Markets caught between strength and strain
Summary
Markets rebounded, with the S&P 500 rising 3.38% and breaking a five-week losing streak in a holiday-shortened week. U.S. equities closed April 3 for Good Friday. Oil eased slightly to $109 per barrel, while the 10-year Treasury yield declined to 4.35%, signaling modest relief in inflation expectations.
Geopolitics adds uncertainty, not clarity
Markets looked for clarity following Wednesday’s address on the Iran conflict, but uncertainty remained. While the administration indicated the conflict may be nearing completion, it also signaled continued military activity in the near term. For investors, the issue is not the message itself, but the lack of a defined end state. Prolonged disruption in the Strait of Hormuz and broader regional instability continue to support elevated oil prices and reinforce inflation risk. Markets reflected that tension. Oil remained elevated and equities softened following the address, as investors reassessed the likelihood of a longer-lasting geopolitical shock.
Labor market strength persists, with underlying softness
The March jobs report pointed to continued resilience in the U.S. labor market. Nonfarm payrolls increased by 178,000, well above expectations, and a sharp reversal from February’s revised decline. Revisions were mixed, and the three-month average remains modest at roughly 68,000. The unemployment rate edged down to 4.3%, driven in part by lower labor force participation. Together, this points to a labor market that is holding up, but the strength is not uniform. That dynamic complicates the policy path. Treasury yields moved modestly higher after the release, reflecting an economy that continues to expand even as energy-driven risks build.
Fed reinforces commitment to restrictive policy
Chair Powell’s remarks at Harvard underscored a clear message: The Fed remains focused on restoring price stability and is prepared to hold rates higher for longer if needed. Energy-driven inflation remains a concern, and policymakers appear willing to accept some economic softness rather than risk easing too soon. Markets adjusted accordingly, with yields drifting higher and expectations for rate cuts pushed further out.
The week ahead
The next set of data will test whether current pressures are building or stabilizing. The March CPI report will be the key release, offering insight into how much elevated energy prices are feeding into core inflation. The third estimate of fourth quarter 2025 GDP, due April 9, will provide a final view on year-end growth and any revisions to momentum.
Disclaimers
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