The Top Line
The U.S. economy is caught between rising prices and slowing growth — a tough combination for the Fed to manage. A conflict with Iran sent gas prices soaring in March, and those effects are still rippling through the economy.
We are operating in a stagflationary transitional regime where above-target inflation, an unresolved geopolitical energy shock, and near-stall-speed growth are all in play simultaneously. March CPI surged to 3.3% year-over-year — its highest reading in nearly two years — driven by the 21.2% gasoline spike that followed the U.S.-Iran conflict's partial closure of the Strait of Hormuz; core CPI, however, printed a considerably more benign +0.2% MoM and +2.6% YoY, indicating the energy shock has not yet materially penetrated the broader price structure. The Federal Reserve is operationally paralyzed ahead of the May 1 FOMC decision: cutting is foreclosed with headline inflation running 3.3% and a March PCE print (due April 26) likely to come in well above the February reading of 2.8%; hiking would risk accelerating a growth deceleration that is already evident in the data. The policy path forward is one of imposed patience — the Fed can only wait and watch whether the Iran ceasefire, now barely a week old and with the Strait of Hormuz still largely blockaded, will unwind the energy premium that has distorted every major inflation reading since March.
Inflation
In March, gas prices jumped more than 21% in a single month because of the U.S.-Iran conflict. That pushed overall inflation to 3.3% — the highest reading in nearly two years. Underneath the gas price shock, though, prices for everyday things rose a much calmer 2.6% over the past year. The Federal Reserve — which adjusts interest rates to keep inflation near 2% — has no room to cut rates right now with gas driving prices this high. A key inflation reading comes out April 26th and will be the last major data point before the Fed meets May 1st.
Key Takeaway
Gas prices from the Iran conflict drove inflation higher in March — but underlying prices stayed calm, so interest rates are likely to hold steady for now.
The March CPI report, released April 10th, delivered the clearest illustration yet of the bifurcated inflation environment the Fed is navigating. The headline print — +0.9% MoM and +3.3% YoY — was in line with consensus and reflects almost entirely the energy complex: the gasoline index surged 21.2% in a single month and accounted for nearly three-quarters of the total monthly increase, directly traceable to Iran's blockade of Strait of Hormuz shipping lanes following the conflict that began February 28th. Beneath the surface, however, the inflation picture was considerably more constructive. Core CPI came in at +0.2% MoM and +2.6% YoY, both 0.1 percentage point below forecast. Shelter rose just 0.3% for the month and is now running at 3.0% annually — tied for its lowest reading since August 2021. Food was unchanged month-over-month, with food at home actually declining 0.2%. The data suggest that, absent the energy shock, the disinflationary trend in underlying consumer prices remains intact.
The critical forward question is whether the energy-driven surge will feed through to core prices in the months ahead, and whether the Iran ceasefire — announced just last week — will prove durable enough to unwind the commodity premium before it does. Brent crude peaked near $118 per barrel by the end of March before declining to approximately $96 by April 10th; WTI spot has since settled further to $91.44 as of Wednesday's close, still roughly $21 above pre-conflict levels. The Strait of Hormuz remains largely blockaded despite the ceasefire, according to reporting, meaning the near-term supply disruption has not been resolved. Services excluding energy rose 0.2% MoM and 3.0% YoY — manageable — but any second-round pass-through from elevated input costs into transportation, logistics, and manufacturing sectors could push core readings higher by Q3. Amazon's April 17th implementation of a 3.5% fuel and logistics surcharge for third-party sellers is an early data point to monitor. Meanwhile, the February PCE reading — the Fed's preferred gauge — already stood at 2.8% YoY before incorporating any of the March energy shock; the March PCE print, due April 26th, will be the definitive read on whether headline energy inflation has yet contaminated the broader core basket.
The Fed enters the May 1st FOMC decision with its hands effectively tied. Cutting into a 3.3% CPI print — even an energy-distorted one — would be politically untenable and would risk unanchoring inflation expectations that are already elevated; the Philadelphia Fed prices paid index running at 44.7 in March signals input cost pressures are re-accelerating in the manufacturing sector. But the growth backdrop offers no comfort for hiking: real average hourly earnings fell 0.6% in March as nominal wage gains of just 0.2% MoM were overwhelmed by the price spike, and the broader consumption outlook is softening. Markets have already essentially removed rate cuts from the 2026 table, and futures pricing puts the probability of a June cut at roughly 35% — down from 55% before the March CPI report. The Fed's blackout period begins April 23rd, meaning no further Fed communication will shape expectations before the decision.
