Weekly Recap:

by Eric Criscuolo & Michael Reinking, CFA

Published on 3/13/26

Happy Friday the 13th? A long time ago in a galaxy far, far away, we talked about a concept called BT / AT: Before Tariffs and After Tariffs. That was our way of delineating data and market activity that had occurred before Tariff Day, aka Liberation Day, aka April 2, which would be heavily discounted or ignored completely, and everything that came after. We’re beginning to think about a new framework: BI / AI. Before Iran / After Iran. The AI is fitting on many levels actually.

In recent history, US equities have tended to move past military conflicts in short order. The US bombardment of Iranian nuclear facilities last year is one example: the S&P was up 3% that week, including gains of 1% on the Monday and Tuesday following the weekend strike. A week after Israel’s ground operations in Gaza escalated (late Oct 2023), the S&P was up ~5%.    

Russia’s invasion of Ukraine in early 2022 provides a framework for comparison. The problem though is that the macro environment was very different. The Fed was beginning an historically aggressive rate hike cycle to control exploding inflation as the economy transitioned from COVID lockdowns to a surge of reopening activity. During the month before Russia’s invasion, the S&P fell 4%, Brent rose 7% and yields were sharply higher as hikes (and the invasion) loomed. Three months later the S&P was down 8%, Brent up 20% ($114). 

Another obvious difference is that the US is involved this time. On a more tactical level, while there were concerns of the ability to transit the Strait of Hormuz as Russia invaded, this time the Strait IS closed. We noted the stats last week: ~20% of crude transits through it, to say nothing of other vital commodities including industrial gases like helium. Crude has ripped higher with Brent above $100. Among other things, that’s triggered inflation concerns, causing treasury yields to move sharply higher. Until the Strait situation begins to resolve- whether through the US military prying it open or the Trump administration pulling back from the region, it’s difficult to see equities moving markedly higher. The weight on consumer spending is becoming heavier. The administration is advancing its court-ordered plans for tariff refunds to importers. The mid-term elections are less than eight months away.  

Since the bombardment of Iran began two weeks ago, the S&P 500 is down ~3%. Not a huge move by any stretch. The problem is that stresses are building and technicals are breaking down. Like a Pavlovian response, dips have been reliably bought, especially at the key technical levels. Until now. The Friday before the military action began the S&P closed below its 50d moving average. Subsequent attempts to regain that level last week failed.  Then the 100d ma failed this week. Resiliency in the first half of the week was stressed on Thursday, and the S&P closed below the range (6700-7000) it’s been in since late last year.

The steady decline has now put the 200d moving average in play with Friday’s close just above it (6632 vs 6604). We haven’t traded below that line since May, when we were V-recovering from the Tariff selloff.

With headlines coming fast, the S&P 500 traded in an almost 200 point range on Monday but ended higher by almost 1%. Meanwhile oil saw a giant $40 range, between $80 and $120 before settling around $100 per barrel, up about 4%.

The price action late in the day on Monday was a telling sign. Equites jumped and crude fell after President Trump said “I think the war is very complete, pretty much”. The market is balancing the likelihood of a rally on deescalation- something about Tacos?- against a more significant decline should hostilities continue and oil remain highly elevated for an unexpectedly long time.

As we moved through the week those concerns about the length of the conflict rose, and the situation in the Strait deteriorated, with multiple ships coming under fire, transit effectively blocked and Iran hitting energy infrastructure throughout the region. The US was looking into providing naval escorts for commercial shipping, along with backstopping insurance. However Secretary of Energy Chris Wright said the Navy was not ready to escort ships, as the fleet is fully engaged in operations against Iran, though he added it will happen “relatively soon”.

Despite the focus on weakness and failing technical levels, the S&P ended the week down less than 2%, putting YTD performance at -3%. Mega caps had been a source of relative strength this week, especially the growth/tech names, acting as a safe haven for equity exposure. Heading into Friday the NYSE FANG+ Index was about flat before moving lower to close the week. The ICE Semis index finished the week up about 2%, with a solid day on Friday removing a lot of the sting from a 3% drop on Thursday. 

We saw signs of a return of the Semis over Software trade this week. Software has been under pressure since the Fall on ramping concerns of AI disruption. That trade started to unwind in late February as software began to bounce from oversold levels and semis faltered. This week the ICE Semis Index significantly outperformed the IGV software ETF by 700bp (2.4% vs -4.3%). Oracle had very good results this week, which might have supported the software group in the near-term- though Oracle is much more of a play on AI data centers now. However, Adobe, another software name with concerns about AI disruption swirling around it, fell over 5% on Friday after reporting OK results. The tape was working against it but there was a lack of “better than feared” action. 

