdrop shows signs of resilience beneath volatile headlines, and market rotation beyond the most crowded areas suggests investors are positioning for stabilization rather than systemic stress.

Global Energy Prices Rise as Conflict in the Middle East Continues

What is happening: While the situation is evolving, U.S. and Israeli objectives, aimed at regime recalibration and degrading Iran’s wider military and nuclear capabilities, remain broadly unchanged. Prospects for de-escalation remain uncertain, with neither side currently discussing a ceasefire and President Trump saying this week that he intends to be involved in selecting Iran’s next leader.

From a market perspective, focus remains on global energy supply. Although the Strait of Hormuz, which carries about 20% of global petroleum, has not been formally closed, it is effectively shut, with tanker movements estimated at under 10% of normal levels and many in waiting position. Given the uncertainty, Brent crude oil prices are up more than 20% this week, topping $90 per barrel.

European liquid natural gas (LNG) prices also surged this week as Qatar, accounting for approximately 20% of global LNG exports, shut production at its largest facility after it was targeted in an Iranian drone strike. Europe’s benchmark gas futures are up nearly 66% this week to €53/MWh, though they remain below levels reached during Russia’s invasion of Ukraine, when prices hit €230/MWh. While Qatar accounts for only 10% of Europe’s LNG imports, tightening in global supply is pressuring prices worldwide. On inflationary concerns, markets went from pricing a 55% chance the European Central Bank will cut interest rates by the end of the year, to fully pricing in a rate hike by year-end.

Why it matters: The U.S. economic impact from the conflict will ultimately depend on its duration, but in the near term, a sustained rise in oil prices would lift headline inflation, with pressures likely to fade once the conflict subsides. The broader impact on consumer spending and growth would likely be less noticeable as the wallet share of consumer spending on gasoline has decreased dramatically, dampening the overall impact of an oil price shock on consumers. The U.S. economy is less oil-intensive than in prior decades, and since becoming a net exporter of petroleum products in 2019, energy exports have provided a direct tailwind for growth.

While the direct economic impacts of an energy price shock have declined, consumers remain sensitive to gasoline prices at the pump. Average gasoline prices increased to $3.32 per gallon this week, up 11% so far in March and from $2.78 per gallon in January, the lowest level since 2021. Additionally, according to a Reuters poll, only 27% of Americans approve of the U.S. war with Iran. With midterm elections approaching, affordability remains a key concern for voters, incentivizing the Trump administration to find a quicker resolution to the conflict.

Global incentives for de-escalation are also present. The majority of flows through the Strait of Hormuz are destined for China and India, while over 25% of LNG exports from Qatar are bound for China. Similarly, Europe is emerging from winter and will need to refill its LNG storage from below-average levels, meaning it will need to import a substantial amount of gas over the summer to prepare for next winter. Overall, the situation is evolving rapidly, but in our view, the probability of a longer-term, multiyear conflict remains low given the sum of these incentives.

February Jobs Report Disappoints on a Sharp Contraction in Employment

What is happening: Nonfarm payroll employment disappointed in February, contracting by 92,000 on weak breadth. Downward revisions continued, which was not a surprise. The healthcare sector experienced a decline due to strike activity, while cyclical sectors, such as construction, were negatively impacted by weather. Methodology changes implemented in January were also expected to drive greater volatility in the monthly figures, and this month that appears to be the case. The unemployment rate rose marginally to 4.4%, but other measures of slack, such as part-time work for economic reasons, dropped meaningfully. Wage growth strengthened to 3.8% year-over-year.

Looking ahead, while the report leaves us more cautious on the job growth outlook, we think a March rebound is in store, driven by healthcare jobs as well as cyclical employment. Hiring indicators send a strong signal that job growth is improving. Layoffs remain exceptionally low, with the four-week average in initial jobless claims falling to 216,000 in the week ending February 28, and Challenger job cuts pulling back by 72% year-over-year in February.

Separately, the February Institute for Supply Management (ISM) surveys showed further improvement in business sentiment and activity ahead of the Iran conflict, which the survey’s responses did not incorporate. The Services Purchasing Managers’ Index (PMI) accelerated to 56.1 with the forward-looking component (new orders) picking up to 58.6. The manufacturing PMI also surprised expectations, holding steady near three-year highs at 52.4.

Why it matters: The February job-growth contraction tempers the narrative of labor market improvement, but in a broader context, as outlined above, we remain constructive on the outlook. Near term for markets, the report can dampen the recent rise in bond yields, helping risk sentiment to the extent that rate-cut pricing is pulled forward. However, headline risk in the Middle East is likely to remain the dominant driver for equity markets.

We highlighted the ISM surveys this month as additional evidence of accelerating economic growth powered by business capex. The strength in the ISM services survey is most encouraging as it is a preferred indicator of broader activity. But the sustained pickup in the manufacturing index is notable, having stagnated in contraction over the prior three years. The stronger readings seen in ISM along with capex intentions in Federal Reserve regional surveys build a case for a recovery in non-tech spending to accompany still-strong tech demand. As we navigate geopolitical risks in the Middle East, ISM and other surveys of business sentiment will provide timely measures of how businesses are coping. Higher energy costs and an uptick in uncertainty are downside risks we are monitoring.