Outlook Geopolitical conflicts often are associated with stock market pullbacks, but the impact tends to be mild (typically less than 10%) and recovery happens relatively quickly.1 This is because uncertainty, in general, makes putting money into risk assets (like stocks) unappealing for most investors. As a result, a normal volume of sellers can outnumber a more cautious group of would-be buyers. However, once rational investors gain more confidence that the geopolitical event (which caused uncertainty to rise in the first place) doesn't have a deleterious effect on the profits of most stocks, they feel better about conditions in the market - and put their money to work. So far, this is our general investment perspective on our current military involvement with Iran. The broader economic backdrop continues to be constructive for earnings growth. Absent a significant change in perspective, we are looking at any significant pullback as more of an opportunity than a serious problem. Above all, our primary thoughts remain with the members of our military currently in harm’s way; we are deeply grateful for their service and the sacrifices made by them and their families during this period of heightened tension. . . .
Equity Markets: Volatility Driven by Tariffs, Geopolitics, and Inflation U.S. equities experienced heightened volatility throughout the week as investors navigated a complex mix of surging inflation data, mounting geopolitical tensions with Iran, and continued hesitation around AI-related investment. Inflation Surprises Spark Market Pullback Market sentiment deteriorated sharply late in the week following the release of the January Producer Price Index (PPI), which exceeded expectations. Headline PPI increased 0.5%, above the projected 0.3%. While core PPI surged 0.8%, more than double consensus estimates.2 This unexpected inflation spike raised concerns that the Federal Reserve may postpone potential rate cuts, which contributed to a broad pullback in equities. Geopolitical Tensions with Iran Escalate Simultaneously, geopolitical tensions intensified as discussions involving Iran deteriorated. Concerns over potential military escalation pushed crude oil prices nearly 3% higher, amplifying inflation pressures and raising concerns about margin compression for U.S. companies. AI and Tech Sector Earlier in the week, the S&P 500 remained mostly flat for February, reflecting heightened scrutiny of industries tied closely to AI. Earlier optimism around AI‑driven innovation has given way to questions about whether elevated levels of capital investment are sustainable amid tightening financial conditions.
Fixed Income Markets: Yields React to Inflation, Tariffs, and Geopolitical Stress The fixed income landscape experienced its own volatility as Treasury yields adjusted in real time to shifting macroeconomic forces, including inflation surprises, tariff uncertainty, and geopolitical tensions. Yields Rise on Inflation Shock Following the hotter-than-expected PPI reading, Treasury yields initially drifted higher. The 10 year Treasury yield reached approximately 4.09%, with investors pricing in the possibility that the Fed may maintain a restrictive policy stance for longer than previously anticipated. Flight to Safety on Iran Concerns and Tariffs As the week progressed and geopolitical tensions with Iran escalated, paired with rising crude prices and uncertainty surrounding future U.S. tariff actions, investors shifted toward defensive positioning. This flight to safety drove yields lower, with the 10 year Treasury yield falling to 3.97%, its lowest level in four months, while the 2-year Treasury yield dropped to 3.38%.
[1] https://www.investopedia.com/solving-the-war-puzzle-4780889 [2] Producer Price Index News Release summary - 2026 M01 Results
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