In the first part of the week we saw some of the riskier, high-beta areas holding up, including quantum computing stocks, neoclouds and biotech. Short covering could have been a part of that as books derisked and cut gross exposure. Those groups moved lower in the back half of the week.

Credit-linked equities were volatile. News that JP Morgan marked down values of loans to private credit groups added to the intense scrutiny of the group, which largely held up earlier in the week, sold off in the middle and most saw a bounce on Friday. This dynamic helped place Financials as the worst preforming sector overall this week. A flatter yield curve didn’t help banks either. 

Industrials fared only slightly better. Weakness in airlines bled into aerospace companies despite the defensive exposure (the military kind). Freight/rail companies that traded well coming out of earnings season started to break to the downside as well. Discretionary was also under pressure with concerns on consumer spending growing.

Energy was the best sector this week for obvious reasons, though the strength was modest. The defensive Utilities sector was also up, despite the significant backup in yields as it played the defensive role pretty well. Consumer Staples, another defensive sector, was only slightly lower. The S&P fell 0.6% on Friday and faded into the Close with only a slight bounce off the lows at the very end. With hesitancy to hold positions over the weekend, Utilities, Staples and Real Estate finished in the green (as well as Energy). On a positive note, Financials were flat on Friday, owing to the beaten up credit group seeing a bounce. Overall though the market has Defensives leading, cyclicals sold and oil and yields higher, which is starting to rhyme with "stagflation".  

Global Equities - were lower across the board but were more inline with US markets after underperforming significantly last week. 

In the current environment geopolitical headlines are completely driving the trading action. This week’s inflation data was largely rendered useless as we’re in a similar situation as to where we were this time last year when we discussed the BT/AT framework (before/after tariffs). For at least the intermediate term we are in a different inflation regime and it will take some time for that to filter through the system.

This week’s CPI and PCE reports were both pretty much in line with expectations and where they were last month.  Inflation has remained sticky above the Fed’s target and as you can see the 3/6 month annualized readings had started to turn a bit higher BI (before Iran and if you didn’t realize already we’ve just figured out a new way to work AI into our commentary). Inflation expectations in both the Fed’s and U of Mich Sentiment surveys were essentially unchanged from the previous month, but we’ll have to see how that evolves. 

This week’s labor market data leaned slightly positive after last week’s weak jobs report. The ADP weekly employment report moved up to 15.5k from 12.75 two weeks ago. There were no material changes to this week’s claims data and this morning’s January JOLTS job openings came in well ahead of estimates and reversing much of the weakness seen over the previous two months jumping to ~6.95ml from 6.55ml. Within that report layoffs and discharges ticked lower and remains very low level historically. 

Ahead of next week’s FOMC meeting Treasury yields were up ~15bps and are now up ~30bps since the start of the month. Markets have quickly priced out the prospect for rate cuts with the probability for the first cut about 50:50 starting in September, but additional cuts have been pushed into 2027. It is also notable that the ICE BofA Move Index jumped sharply this week. The USD index continued to move higher this week breaking above $100.

While the Federal Reserve is widely expected to leave rates unchanged next week there will be a lot of attention paid to the updated Summary of Economic Projections for clues as to how the Committee is thinking about the evolving environment. 

A quick note on credit given all of the private credit headlines. There have only been modest moves higher in credit spreads but they still remain at historically tight levels (see Chart 1). The second chart below is from Apollo's Torston Slok highlighting the Software Credit Maturity Wall. There was quite a bit of issuance this week that the market digested well.

Beyond Iranian developments, central banks will be front and center next week. Not only the Fed, but the ECB, UK, Japan and Australia will hold rate meetings. The US and China will meet over the weekend for trade talks, paving the way for President Trump's visit to China at the end of the month. After taking a back seat to the Iran situation, AI will see more focus again as Nvidia holds its highly-anticipated GTC conference. Docusign, Micron, Alibaba and Accenture earnings will also be important updates for the space, and we'll also see some more retailers report. The World Baseball Classic continues, and look what we have- another USA vs Canada matchup, tonight. Enjoy your weekend. Play Ball!     

by Michael Reinking and Eric Criscuolo

Published on 3/6/26

For the last few weeks, the main topic within market circles has been the AI disruption trade which methodically rolled through sectors, seemingly with the release of each new Claude Code plug in. AI-Anxiety hit a fevered pitch last week after the Citrini thought piece pointed to a dystopian future where adoption of AI ultimately led to 10% unemployment. This weighed heavily on consumer-facing companies, payment processors and credit card companies, further adding to the weakness in the financial sector which had already been dealing with private credit concerns given exposure to software.

