By Rick Schwerd |
Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on March 20.
Disappointing Labor Market Report
After coming in better than expected last month, February’s labor market was a disappointment. The economy lost 92,000 jobs, while the unemployment rate increased by one‑tenth of a percentage point to 4.4 percent.
We are currently in a low hire, low fire environment, which makes the numbers prone to seemingly isolated events. There was a nursing strike that likely contributed to a loss of 30,000 jobs, which is expected to be temporary. Extreme cold and winter storms during the month were also a likely factor.
War with Iran Roils Markets
The war with Iran that started over the weekend has caused a good deal of volatility in markets. The price of oil has surged 29 percent as the Strait of Hormuz remains essentially shutdown. West Texas Intermediate crude oil eclipsed $86 per barrel for the first time since April 2024.
Surprisingly, U.S. (United States) equity markets have been fairly resilient this week, given the turmoil. The S&P 500 is down approximately 2 percent from its Friday close and the Nasdaq is essentially flat. There are several reasons for this. Markets have become much less sensitive to geopolitical events over the last 30 years. In addition, markets were a little soft going into the war, especially the tech sector. If markets had been soaring when this occurred, the reaction would likely have been different. Finally, with the U.S. (United States) now being the largest producer of oil, we are significantly less affected by Middle East oil supply shocks.
As we have discussed previously, there are several positive tailwinds that are supporting the U.S. economy. However, if the conflict drags on and the flow of oil through the Strait of Hormuz remains constricted, we should expect to see continued market volatility.
Bond Market Reaction
Traditionally, U.S. Treasury yields drop during times of geopolitical stress as investors buy treasuries, seeking a safe haven. Bond yields and prices have an inverse relationship.
However, since last Saturday, bond yields have risen, with the benchmark 10‑Year Treasury rising roughly 0.20 percent. The increase is likely due to the belief that inflation may run hotter in the near term because of rising oil prices. Furthermore, expected Fed rate cuts may be pushed back as well, which is another factor influencing bond yields.
Strong Productivity Growth
One of the tailwinds supporting economic growth has been productivity. Fourth‑quarter productivity data released on Thursday showed a strong 2.8 percent increase. From 2006 through 2018, productivity growth averaged 1.4 percent. The data was volatile around the pandemic, but since 2023 productivity has grown at 2.5 percent.
The upturn is likely due to increased adoption of AI as well as firms reducing employment levels following the over‑hiring that occurred during the pandemic. Productivity gains are beneficial because they increase growth without resulting in increased inflation.
Have a great weekend and, as always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415‑4401.
About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Arrow Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not‑for‑profit relationships.