Key Takeaway
The Fed is in a holding pattern ahead of the May 1st decision, with the March CPI energy spike making near-term cuts politically and analytically indefensible despite benign core readings. The March PCE print on April 26th — the last major data point before the Fed goes dark — will be the decisive signal: a reading above 2.9% YoY would effectively remove June from the rate-cut conversation entirely.
Risk and Positioning
Markets were relatively calm yesterday — stocks rose, and the fear gauge (VIX, which measures how nervous investors are) eased a bit. But gold, which people buy when they are worried, is still sitting near all-time highs even after a small pullback. That tells you the underlying anxiety hasn't fully gone away. The Iran ceasefire is only one week old, and oil is still about $21 a barrel higher than it was before the conflict started.
Key Takeaway
Markets feel calmer on the surface — but gold near all-time highs tells you investors are still cautious underneath.
Wednesday's tape offered a surface-level risk-on signal — SPX gained 0.80%, the VIX eased 1.03% to 18.18, and gold pulled back 1.05% to $4,790.94 — but the yield curve delivered a more complicated and ultimately more important message. The session was characterized by a bear steepener: the 10-year Treasury yield rose 3.3 basis points to 4.281%, while the 2-year advanced only 1.6 basis points to 3.761%, widening the 2s10s spread to approximately 52 basis points. Bear steepeners in a stagflationary macro regime carry a categorically different signal than in a standard expansion: rising long yields driven by either re-accelerating inflation expectations or term premium expansion are not equity-friendly on a sustained basis, even when single-session price action suggests the market is shrugging them off. The equity rally and declining VIX are most plausibly explained by short-covering and relief-rally dynamics following the Iran ceasefire announcement — not by a genuine reassessment of the macro outlook.
Gold's position in this cross-asset picture warrants emphasis. A 1.05% pullback to $4,790.94 is entirely consistent with profit-taking on a risk-on day, and should not be read as structural reversal. The more important signal is that gold remains near $4,800 even after the largest equity gain in recent sessions — a sign of durable safe-haven demand and persistent dollar confidence erosion. The DXY at 98.055 (-0.05% Wednesday) continues to trade well below levels that prevailed before the Iran conflict, and the combination of structurally weak dollar and structurally elevated gold remains the clearest expression of the market's underlying anxieties about fiscal trajectory, reserve currency credibility, and the Fed's capacity to respond to a geopolitically-driven inflation shock without damaging growth. VIX at 18 is not complacent by historical standards — it reflects a market that has partially priced in the ceasefire relief but has not declared the macro tension resolved.
In energy, Wednesday's WTI data requires careful interpretation. Spot settled at $91.44 (-0.80%) while the CL1! front-month futures contract closed essentially flat at $91.29 (+0.01%). The persistence of spot above front-month futures confirms the oil market remains in backwardation, with prompt delivery still commanding a premium over forward delivery — a structural signal of tight near-term supply that reflects the Hormuz disruption even after the ceasefire. The divergence in daily moves — spot selling off while futures were unchanged — suggests marginal easing in the most acute near-term supply anxiety, consistent with the one-week-old ceasefire narrative providing modest tactical relief. This is not a trend reversal. At $91.44, WTI remains approximately $21 above pre-conflict levels, and every dollar of that premium is a persistent stagflationary headwind embedded in input costs, consumer purchasing power, and the forward path of PCE.
Key Takeaway
The bear steepener is the dominant risk signal from Wednesday's session: the long end is being repriced independently of near-term monetary policy, which historically compresses equity multiples and signals either inflation re-acceleration or fiscal term premium expansion — both of which are adverse to sustained equity gains. The equity rally should be treated as tactically fragile until the 10Y yield stabilizes.
Sector and Cross-Asset Analysis
Stocks broadly gained yesterday, with most sectors joining the relief rally tied to the Iran ceasefire. Oil prices dipped slightly, but oil is still well above pre-conflict levels — that continued pressure squeezes consumer budgets and business costs alike. Banks and financial companies have a mixed picture: rising long-term interest rates can improve their lending margins, but they also signal that inflation concerns haven't gone away. The U.S. dollar stayed almost flat, which is generally good news for companies with international sales.
Key Takeaway
Most of the market rallied on ceasefire optimism yesterday — but elevated oil prices are still a quiet drag on the economy.