The Anthropic event last week, in which the company highlighted partnerships as opposed to displacements, calmed the waters. On Friday however, the final trading day of the month, payments firm Block announced it would cut 40% of its workforce. Founder Jack Dorsey cited the improvement in AI models as the driver. With the Citrini scenario fresh on everyone’s mind this damaged the market psyche again. The reasoning for the layoffs has been debated but it heightened concerns that, after a period of a low-hire, low-fire, there could be a wave of job cuts with companies blaming or crediting the technology, depending on how you look at it, re-popularizing the term AI-washing.

As we’ve seen throughout the year the losses at the index level were contained- most major indices ended the week down ~1%, but with wild dispersion beneath the surface as we’ve been noting here. Ryan Detrick of Carson Group highlighted that 2.7% range in the S&P 500 through the first two months of the year is the smallest ever. Barclays pointed out that the range for the average stock in the S&P 500 was about 7X that of the index, the largest ratio since they started tracking the data in 1994.

For the week and the month of February, Financials and Tech led to the downside with those sectors down between 4 - 5% in the month. Defensive sectors like Consumer Staples, yield-oriented groups and Energy led to the upside, ending last week up ~2% and well over 5% in February.

Beyond the AI concerns, some of that positioning was in response to the military build-up in the Middle East, alongside escalating warnings from the administration. There was some mixed reporting coming out of the negotiations with Iran last week but over the weekend diplomatic efforts were called off as operation Epic Fury was launched. Before we go any further, our thoughts and prayers are with all the service men and women and their families. 

Keeping our view narrowly focused on market reactions, the first takeaway is that volatility has increased. Markets have responded to each airstrike/response, the potential length of the campaign and reports of backchannel negotiations. At this point the administration has suggested the campaign could last up to 8 weeks so this is a dynamic that could be with us for a while.

The initial reaction was to implement the typical conflict playbook. Equities were under pressure, oil rallied, precious metals moved higher and the USD had a strong safe haven bid. However, a corresponding haven bid for Treasuries didn’t emerge, with rising concerns of “war-flation” driven by the impact of higher energy costs and the potential closure of the Strait of Hormuz pushing yields higher.

The length of the conflict, impact on energy prices and the ability to transit the Strait of Hormuz are what markets are keying on right now. Between 20-30% of petroleum liquids move through the Strait and about a third of LNG shipments and key fertilizer ingredients ( ammonia and urea). There’s a disproportionate impact on Asia, which imports nearly 90% of that oil and ~80% of the LNG, and Europe, which takes in about 15% of the LNG. The US has become much more energy independent and is a key supplier to Europe, accounting for around 60% of the EU’s LNG imports.

The jump from diplomatic strain to kinetic conflict didn’t come out of left field though. As we’ve noted there’s been defensive positioning and portfolios seemed reasonably well hedged. This caused some of the initial weakness to get bought as traders were quick to monetize those hedges and buy-the-dip reactions were reengaged. Markets have tended to shrug off geopolitical catalysts, leading to the maxim “when the bombs fly it’s time to buy”. Commentary from the US administration provided some initial support, including that the administration is looking into providing military support to tankers in the Strait and backstopping shipping insurance. 

As we’ve noted many times in the past, the increase in volatility across asset classes causes systematic de-risking with exposure taken down across the board. Crowded trades like long semis/memory short software was unwound as the NYSE Semis index fell 8% while the IGV Software ETF matched it on the other side, rising 8%.

The S&P 500 ended the week down 2%. The index managed to rally off significant declines and bounce off support at the 100d moving average throughout the week. However, that resilience cracked on Friday. The >1% decline pushed the index firmly into the red and the 100d failed to hold, gapping below it at the Open and never mounting a challenge to regain it. That also takes us to just above the December low ~6,720, with the rising 200d about 250 points below. 

Consumer Staples and Materials, which have been two of the best performing sectors YTD are both down >5% for the week. Travel-related stocks have been under pressure throughout the week but the more defensive Consumer Staples sector underperformed Discretionary by 4%. On the year Staples has been outperforming Discretionary by 20%, highlighting the reversal.

Defense contractors and Energy stocks were notable outperformers as expected. Energy was the best-performing sector but gains were rather pedestrian given the oil move. And defense contractors couldn’t make up for the broad weakness in the rest of Industrials, which included the big construction equipment and electrical names that have shot higher on AI spending over the past year. Mega-cap tech showed some of the defensive qualities that we’ve seen over the last few years, with the NYSE FANG+ Index rising 3% and the Tech sector overall trading only modestly lower, with the semis/software rotation mentioned above. Materials was the worst sector, with outperformance YTD, rising input (energy) prices and economic disruptions weighing on the group and opening the door for rotation out of the names.

