Oil Continues Its Rise, Stocks Fall Again

Stocks were lower again last week, now down for the third straight week, as the conflict in the Middle East/Iran rages on. Oil continues to be one of the biggest stories – last Sunday evening the price for oil spiked to $120/barrel, the highest since Russia invaded Ukraine in 2022, but settled down, ending the week just below $100/barrel, up about 50% since the start of the conflict. This drove energy to be the best performing sector again last week, for the second week in a row, rising 2.0%.

All four US market indices were down last week, led by the Dow’s 1.99% decline. The S&P 500 fell 1.60% while the tech-heavy Nasdaq fell 1.26%, down eight of the past nine weeks. Treasuries were weaker as the market priced in less rate cuts this year. The 10-year Treasury yield moved to the upper end of is 6-month range, rising 15 basis points last week, settling at 4.28%.

Energy’s outperformance did not begin with the recent geopolitical escalation involving Iran. The trend had already been underway since the start of the year, as investors began rotating out of growth sectors and into value-oriented areas of the market, with energy among the primary beneficiaries. Energy has gained over 28% year-to-date, outperforming the next best sector, consumer staples, by over 18%.

When it comes to oil, the worry has been how supply dries up over the coming weeks or days as one of the most important shipping routes remains shut off from tankers trying to pass through. Iran has threatened to strike any ship passing through the Strait of Hormuz, a 24 mile wide (at the narrowest part) strait that provides the only sea passage from the Persian Gulf to the open ocean. More recently they have threatened, and reportedly have prepared, to mine the passageway.

The US reportedly said it would escort tankers and cargo ships through the strait, but took back that guarantee due to the high risks involved. Over the past week, the number of tankers/ships anchored and waiting to pass has grown to the hundreds.

Oil producing countries around the Persian Gulf have been forced to fill storage tanks to the max and now have to limit production. If the situation is resolved soon, it will still take time for production to ramp back up and return to normal, which means oil prices could be elevated for longer. Because of this and the uncertainty it will involve (including to the economy/consumer as well as inflation), we would expect volatility to continue in the weeks ahead.

The IEA (International Energy Agency) announced last week a collaborative effort to reduce the impacts by agreeing to release a combined 400 million barrels of oil from strategic reserves, with the US reportedly releasing 182 million barrels. While this calmed oil markets somewhat last week, it is not a long term solution. Global oil demand is over 100 million barrels per day.

Meanwhile, the worst sector year-to-date is financials. The sector is down over 11% this year. The biggest reason is related to growing concerns around private credit and leveraged loans, as discussed the past couple weeks.

Last week saw more headlines about other private equity funds restriction redemptions – Morgan Stanley and Cliffwater being two big ones that saw large outflows and were forced to impose restrictions.

Banks are being impacted because they have around $300 billion exposure to private credit lenders (which fund many leveraged companies). Some banks are already marking down these loans as credit conditions tighten – JPMorgan marked down some software company related loans and restricted lending to funds holding those loans. If defaults rise, we will see banks face bigger losses. At this time we still do not see this as a theme-changing concern, but are monitoring it closely.

Because of the rise in oil and the potential impacts on inflation, markets have repriced the odds of rate cuts this year. The futures market is now implying only 20 basis points of rate cuts this year, down from around 50 basis points just a few days ago. The chance of seeing one rate cut by the end of the year is nearly 50/50 (down from over 90%).

Markets will hope to gain more insight on the Federal Reserve’s thoughts on this topic this week after the FOMC holds its second policy meeting of the year on Wednesday. The policy announcement comes at 2:00pm, where we expect no changes in rates. As usual, the most important part will be Chairman Powell’s press conference after the meeting where we will see questions on the conflict, oil market, as well as the ongoing DOJ investigation from the Trump Administration.

Another big event this week is Nvidia’s GTC developers conference, its annual global conference on artificial intelligence. These events typically involve key announcements and new products/developments.  

