Spike In Oil

Pressures Stocks

Selling across the globe picked up last week, with US markets down the most in a single week since October with a 2.02% decline. Technology held up well, driven by a solid week for software stocks as they bounced back about 8% after declining over 30% since October. The tech heavy Nasdaq was down 1.24%. The energy sector was the only positive sector in the week, rising 0.97%, as oil saw its biggest weekly increase since data started in 1983, up 36% and ending the week at $97.20/barrel, a big increase from the low 60’s prior to the Iran conflict.

Oil has dominated market headlines over the past week due to the conflict. Iran had announced it has effectively closed the Strait of Hormuz, one of the most important shipping routes in the world for oil. It is estimated over 20% of global oil production passes through this strait, signifying its importance. In addition, insurance rates for ships using the route have risen tenfold in recent days.

Less than a week into the Strait's closure, it was reported Iraqi oil production is down 70% (down about 3 million barrels/day to 1.3M bbl/day), Saudi Aramco cut production at two large oil fields, and Kuwait announced forced majeure and also started cutting production. This all comes as storage tanks near capacity and bottlenecks build.

The Trump administration has attempted to relieve supply worries by saying the navy will escort tankers and there will be risk insurance provided, however movement in the area remains at a near halt.

The conflict continued on over the weekend with extensive Israeli strikes on Iranian oil facilities. Iran has meanwhile not signaled an end to the war, with CNN quotes a senior official threatening a “new phase” after its oil infrastructure was targeted.

On Sunday, Iran finally appointed a new leader with reports saying Mojtaba Khamenei is set to become the Supreme Leader, who is the second eldest son of Ali Khamenei, the leader that was killed in the first round of US and Israeli airstrikes two weeks ago. The delay in appointing a new leader reflects tensions between military and civilian leadership in the country. Also, his appointment to leader signals the regime is less likely to concede to Trump’s demands.

While the markets fell and oil spiked, the Treasury market sold off sharply. The 2-year Treasury yield rose 17 basis points to 3.56% while the 10-year yield rose 18 basis points to 4.13%. The market also priced in less rate cuts as the week progressed, with current pricing now suggesting about 38 basis points of rate cuts this year, down from about 55 basis points a week ago.

Several Fed officials were on the record last week suggesting the Fed could pause rate cuts to give it more time to gain greater clarity on energy prices and the impact to inflation.

Meanwhile, the private equity and credit markets are in the headlines again and have received more attention and scrutiny. Blackstone was the latest to announce it was limiting redemptions at its flagship private credit fund due to a surge in outflows.

Recall JPMorgan CEO Jamie Dimon recently warned the private equity market could be seeing an event that was seen in the 2008 financial crisis where there was a lot of money being made which pushed many to seek additional risks and reach to create higher interest income.

Despite these developments, credit spread remain very tight. The (credit) spreads represent the extra interest or income an investor demands over a risk free rate and when they are narrow it represents higher confident and optimism in the economy and they widen when investors are more nervous or view higher chance of defaults or a recession.

The main economic data for the week was the February jobs report on Friday that showed that employers cut 92,000 payrolls in the month, a large difference from the 60,000 increase that was expected. Some economist are blaming the bad weather that much of the country saw in the month. Payrolls are up just 156,000 over the past year, averaging a meager 13,000 per month.

The alternative measure of employment, using the household survey that measures civilian employment and includes small business start ups, showed the number of people employed fell 185,000 in the month, now down 426,000 over the past year, while those unemployed increased 203,000 and up 467,000 over the past year.



This week the focus remains on the Middle East and how that continues to impact oil prices. Oil rose to $120/barrel (up around 30%) early Monday morning before there were reports about the possibility G7 nations would release oil reserves to limit the pressure on oil prices, giving up most the morning's gains. Volatility will remain in markets and commodities until there is a resolution to the conflict and shipping returns to normal. The earnings calendar is quiet (though key reports from Adobe and Oracle) while the economic calendar will have the consumer inflation report on Wednesday. 

Recent Economic Data



• Employment Report: Nonfarm payrolls in February declined by 92,000, a stark difference than the 60,000 increase that was expected and coming after a 126,000 increase in January, though this may be reflective of the impact of the winter storm that hit much of the nation in the month. Also, government jobs declined 6,000 in the month and are down 322,100 since President Trump took office. The two prior months were revised down by a combined 69,000 – December down 65k to -17,000 and January revised down 4k to +126,000. In February job gains were seen in trade and finance, while most other industries saw declines, the most seen in health care and leisure and hospitality. At the same time, the household survey showed the number of people employed declined 185,000. The number of people considering themselves unemployed increased 203,000, rising again after a brief drop the past two months, though about 2 million above the cycle lows from early 2023. The unemployment rate ticked up 0.1% to 4.4% as a result. When it comes to wages, the average earnings rose 0.4% in the month and is up 3.8% from a year ago, a little higher than the 3.7% increase in January.