Global Equities - Global sell-off, Big moves in South Korea

The February payrolls report on Friday was the main data event this week and it certainly caused a reaction. The print came in very weak, unexpectedly declining 92k compared to estimates for a gain of 59k, and significantly cutting in to last month’s 126k additions. The January numbers likely  overstated strength. On the other hand, February's terrible weather and some strikes across industries may have overstated weakness this month. In any case, it wasn't great- at best an ugly print with messy details. Healthcare and Social Assistance, which have been driving most of the recent gains, had a big reversal, going from 116.4k additions in January to 18.6k losses in February. That delta made up more than the entire overall decline. Construction and Manufacturing, which were showing signs of awakening last month (+48k and +5k, respectively), fell to -11k and -12k. Trade, Utilities and Financial activities provided modest gains. Government jobs fell 6k. From the household survey, the unemployment rate rose from 4.3% back to 4.4% while the participation rate fell to 62.0% from 62.1% (revised from 62.5%). Updated population estimates had a significant impact on that part, accounting for the revision.

The ADP report on the other hand was solid, jumping from a downwardly-revised 11k adds, to 63k, the largest monthly growth figure since November 2025. However gains remain very concentrated: Education and Health Services led (+58k) which continued the trend seen in other reports (before Friday’s payroll data). Construction added 19k while Manufacturing declined 5k. Professional/business services led decliners, with -30k. Small and large-sized businesses added jobs. Weekly initial claims were essentially inline and unchanged while continuing claims ticked higher. Challenger job cuts were also positive, plunging from last month's high print (48k announced layoffs vs. 108k in January). AI was mentioned in the discussion of Tech sector job cuts.

ISM February Manufacturing and Services reports were also important releases. The Manufacturing PMI ticked slightly lower from last month (51.6 vs 52.4), but beat estimates and remained in expansion territory (>50). New Orders expanded at a slower pace than January. The standout item though was the jump in Prices, from 59.0 to 70.5- its highest reading since June 2022. Commentary was mixed- maybe a little better than last month’s overall but prices were a big focus.

The Services PMI was stronger than expected, at 56.1 vs 53.5 consensus and up from last month’s 53.8. Almost all line items increased, including New Orders. Inventories, Backlog and Export Orders jumped. Adding to the positivity was that Prices was the category that fell, though it remains well above 50.

The Feb Beige Book didn’t contain many changes from last month. Preliminary Q4 Unit Labor Costs of 2.8% q.q were higher than consensus (+2.0%) and accelerated from last month’s -1.8% decline (and Q4’s -2.9%). However productivity beat estimates (2.8% vs 1.9%) though down from last month’ s 5.2%.

Advanced Headline Retail Sales for January came in light (-0.2%) but the Control Group, which feeds into GDP, outperformed (+0.3%). The big declines included Department Stores (-6.0%) Health/personal care (-3.0%), Gas Stations (-2.9%), Clothing/accessories (-1.7%),  Motor vehicles/parts (-0.9%). Furniture/furnishings (+0.7%), building materials/supplies (+0.6%), and miscellaneous and nonstore (i.e. online) (+2.0%).

There was no safety haven bid for Treasuries for most of this week. Yields rose over 15bp across the curve. The move would have been higher if not for Friday’s modest rally in Treasuries following the labor data. The 10y had just broken below 4.0% last week before ripping back up this week. Odds for a June Fed rate cut rose to 39% on Friday from 30% on Thursday after the jobs data, but had been 46% a week ago before the Iranian action began.

European yields also rose sharply, especially in the UK which saw gilt yields spike 20-30bp across the curve. The Iranian tensions coincided with a complete repricing for March rate cut probabilities from the BOE, from 80% before the conflict to 20%.

The Dollar saw strong gains this week on a confluence of haven bid and rising yields, though pulled back on Friday. It was stronger on all the major crosses, including other havens the Yen and Swiss Franc. The greenback had been strengthening since late January and the US Dollar Index cleared 99 before pulling back Friday.

The Iranian conflict will of course be the focal point. CPI and the January PCE will headline the US economic data and JOLTS will provide a follow-up to this week's weak payroll report. Oracle, HPE, Constellation Software, Vail, Kohls, Dollar General, Dicks, Adobe, Rubrik and Ulta will be some of the prominent earnings reports. Lastly, the clocks move ahead one hour Sunday night. No excuses now. Take care and enjoy your weekend.

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