Recent Economic Data



• Consumer Price Index: Consumer inflation ticked slightly higher in February while the annual rate remained unchanged and all numbers meeting expectations with no big surprises. The consumer price index increased 0.3% in the month with energy prices driving a decent amount of the increase due to a 11.1% increase in fuel, 0.8% increase in gasoline, and 3.1% increase in utilities, while food prices were up 0.4%. Excluding these two categories which are often volatile, the core index rose 0.2%. Within the core index, shelter (the largest component of consumer inflation) rose 0.2%, back down to a more normal level of increases after rising at a hotter pace much of the past five years. Apparel was up 1.3%, vehicles were down 0.4%, transportation was up 0.2%, and medical care was up 0.6%. Over the past year the headline index is up 2.4% (utilities up 10.9%, gasoline down 5.6%) and the core index is up 2.5%, while the services index excluding shelter is up 3.3% (still running the hottest).

• Job Openings and Labor Turnover Survey: The number of job openings on the last day of January was 6.946 million, a big jump compared up December (up about 400k) but down about 500k from a year ago. The number of hires has been relatively unchanged over the past year, maintaining the low 5 million level. The number of separations has been steady as well, with layoffs falling 30k in the month and 100k over the past year to 1.631 million.

• Existing Home Sales: Existing home sales rose 1.7% in February to a seasonally adjusted annualized sales rate of 4.090 million, slightly more than the increase expected, with sales up in all regions besides the Northeast. However, the sales rate was 1.4% lower than a year ago. The number of homes for sale was up another 2.4% in the month to 1.290 million units and up about 5% from a year ago as inventory continues to tick higher. With more inventory, price increases have basically stalled - the median sales price increased 0.3% to $398,000 but still down 6 of the past 8 months and down 1.2% over the past year. According to the National Association of Realtors, the housing affordability index increased to 117.6 from 117.1 in January, the highest since March 2022, thanks to prices stalling and interest rates coming down.

• Housing Starts and Permits (Delayed): The number of new home starts was a seasonally adjusted annualized rate of 1.487 million in January, a solid increase of 7.2% in the month and up 9.5% from a year ago, for the highest level in a year. However, the number of permits for new home builds was at an annual rate of 1.376 million, down 5.4% in the month and down 5.8% from a year earlier. This is a disappointment as it is the second lowest level since the significant drop during the pandemic and signals less home builds ahead, at a time when housing supply is already an issue. The number of homes currently under construction is also at the lowest level since the pandemic, at 1.268 million (annualized).

• Trade Deficit (Delayed): The trade deficit in January was $54.5 billion, a decline of $18.4 billion, continuing its volatile month-to-month change since the tariff announcement last April. The deficit has been as high as $136 billion last March and as low as $29 billion in October. The change in January was due to exports rising 5.5% to $302.1 billion, and imports declining 0.7% to $356.6 billion. Overall trade activity is also down - compared to a year ago, the volume of trade is down $17.1 billion, or 2.5%, but important to note this time last year businesses were doing a substantial amount of imports to get ahead of tariffs.

• GDP (first revision for Q4): The initial estimate of fourth quarter GDP was revised from a 1.4% increase (these are annualized figures) to an increase of 0.7% in the latest estimate released last week. The downward revision was due to downward revisions in consumer spending, government spending, investments, and exports, offset slightly by a smaller decline in imports.

• Personal Income and Outlays (Delayed): American’s income increased 0.4% as expected in January, with wages and salaries up 0.5%. Consumer spending remained strong in the month, rising another 0.4%, slightly better than expected. Spending on goods fell 0.4% while spending on services increased 0.7%. This resulted in a savings rate of 4.5%, a move higher from the past several months of 4.0%, although still a couple percentage points below the historical average.

• Jobless Claims: The number of jobless claims the week ended March 7 was 213,000, relatively unchanged from the prior week, with the four-week average down 4,000 to 212,000. The number of continuing claims was 1.850 million, down 21,000 from the prior week with the four-week average relatively unchanged at 1.852 million. 

