Economy
Inflation for the month of February rose in line with expectations, up 0.3% from January and clocking in at 2.4% over the last year. Core inflation (which excludes food and energy prices) rose by 0.2% for the month and registered 2.5% over the last year. While this latest report paints a picture of moderating inflation, everyone is focused on future inflation expectations now that the war with Iran has heated up and oil prices have become volatile. When transportation becomes more expensive, it can impact downstream prices for just about everything else. Weekly gas prices in the US spiked up to $3.63, which can also put pressure on household budgets. There are growing concerns that prolonged periods with elevated oil prices will decrease US economic growth (GDP) and increase the odds of a recession, not just domestically but globally. A month ago it seemed almost certain that incoming Fed Chair Kevin Warsh, hand-selected by President Trump, would be leading the charge to cut interest rates this year. However, since the war with Iran kicked off, the probability of getting to the end of the year without a rate cut has increased dramatically from about 3% to nearly 40%.
Markets
Stocks fell for a third consecutive week with the S&P 500 declining 1.6%. Much of the pressure was attributed to the rise in oil prices, currently near $100 per barrel. Past sudden oil supply shocks have led to sharp corrections in stock prices alongside surging oil prices (1973-74 OPEC embargo, 1990 Gulf War, 2022 Russia-Ukraine invasion). For now, the equity markets are reacting differently this time for what could be a variety of reasons. Perhaps the market doesn't believe that the spike in oil prices and constraints on supply will be structural in nature. While stocks have sold off over the last few weeks, the selling has been orderly and not indicative of a widespread panic. There's still a lot of momentum behind stocks coming off a hot quarter of earnings, and expectations still remain high for corporate profits in 2026.
What We're Reading
- Here's Where the US Economy is Most Vulnerable to Iran War- WSJ
- Get Familiar With Your Homeowners Coverage- WCI
Have a great weekend.
Dogwood Wealth Management