Wednesday's broad-based equity advance of 0.80% in SPX occurred in the context of a market that appears to be rerating the Iran ceasefire as a partial risk-off unwind rather than as a signal of fundamental macro improvement. The energy sector faces a conflicted session — WTI spot declined 0.80%, which is directionally negative for producer revenues, yet structural backwardation and the Strait of Hormuz overhang continue to provide a price floor. Financials are navigating the bear steepener with mixed implications: net interest margin benefits from a steeper curve are real, but the long-end move also reflects term premium expansion that raises the discount rate across credit books. Technology and growth-oriented sectors, which are most sensitive to long-duration yield moves, participated in Wednesday's rally despite the 10Y advancing 3.3bps — a tolerance that is sustainable at the single-session level but becomes increasingly strained if the steepener continues through the week.
The cross-asset picture is defined by three simultaneous dynamics that are not fully consistent with each other. First, equities are pricing in a soft-landing relief narrative tied to the ceasefire. Second, the long end of the Treasury curve is pricing in higher-for-longer inflation or term premium expansion, which is structurally at odds with the equity multiple. Third, gold at $4,790 and DXY at 98 represent a dollar confidence signal that has not reversed despite the ceasefire — the market is telling us that the geopolitical overhang has not been resolved, only paused. Historically, when these three signals diverge, it is the rates market that tends to lead and the equity market that catches up. The 52-basis-point 2s10s spread is not yet at historically alarming levels, but its direction — widening from inversion less than a year ago — demands ongoing monitoring. The equal-weight story within equities will be a key signal: narrow leadership concentrated in energy and mega-cap defensives would confirm the fragility thesis; broad participation in cyclicals and small caps would suggest the market is genuinely repricing for a soft landing.
Internationally, the ceasefire and oil price decline from peak levels are broadly supportive for energy-importing economies in Europe and Asia, who bore disproportionate pain from the Hormuz disruption. The DXY remaining near 98 signals relative dollar weakness, which historically provides a tailwind for emerging market assets and international equities priced in foreign currencies. For U.S. investors with international exposure, the dollar move is not trivial — it represents a meaningful headwind translation reversal from the strong-dollar environment that prevailed pre-conflict. The March Philadelphia Fed prices paid index at 44.7 remains elevated and will be worth comparing against today's April reading for any signs that input cost pressures are either intensifying into Q2 or beginning to ease with oil's retreat from the $118 peak.
Key Takeaway
The market is simultaneously running a soft-landing relief trade in equities, a term premium expansion trade in long Treasuries, and a dollar confidence erosion trade in gold — three positions that cannot all be right at once. The resolution of this cross-asset contradiction, likely catalyzed by the March PCE print on April 26th or today's Philly Fed April release, will set the directional tone for the balance of Q2.
Economic Data & Events
Today's Calendar
- 6:30 AM MT — Initial Jobless Claims (how many people filed for unemployment benefits last week) — Moderate Impact
Previous: 219,000 — last week's number ticked up; another rise could signal the job market is softening
- 6:30 AM MT — Philadelphia Fed Manufacturing Survey (a monthly survey of factory managers in the mid-Atlantic region — a reliable pulse check on broader manufacturing) — Moderate Impact
Previous: 18.1 in March, a six-month high; today's April reading tests whether that momentum held
- 7:15 AM MT — Industrial Production & Capacity Utilization (measures how much U.S. factories, mines, and utilities produced in March) — Moderate Impact
- 8:00 AM MT — Business Inventories (how much product businesses are holding in stock) — Low Impact
Note: Retail Sales data, originally scheduled for today, has been pushed to April 21st.
Today's most watched release is the Philadelphia manufacturing survey at 6:30 AM MT. In March, factory activity hit a six-month high — today's number shows whether that held into April or faded. Also watch initial jobless claims: last week's number ticked up, and any further rise could signal the job market is starting to soften. The big one to circle on your calendar is April 26th, when the government releases its preferred inflation reading — that number lands just before the Fed meets on May 1st.
Key Takeaway
The Philadelphia manufacturing survey at 6:30 AM MT is today's key read — it will show whether factory momentum is holding into April.
