Market Currents: Daily Briefing
Quantitative analysis of current market conditions
Market Snapshot
The Top Line
We are operating in a late-cycle U.S. expansionary regime under acute geopolitical stress, with the macro expansion intact but increasingly threatened by stagflationary crosscurrents. GDP growth remained solid through 3Q25 at 4.3% annualized, and manufacturing has now expanded in consecutive months with ISM printing 52.4 in February — but the prices-paid subindex exploded 11.5 points to 70.5, its highest reading since June 2022, signaling tariff-driven cost pressures now embedded in the supply chain. The weekend U.S.-Israel military strikes on Iran — resulting in the death of Supreme Leader Khamenei — have closed the Strait of Hormuz to commercial shipping, spiking WTI crude over 8% to $72.74 and adding an energy-driven inflation premium that the Fed has no easy tool to address. January CPI printed a constructive 2.4% YoY (core 2.5%), but February's PPI surprise at +0.5% MoM and the Hormuz disruption have rapidly unwound that optimism; markets have now pushed the first fully-priced rate cut back from July to September 2026.
Inflation
The inflation picture entered March with an encouraging January CPI print — headline at 2.4% YoY, core at 2.5%, both slightly below consensus and the lowest core reading since April 2021. Services inflation remained the primary sticking point, though shelter continued its gradual deceleration. The optimism proved short-lived. The January PPI, released February 27th, delivered a jarring upside surprise: headline PPI rose 0.5% MoM (consensus 0.3%), and core PPI surged 0.8%, more than double expectations. This marks the sharpest monthly gain in core wholesale prices in months and signals that tariff pass-through into producer margins is accelerating rather than fading. ISM Chair Susan Spence specifically flagged that prices will likely rise again in March, and historically, ISM prices-paid readings above 70 have presaged CPI spikes within three to six months.
The Fed enters this environment with a funds rate of 3.50–3.75%, having paused after three consecutive 25bp cuts in late 2025. Core PCE was last formally reported at 2.8% for September 2025 (the government shutdown delayed subsequent releases), with December CPI-implied PCE estimated by Fed staff at approximately 3.0%. The Fed's dual mandate is under genuine tension: inflation remains above target with a re-acceleration risk, while labor market hiring has been running at only ~15,000 jobs per month over the prior year. The geopolitical shock — specifically the Hormuz closure and resulting energy price surge — now introduces an exogenous supply-side inflation impulse that the FOMC cannot fight with rate hikes without compounding growth damage. Vice Chair Jefferson has framed the tariff-driven goods inflation as a "one-time price level shift," but two consecutive months of hot PPI and a potential energy spike challenge that sanguine interpretation.
Key Takeaway
The Fed remains on hold through at least the March 17–18 FOMC meeting, with 92%+ probability priced by CME FedWatch. Financial conditions have tightened sharply since Friday on surging yields and the geopolitical shock. Two 25bp cuts remain in consensus pricing for 2026, but the first is now expected in September — not June — with the ISM prices-paid surge and Hormuz disruption creating a genuine risk that those cuts are deferred further into year-end.
Risk and Positioning
Markets opened Monday in outright risk-off territory, with the S&P 500 falling as much as 1.2% intraday before staging a remarkable dip-buying reversal to close essentially flat at 6,881.62 (+0.04%). The recovery was led by mega-cap technology — Nvidia, Microsoft, and similar cash-rich names — which investors positioned as relatively insulated from war-related economic disruption. This pattern is telling: participation in the recovery was narrow and concentrated, not broad-based. VIX surged between 8% and 13% on the session, breaching the psychologically important 20-level and closing in the 21–22 range (sources diverge; prior close was 19.86). A VIX above 20 is historically associated with elevated uncertainty regimes, and the move above the long-term mean of ~19 suggests the era of suppressed volatility is transitioning.