Company News



• Apple: Bloomberg reported Apple is delaying the release of its new smart home display, which was originally slated for spring 2025, until later this year as it continues its struggles with AI models. The report says it is looking to complete its upgrade to and perfect Siri, wanting the device to utilize its latest AI assistant, before launching the new product. Recall Apple revealed in January it would partner with Google to help create its AI model to run Siri. Separately, after ramping its phone production in India, Bloomberg said Apple is now making about 25% of its iPhones in India, assembling about 55 million devices in 2025. This is part of its effort to diversify its production overseas away from China.

• Live Nation: Live Nation, parent company of Ticketmaster, reached a settlement with the Department of Justice in its antitrust case for illegally maintaining a monopoly in the live concert industry where it claimed the company harmed artists, venues, and fans, and used its power to block competition. The DOJ was looking to breakup the company but that did not happen and the settlement does not include a financial penalty, although it will set aside $280 million for damage claims. The settlement also requires Ticketmaster to cap service fees (to 15% of ticket price), open its platform to competitors, and restricts exclusivity deals between Ticketmaster and venues (giving venues more freedom to choose ticketing providers).

• Nebius: Shares of AI infrastructure provider Nebius shot 15% higher after it announced it has formed a strategic partnership with Nvidia to develop and deploy the next generation of systems to the AI market, adding more than 5 gigawatts of Nvidia’s systems to its infrastructure by 2030. As part of the deal, Nvidia agrees to invest $2 billion in Nebius.

• AT&T: AT&T said it will spend up to $250 billion over the next five years to upgrade and improve its infrastructure across the US that it says will speed up the deployment of fiber, 5G home internet, wireless, and satellite. The investment is part of its broader efforts to reinforce its network, complement the ongoing AI theme, extend connectivity into less covered regions, and support economic growth.

• Papa John's: Shares of Papa John’s were up after a WSJ report said Irth Capital Management made a buyout offer for the company, offering to acquire the company at $47 per share. This would represent a 50% premium to where shares were trading prior to the report. Irth Capital previously made a joint offer with Apollo Management for $60/share, and in November Apollo had a $64/share offer that it ultimately withdrew.

• Meta: Meta said it is planning to deploy the next four generations of its new in-house AI accelerator chips, called MTIA (for Meta Training and Inference Accelerator) in 2026 and 2027. These chips are expected to do more difficult tasks that require more advanced chips, like generative AI inference and larger AI workloads. The MTIA chips are those being developed in-house in partnership with Broadcom and are part of its efforts to diversify its chip portfolio and reduce its reliance on certain chips/companies, and to reduce costs.

• Microsoft: Microsoft is bringing Anthropic’s Claude Cowork to its 365 Copilot platform (is AI agent platform) called Copilot Cowork. The service will be able to add agentic capabilities to its existing AI offerings where it can perform tasks on behalf of enterprise users, for example building presentations, pulling data into spreadsheets, emailing others, and setting up meetings. 

Other News



• Massive Oil Reserve Release: The International Energy Agency confirmed yesterday it will release a combined 400 million barrels of oil from its emergency oil reserves, the largest release ever, in effort to ease the concerns over the lack of supply and to counter the spike in oil prices (the US will release 172 million barrels). There were no details on the pace and duration of the releases however, which could be more impactful than the amount released. For reference, global demand is about 100 million barrels per day.

• Tariffs: Reports say Trump administration is preparing to announce a series of trade investigations soon, coming after the Supreme Court shot down its IEEPA tariffs (those reciprocal tariffs from last April), a move to set the stage for new tariffs. The investigations will be conducted under Section 301 of the Trade Act which allows the US to impose tariffs to punish certain practices. Among some issues to be investigated include taxes on digital services and currency manipulation, according to the NY Times.

• Regulations in the Predictions Market: Several Senators are introducing legislation, called The Prediction Market Security and Integrity Act, that target the predictions market as platforms like Polymarket, Kalshi and others that are becoming more popular. The legislation would put guardrails in place aiming to prevent fraud, manipulation, and abuse. The predictions market has been largely unregulated and does not follow gambling laws even though it operates in a similar fashion to sportsbooks. 

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