Today's Calendar
- 6:30 AM MT — Initial Jobless Claims — Moderate impact
Consensus: ~210,000 | Previous: 219,000 (week ending April 4th, the highest one-month reading since mid-February; the prior week had printed a near two-year low of 202,000)
- 6:30 AM MT — Philadelphia Fed Manufacturing Index (April) — Moderate impact
Consensus: ~10.0 | Previous: 18.1 (March, a 6-month high that crushed the 8.3 consensus; prices paid surged to 44.7, signaling re-accelerating input cost pressures)
- 7:15 AM MT — Industrial Production & Capacity Utilization (March) — Moderate impact
Consensus: ~+0.3% MoM | Previous: February data pending confirmation — first March read incorporating energy sector disruption dynamics
- 8:00 AM MT — Business Inventories (February) — Low impact
Consensus: ~+0.3% MoM | Previous: +0.3% MoM — lagging indicator; context for Q1 GDP inventory contribution
Note: Advance Retail Sales for March 2026, originally scheduled for today, has been rescheduled by the Census Bureau for April 21st.
Week Ahead
The week's analytical center of gravity shifts to Tuesday when Advance Retail Sales (rescheduled from today) and Housing Starts both print on April 21st — the first hard spending data incorporating March's energy shock. The most consequential release of the month remains the March PCE Price Index on April 26th, the last major inflation data point before the FOMC blackout period begins April 23rd and the May 1st policy decision. No rate action is expected at May 1st; the June meeting probability currently sits near 35%.
What We're Watching
Fed Policy: May 1st Decision
No rate action is expected at the May 1st FOMC, but the statement's language on energy-driven inflation versus core trajectory will be the market-moving variable. The Fed blackout begins April 23rd; the March PCE print on April 26th is the last data point that can shift expectations before the decision. June cut probability sits near 35% — any PCE print above 2.9% YoY removes June from the table entirely.
Rates: Bear Steepener Watch
The 2s10s spread widened to approximately 52bps on Wednesday, driven by a bear steepener where the 10Y (+3.3bps to 4.281%) outpaced the 2Y (+1.6bps to 3.761%). In a stagflationary regime, this dynamic reflects either rising long-end inflation expectations or term premium expansion from fiscal supply concerns — both adverse to equity multiples. A 10Y move above 4.40% would represent a material headwind for rate-sensitive equity sectors and long-duration growth.
Equities: Relief Rally vs. Structural Regime
Wednesday's 0.80% SPX gain should be stress-tested against the bear-steepening yield curve and gold's reluctance to fully unwind even on a risk-on day. Market breadth — specifically whether equal-weight participation is expanding alongside the cap-weighted index — is the cleanest signal of whether this is genuine repricing or technically-driven short-covering. A narrowing leadership back toward defensive and mega-cap energy concentration would confirm the fragility interpretation.
Key Risk: Ceasefire Durability and Energy Pass-Through
The U.S.-Iran ceasefire, now barely one week old, remains tenuous with the Strait of Hormuz still largely blockaded per reports as of April 10th. WTI at $91.44 sits approximately $21 above pre-conflict levels — every dollar of that premium is embedded in the forward PCE trajectory. A ceasefire breakdown that drives WTI back toward $100+ would eliminate any residual probability of 2026 Fed cuts and risk genuine stagflationary entrenchment. Amazon's April 17th fuel surcharge implementation is an early signal of energy costs feeding into services inflation.
The Bottom Line
Yesterday's stock rally was a relief trade tied to the Iran ceasefire — not a signal that the bigger economic questions have been answered. Today's manufacturing and jobs data will be the first test of whether that optimism holds.
Treasuries are bear-steepening at the margin — the 10Y rising 3.3bps to 4.281% against a 1.6bp move in the 2Y widened the 2s10s spread to approximately 52bps — and this structural signal should carry more analytic weight than Wednesday's single-session equity bounce. SPX's 0.80% gain and VIX's easing to 18.18 are consistent with a ceasefire relief trade rather than a fundamental macro reassessment, operating in the shadow of a still-backwardated oil market at $91.44, gold firmly above $4,790 despite profit-taking, and a dollar that has been structurally repriced to 98.05 DXY. Today's session hinges on the 6:30 AM MT double-barrel of Philly Fed Manufacturing and Initial Claims: a Philly print that deteriorates sharply from March's 18.1 toward or below consensus of 10 — particularly if accompanied by elevated prices paid — would confirm that manufacturing momentum is fading just as input cost pressures re-accelerate, a textbook stagflationary signal that could unwind yesterday's gains; a claims print above 220,000 would add a labor market deterioration layer to that narrative. Resistance for SPX sits near the 7,050–7,075 zone; a sustained break above requires either yield stabilization or evidence that the ceasefire is genuinely unwinding the energy premium.
Disclosure — AI-Assisted Content & Regulatory Notice
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.
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