Weekly Investment Update (04/10/2026)

Markets head into the weekend with cautious optimism, not conviction. The ceasefire has reduced the immediate risk of a broader geopolitical shock, but it is clearly fragile: Traffic through the Strait of Hormuz remains constrained, negotiations still appear far apart on the most critical issues, and regional spillover risks have not disappeared. In the near term, that keeps a geopolitical premium embedded in oil, rates, and investor sentiment, and it argues for expecting more volatility rather than a straight line higher.

Even so, the medium-term backdrop remains better than the headlines imply. March inflation data suggested that underlying price pressures are not accelerating in a broad-based way, with core CPI a touch softer than expected and shelter trends still relatively contained, even as the energy spike pushed headline inflation higher and weighed on confidence. Our view is that this is a period for discipline, not retreat. A conflict-driven rise in energy prices is a risk, but not necessarily the start of a lasting inflation cycle. With longer-term inflation expectations still reasonably anchored, corporate investment trends holding up, and pockets of consumer and earnings resilience still evident, we remain constructive on the medium-term market outlook even as we respect the very real risks in the weeks immediately ahead.

Markets Exhale as the U.S. and Iran Announce a Two-Week Ceasefire

What is happening: A two-week ceasefire was announced in the Middle East conflict involving the U.S., Israel, and Iran, following a period of increasingly aggressive rhetoric, particularly around threats to critical infrastructure. Notably, both sides publicly confirmed the agreement, marking a rare instance of Iran openly acknowledging negotiations with the U.S., even as each side has framed the outcome as a form of victory. The temporary truce is designed in part to ensure increased and safer passage through the Strait of Hormuz, a critical artery for global energy markets.

The ceasefire is also intended to create a window for broader diplomatic engagement, with negotiations toward a more permanent resolution scheduled to begin Friday in Pakistan. However, key sticking points remain significant, including disagreements over Iran’s nuclear program and control of the Strait. Importantly, the situation on the ground remains fluid; despite the announcement, fighting continues in parts of the region, particularly between Israel and Lebanon. Financial markets responded positively in the near term, with oil prices falling sharply, bond yields declining, and global equities rallying on the prospect of de-escalation.

Why it matters: At the start of 2026, the economic and market backdrop was broadly constructive, supported by a combination of monetary and fiscal stimulus, strong AI-driven capital expenditure, and a pickup in manufacturing activity. The escalation of conflict in the Middle East has become the primary risk to this outlook, largely due to its potential to push oil prices higher and, in turn, reignite inflationary pressures and lift bond yields — dynamics that could weigh on both economic growth and market performance.

The announcement of a ceasefire, even a temporary one, represents a meaningful step toward reducing these risks and has already helped ease immediate market concerns. However, the path to a lasting resolution remains uncertain, as both sides appear far apart on core issues such as Iran’s ability to enrich uranium and pursue nuclear capabilities, and control of the Strait of Hormuz. While there are clear incentives for de-escalation, this pause does not yet signal the end of the conflict. Markets will remain highly sensitive to developments in the coming weeks, with investors looking for more concrete progress toward a durable agreement before fully pricing in a sustained reduction in geopolitical risk.

Inflation Largely Within Expectations but Does Not Fully Reflect Effects of U.S.-Iran Conflict

What is happening: On Thursday, the February PCE report showed headline and core inflation rising 2.8% and 3.0% year-over-year (YoY), respectively. Both numbers matched market expectations. On Friday, the March CPI report also largely came in within expectations, with headline and core inflation rising 3.3% and 2.6% YoY, respectively. Although not an upside surprise, the headline CPI number accelerated 0.9% month-over-month (MoM) and represented a clear step-up from the 0.3% reported in the previous month.

The dominant upside driver was energy, with gasoline rising over 20% in a month. Core inflation remained relatively contained and rose only 0.2% MoM, with services, shelter, and goods all showing small increases. Food inflation was up only 2.7% YoY despite the closure of the Strait of Hormuz due to the U.S. Iran conflict. A significant share of key global fertilizer inputs — such as ammonia, urea, and potash — transit through the Strait, and prices are up across the board. For example, nitrogen-based urea prices have increased more than 30% since the start of the conflict. However, March food inflation data likely don’t fully reflect these price shocks because it usually takes a few months for fertilizer prices to transmit to crop and retail food prices.

Why it matters: Thursday’s PCE print was for the month of February, so it can be interpreted as a pre-conflict baseline. The March CPI numbers included the conflict period, but likely only partially reflect the inflationary impact of the Iran war. While they should capture some of the initial jump in energy prices, there hasn’t been enough time for fertilizer or other supply-chain spillover effects to manifest.

Regarding fertilizer prices, the implication is that this week’s CPI report only marks the beginning of a broader increase in food prices over the next several months. However, it’s important to note that fertilizer is just one of many cost inputs that determine the ultimate food price for retail consumers. For most foods, labor, food processing, and sales costs actually make up bigger components of the final retail prices than crop costs. Therefore, while food prices are very likely to go up in the near term, the magnitude of the increase is not expected to be nearly as big as that for fertilizers. Current estimates are that overall food inflation could rise only 1.5 to 3.0 percentage points above current levels.

Looking forward, the key data points to watch next are the April and May inflation reports for energy effects and late-Q2 and early-Q3 reports for agricultural effects. At the same time, it’s important to recognize that the trajectory of inflation from here will depend heavily on how the Iran war evolves. If the conflict de-escalates and oil retraces, much of the current inflation impulse could prove temporary. If disruptions persist, particularly around energy flows and shipping routes, the shock is likely to become more durable and begin to propagate into food, goods, and longer-term expectations. For the moment, longer-term expectations remain stable, and the ceasefire announcement is an encouraging development.