Equity positioning metrics underscore the fragility. AAII bullish sentiment fell to 33.2%, down sharply from 49.5% in mid-January, and bearish sentiment has been rising steadily. Travel, airline, hotel, and energy-importing sectors experienced significant selling, with United Airlines falling more than 6% at the open. Energy equities — Exxon, Chevron, ConocoPhillips — surged on the supply shock thesis. Gold spiked to near $5,400/oz, reflecting simultaneous safe-haven and inflation hedge demand. Critically, the "typical safe-haven bid in bonds failed to materialize" as inflation concerns overrode the defensive impulse — a stagflationary signal that warrants close attention. The 10-year yield rose 10bps to 4.05% on the session, rejecting the conventional risk-off Treasury bid.
The dollar's behavior was also instructive. The DXY rose 0.5% to 98.00, a five-week high, as the U.S. dollar attracted safe-haven flows — but the move was far more modest than one would expect given the severity of the geopolitical shock, suggesting residual skepticism about dollar-haven status in a conflict where U.S. military engagement creates its own uncertainties. High yield credit spreads are not yet in distress territory, but the cocktail of rising yields, VIX above 20, and a geopolitical supply shock creates conditions where spread widening could accelerate if the Hormuz disruption proves prolonged.
Key Takeaway
Markets are in a transitional risk-off/mixed posture with VIX now above 20 — the first sustained breach in months — and realized volatility likely to re-price higher. The most acute near-term tail risk is a prolonged Strait of Hormuz disruption driving energy prices to levels that reignite inflation and force the Fed to defer cuts indefinitely. Secondary risk: narrow equity leadership (mega-cap tech) masking underlying deterioration in breadth and cyclicals.
Sector and Cross-Asset Analysis
Monday's price action revealed sharp sector bifurcation driven almost entirely by the Iran conflict narrative. Energy was the clear winner: Exxon, Chevron, and ConocoPhillips advanced 3–5% in premarket and held gains through the session, as WTI crude surged to $72.74 (+8.4%) and Brent to $79.45 (+9%). Defense contractors — Northrop Grumman, Palantir — also outperformed, benefiting from the escalation premium. Software staged an impressive mid-session recovery; the iShares Expanded Tech-Software ETF (IGV) jumped ~1.5% off its lows, though it remains down over 21% year-to-date and more than 29% from its recent highs — a cautionary note that the dip-buying was tactical, not conviction-driven.
The travel and hospitality complex bore the brunt of the selling. United Airlines fell over 6%, American and Delta each dropped more than 5%, while hotel chains Marriott and Hilton slid 3–5%. Booking Holdings and Expedia fell 3–4%. This sector rotation is structurally coherent: higher oil prices, disrupted Middle East flight corridors, and elevated geopolitical uncertainty all compound to suppress discretionary travel. European markets were materially worse than U.S. equities — DAX fell 2.56%, CAC 40 dropped 2.17%, and the Euro STOXX 50 lost 1.6% — reflecting Europe's greater energy import dependence and proximity to geopolitical risk. The U.S. again demonstrated relative resilience, though that resilience is predicated on narrow mega-cap tech leadership rather than broad economic confidence.
Across asset classes, gold's surge to ~$5,400/oz is the most significant macro signal from Monday's session. The simultaneous breakdown of the bond safe-haven bid — yields rising despite equity weakness — combined with gold strength and dollar appreciation paints a classic stagflation risk-premium picture. Commodity markets beyond energy also reacted: copper held relatively steady (geopolitics don't directly impair global manufacturing demand), while agricultural commodities were mixed on shipping disruption concerns through the Gulf.
Key Takeaway
Leadership has rotated sharply to energy and defense, with mega-cap tech as a secondary haven play. Travel, hospitality, and European equities are the primary laggards. The absence of a Treasury safe-haven bid — yields rising in a risk-off event — is the single most important structural signal from Monday and confirms that inflationary concerns now dominate market psychology over growth fears.
Economic Data & Events
Today's Calendar
- 7:55AM MT - Fed Williams Speech - Moderate Impact
- 9:55AM MT - Fed Kashkari Speech - Moderate Impact
Week Ahead
Today's ISM Services PMI is the key scheduled data event. A print below 52 would add softness concerns to an already-complicated picture; a print above 52.5 with strong prices paid would further entrench the "no near-term cut" consensus. Friday's Non-Farm Payrolls report is the week's most consequential data point, with markets needing labor market resilience to offset the geopolitical noise.
