Markets Over a Barrel
The conflict in the Middle East extended into its second week, keeping market uncertainty elevated. Brent crude oil prices ended the week higher, at approximately $100 per barrel, but oil market volatility led to one of the largest weekly price-range swings on record. Global equity market performance was broadly negative last week; U.S. large capitalization and U.S. growth stocks were the relative outperformers.
Major bond indices posted negative returns last week as U.S. Treasury (UST) yields increased on inflation pass-through and fiscal deficit concerns. The 10- year UST yield rose back to January levels, ending the week around 4.28%. Gold also declined last week, but the U.S. dollar strengthened as one of the few positive safe-haven assets.
Market Outlook
The Federal Reserve (Fed) meeting this week has been overshadowed by geopolitical headlines, along with last week’s economic releases showing contained, yet sticky, inflation. We believe the spike in oil prices provides another reason for the Fed to remain firmly on hold. Market expectations price in one rate cut this year, with a forecast for more supportive monetary policy to emerge in the second half of 2026. Market resiliency will be tested in the near term, but we still favor broad diversification within equities this year.
Chart of the Week
Economic Uncertainty and Volatility Subdued
- Geopolitical conflict led to a spike in policy uncertainty, yet equity market volatility remains relatively low.
- We believe the current episode remains largely dependent on the accessible flow of global oil production.
- Due to that uncertainty, we recommend investors stay well diversified given the elevated near-term risk.
