U.S. stocks staged a relief rally last week on the hopes that the Iran war could come to a conclusion sooner rather than later. President Trump, however, in an address to the nation suggested that there are still at least weeks to go. Volatility in oil prices and inflation remain the key factors driving the markets. But a higher-than-expected jobs report on Friday adds as many questions as answers to the labor market picture.
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Market Moves
Weekly Market Snapshot:
- S&P 500: +3.4% – despite the uncertain messaging coming out of Trump’s national address, investors returned to risk assets with the belief that equities have fallen enough for the time being.
- Nasdaq 100: +3.9% – the recent correction in tech stocks has brought valuations back to reasonable levels and may be making the sector a compelling buy again.
- Russell 2000: +3.4% – small-caps finally kept up with the broader market; easing interest rates helped stocks more vulnerable to rate risk.
- VIX: 23.9 – a reading in the mid-20s still indicates heightened anxiety, but sentiment was definitely less fearful than it has been in recent weeks.
- Gold: +4.0% – when buyers return to stocks, bonds, and gold at the same time, it’s an indicator that inflation fears are subsiding (at least for the time being).
- 10-Year Treasury Yield: 4.31% – even as oil prices remain near multi-year highs, investors acted as if the end to the Iran war might be in sight.
Drivers:
Investors moved back into stocks, bonds, and precious metals as if the Iran conflict is nearing a resolution. We didn’t get a lot of evidence of this and it appears that tensions are still escalating without a definite exit strategy. With the S&P 500 declining by 9% at one point, it’s not unusual to see investors taking any sliver of hope as a reason to be buyers. I’d expect stocks will remain volatile for a while longer yet and further downside risk is still real. We won’t know until next week how the markets will react to Friday’s jobs report. My guess is that it’s another signal that inflation risk is still high.
Economic Highlights
A couple of the notable themes that stood out this week:
Trump Signals No End to the Iran War in National Address
When President Trump announced that he was going to address the nation regarding the war in Iran, the initial reaction was bullish. The markets anticipated a possible exit plan or at least a timeline for how long the conflict would last. Instead, there was no timeline. There was just the indication that it would be “weeks” if not longer. Stock futures dropped in the aftermath of the speech and spent the rest of the week moving in a volatile fashion.
The biggest threat to the economy will be what it does to inflation. The March inflation report will drop next week and it’s expected to come in at 0.9% month-over-month.1 This would be the biggest monthly increase since 2022, owing mostly to rising energy prices. Stock prices can rise, especially in the current environment where they’re being supported by double-digit earnings growth.
If the current conflict does last at least a few more weeks, it seems possible if not likely that inflation could hit 4% and gas prices at the pump could average $4.50 nationally.
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Jobs Report Delivers Good & Bad News
Last Friday’s all-important non-farm payrolls delivered a number that market was hoping to hear. But it came with a caveat.
In March, the U.S. economy added 178,000 jobs, the biggest monthly gain since December 2024.2 On the other hand, the February number was revised lower from a loss of 92,000 jobs to a loss of 133,000. It continues a trend going back well over a year where monthly payroll numbers get revised lower as more data comes in.
Source: Bureau of Labor Statistics.
While the March number was a positive, the non-farm payroll report isn’t giving us a sense of direction. Four of the past six months have reported a change of at least 133,000 jobs in one direction or the other. Since the beginning of 2025, the monthly figure has been positive in 9 months and negative in 6 months. This type of whipsaw up and down action doesn’t really confirm an expansion or contraction. The one thing we do know at this point is that job growth isn’t nearly as strong as it has been over the past few years.
The more important signal could come from the JOLTS job openings report. It’s showing the number of jobs available back down to post-COVID pandemic levels.3 This signals a lack of labor demand from employers that could be a broader sign of weakness.
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Retail Sales Rebound in Sign of Strength
Despite the concerns about inflation, high prices, and affordability, consumers still seem to be in a spending mood.
In February, U.S. retail sales shot higher by 0.6% month-over-month.4 That breaks a string of reports going back to September that showed consumer activity had stagnated.
Source: VettiFi and Advisor Perspectives.
There may not be a whole lot to read into with this report. For one thing, the number is lagged by a month compared to other economic data. Second, this report hasn’t really signaled a sharp contraction in consumer activity since the COVID pandemic. For all we hear about consumers broadly tightening up their wallets, we’re still just not seeing it in the data. Granted, the K-shaped economy means that the pain is being experienced in the bottom half while the top half are doing fine. Over the long-term, it’s difficult for an economy to expand without the lower and middle classes participating. But right now, it’s still holding up.
The Week Ahead
A few themes to watch next week:
In Summary
Don’t assume that last week’s sharp gains in U.S. equities are a sign that the bottom is in. Uncertain periods with higher volatility often feature sharp moves both up and down. The overall narrative right now remains largely unchanged until this conflict comes to an end. The inflation data from here on out is unlikely to be market-friendly. But it’s unclear how much of this is already priced in. In other words, expect more volatility from stocks, bonds, and precious metals for a while longer.
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