Economic Update 3-02-2026

Economic data for the week included a stronger-than-expected report for producer price inflation, moderate gains in housing prices and construction spending, as well as some improvement in consumer confidence.

Equities were mixed, showing weakness in the U.S., but strength internationally. Bonds gained as investors moved away from risk. Commodities also gained, continuing recent strong trends in metals.

U.S. stocks fell back last week, as tariff/trade announcements from the prior weekend and continued concerns over the impact of artificial intelligence on certain sectors and particular high profile companies continued to weigh on investor minds. By sector, defensives gained on a negative week, as would be expected, led by utilities, health care and consumer staples, all up over 2%, as well as energy, which benefited from recent geopolitical concerns about oil prices. Lagging were cyclicals financials and technology down by roughly -2% each. In tech, NVDIA’s earnings beat consensus, but not by enough to turn sentiment higher, as the bar had been set fairly high. An unmistakable trend has been a shift in investor sentiment away from AI-related tech software toward physical assets, and ‘value’ stocks, some of which has been related to the massive data center infrastructure build-out, but also strong materials prices, and general anticipated positive cyclical effects from fiscal/tax measures.

Stocks started down Monday morning, as Europe pushed back on the 15% global tariff announced over the prior weekend, being in violation of their treaty. Uncertainty about implementation for the updated tariffs continues, with 15% quoted by the administration, but 10% seemingly in place in practice across the board. Per work done by the Penn Wharton Budget Model, considering substitution effects, the weighted average effective rate has fallen from 9.8% to 9.1% (and from 13.3% to 11.5% if substitution effects weren’t considered) after the Supreme Court decision and administration’s announcement (relative to a pre-policy change 2.4% rate in Jan. 2025), so there has been little change in effective rates in the last few weeks so far. The concern lies with the emergency measures, albeit temporary, and risky politically, with affordability remaining a key concern. Stocks took another negative turn Friday as a hotter-than-expected PPI report cast more doubt on inflation being under control. Obviously markets were closed prior to the joint U.S.-Israel strikes on Iran, which could have ramifications on market sentiment for the coming week, at least in the near term. (Historically, it’s worth pointing out that even more dramatic and longer-lasting wars have created little more than dents in the upward-sloping chart of U.S. stock prices over the past century, with less severe military actions creating even less of an impact.)

Foreign stocks outgained U.S., experiencing a positive week, led by the U.K. and Japan, while Europe declined slightly. Emerging markets were led by South Korea and Taiwan (related to technology component demand), as well as South Africa (closely tied to strength in metals/mining stocks). With concerns over AI’s impact on some technology stocks in the U.S. and last year’s strong returns have kept sentiment and flows skewed towards foreign diversification as well as hard assets.

Bonds experienced a positive week, with U.S. treasuries outperforming corporates, along with interest rates falling across the yield curve. Foreign bonds gained as well, with minimal currency impacts as the U.S. dollar was little-changed for the week. While less of a concern in more transparent public debt markets, some of the AI disruption seen in equities has drifted into areas of private credit, of which one of the larger owned sectors is software, where the natural concern is less about terminal value, but more so about repayment of debt and over what timeframes any problems could surface.

Commodities gained again across the board, continuing technical strength, and led by precious metals (due to a spike in silver prices) and industrial metals. Crude oil rose about a percent last week to $67/barrel, as U.S.-Iran negotiations continued with hopes for a deal, although that all fell apart with joint U.S.-Israel military air strikes on Iran over the weekend that were on the more severe side. Due to Iran’s status as a fairly large producer (exports of 1.5+ mil. barrels/day), general political instability there, retaliatory strikes on neighbors, and threats to close the Strait of Hormuz (through which one-fifth of global oil passes, mostly to Asia), chances of a crude oil price spike were high going into this week (with oil futures up over 8% early Monday). Conversely, natural gas prices fell back again by over -4% last week along with milder U.S. weather expected after a severe winter storm passed.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.