What We're Watching
Monetary Policy
The Fed is effectively frozen. With funds at 3.50–3.75% and the March 17–18 meeting priced at 92%+ probability of no change, the committee will need to navigate commentary that neither validates imminent cuts (given PPI and energy shocks) nor triggers fears of a hiking cycle resumption. Watch Powell's language on 'transitory' versus 'persistent' energy inflation — any signal that the Hormuz disruption could delay the entire 2026 cutting cycle would reprice the front end aggressively. The critical threshold: if core CPI breaks above 3.0% YoY on a sustained basis, the two-cut consensus for 2026 collapses entirely.
Rates and Fixed Income
The 10-year yield at 4.05% has now reclaimed all the ground lost during the February disinflation rally, when it briefly traded below 4.0% on stagflation concerns. The 2s10s curve is steepening — consistent with a supply-shock inflation regime — as the front end is anchored by a paused Fed while the long end reprices energy-driven inflation expectations. Key level to watch: 4.25% on the 10-year. A sustained break there would signal that term premium is repricing materially and could weigh on equity multiples. Housing is already showing stress with mortgage rates threatening to climb back above 6%.
Equities
At a forward P/E approximately in the high-teens (the market peaked near 7,000 on the S&P 500 earlier this year), valuations are not extreme, but they leave no cushion for a sustained inflation or growth shock. The dip-buy in mega-cap tech on Monday was rational in isolation — these are cash-generative businesses with strong balance sheets — but the equal-weight S&P continues to lag the cap-weighted index significantly, and IGV's year-to-date losses of 21%+ indicate the AI-spending thesis is under scrutiny. Earnings quality and pricing power matter now more than narrative. We favor energy, defense, and high-free-cash-flow industrials; we are cautious on rate-sensitive sectors including utilities and real estate, and on high-multiple growth names within software.
Key Risks
The primary tail risk is a prolonged Strait of Hormuz closure extending beyond 2–3 weeks. Maersk has already suspended transits; if the disruption persists, WTI above $85–90 would create a genuine stagflationary shock with CPI reacceleration of 50–75bps by summer, forcing the Fed to abandon its cutting cycle. A secondary risk is the ISM prices-paid trajectory: at 70.5 and rising, this indicator historically foreshadows CPI spikes three to six months out. Third: the divergence between U.S. and European equity performance may accelerate if European energy supplies are meaningfully disrupted, with knock-on effects for dollar/euro and Treasury demand from European central banks adjusting their reserve allocation.
The Bottom Line
Treasuries are rejecting the conventional safe-haven playbook — the 10-year yield closing at 4.05% (+10bps) in a session when equities fell 1.2% intraday is a stagflationary fingerprint, not a soft-landing signal. Equity market internals are deteriorating beneath the index-level flatness: breadth is narrow, travel and discretionary sectors sold off hard, and the recovery was driven by a handful of mega-cap technology names alongside energy. Today's session will be driven by the ISM Services PMI at 10:00 AM ET and any geopolitical developments in the Middle East — a services print below 50 combined with a Hormuz escalation would likely test S&P 500 support at the 6,700–6,750 range, while a resilient print above 52 may stabilize the market near current levels. The overarching setup for this week is asymmetrically risky: the upside is bounded by inflation and geopolitical uncertainty, while the downside scenarios — a prolonged Hormuz closure or a hot CPI print — are both credible and not yet fully priced.
This briefing was drafted with the assistance of artificial intelligence tools. All content has been reviewed and approved by Thomas MacPherson, Investment Adviser Representative (Series 65) and Chief Compliance Officer, River Rose Financial, LLC, prior to publication. AI systems may produce errors, omissions, or outdated information; readers should independently verify data.
Market Currents does not constitute an investment advisory relationship, does not create a fiduciary duty, and does not include personalized investment advice. Subscribers should not rely on Market Currents as a substitute for individualized financial advice. This briefing is for informational purposes only. Market conditions change rapidly; all data and projections are subject to revision without notice.
River Rose Financial, LLC is a registered investment adviser with the State of Colorado. Registration does not imply a certain level of skill or training. Past performance is not indicative of future results. All investment strategies involve risk, including possible loss of principal.
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