• ADP Payrolls: ADP payroll data showed private employers added 63,000 jobs in February, accelerating from just 11,000 job gains in January. In fact, it was the best month for job gains since July. However, hiring has been concentrated in a few sectors and because of this ADP says the data shows no widespread pay benefit from changing jobs. On the other hand, those that have remained at their jobs have seen solid pay gains.

• Jobless Claims: The number of unemployment claims filed the week ended February 28 was 213.000, unchanged from the prior week, with the four-week average relatively unchanged at 212,000. The number of continuing claims was 1.868 million, up 46,000 from the prior week, with the four-week average up slightly to 1.852 million.

• Productivity & Costs: US worker productivity increased 2.8% at an annualized rate in the fourth quarter, much better than the 1.9% increase, however a slowdown from the substantial 5.2% increase in the third quarter. The increase in productivity was due to a 2.6% increase in output combined with a 0.2% decline in the number of hours worked. For 2025, productivity increased 2.8%. Unit labor costs increased 2.8% annualized due to a 5.7% increase in hourly compensation and a 2.8% increase in productivity.

• Retail Sales: In January retail sales declined 0.2%, most likely also impacted by the winter weather in the month, with 7 of the 13 categories seeing a decline in sales in the month. Declines were led by health/personal care, down 3.0%, gasoline sales down 2.9%, apparel down 1.7%, and sporting goods/hobby stores down 1.2%. Gains were led by miscellaneous stores up 2.0%, online sales up 1.9%, and furniture stores up 0.7%. Retail sales excluding vehicles and gas, which are two volatile categories, rose 0.3%. Retail sales are up 3.2% over the past year and up 4.7% excluding vehicles and gas sales.

• ISM Services Index: The ISM services index was 56.1 for February, well above the 50.5 that was expected and the highest level since mid-2022, indicating strong activity in the services sector in the month. Business activity and new orders were the strongest since September 2024 driving much of the activity. Inflation cooled to the lowest since last March, while the employment index was 51.8, a slight increase and the best in over a year.

• PMI Manufacturing Index: The PMI Manufacturing Index for February was 52.4, indicating performance of the manufacturing economy improved again in the month, but the pace of growth was the weakest in seven months. The lower reading was due slower growth in new orders and output, which the report noted was driven by extreme weather and tariffs impacting trade. It also said price increases were at the largest pace in several months while employment growth was muted.

• ISM Manufacturing Index: The ISM manufacturing index was 52.4 for February, pointing to slight growth in the manufacturing sector, the second month in a row but only the third month of the past 40. Two of the five subindexes (new orders and production) saw a slow pace of growth while the other three (employment, supplier deliveries, and inventories) saw contraction. Of the 17 industries, 12 of them reported overall expansion while 5 reported contraction. 

Company News



• Apple: The Information reported after Apple revealed it plans to partner with Google to utilize its AI models to run its next version of Siri, it is also exploring the option of utilizing Google’s cloud network to help run the upgraded version of Siri, rather than invest heavily in its own data centers. Under this method Apple would use a hybrid model – using both its own private cloud as well as could providers like Google and Amazon.

• Nvidia/AMD: The Trump administration is reportedly considering limiting Chinese companies to a cap on the number of Nvidia’s H200 chips it can buy each year, the most advanced AI chips that are allowed to be exported to China, according to Bloomberg News. The report said the administration has talked about limiting Chinese firms to 75,000 chips. It added the limit would apply to AMD’s MI325 chips, which have similar capabilities as Nvidia’s H200 chips.

• Paramount Skydance: Paramount Skydance said after it officially takes over Warner Bros. Discovery, it plans to combine Paramount+ and HBO Max into one streaming service, giving it over 200 million direct-to-consumer subscribers, in effort to compete better with the most scaled services in the market. Executives also said they plan to release 30 movies in theaters each year.

• Meta: The CFO of Meta said, despite recently reaching deals with the top chipmakers, the company is planning to develop its own in-house processors that can train future artificial intelligence models. Susan Li, the CFO, added that Meta’s workloads are very customized to the company which is driving their efforts.

• OpenAI: The Information reported OpenAI, maker of ChatGPT, is leaning on external partners to ramp up its advertising push and has held talks with The Trade Desk to help it sell advertising. It added that OpenAI is also in talks with other brands, media agencies, and ad tech firms to test its ads. Recall that CEO Sam Altman recently said the company would begin to test ads in its ChatGPT on the free service.

• Oracle: Bloomberg reported Oracle plans to cut thousands of jobs due to its significant spending on AI related data centers. The layoffs are expected to affect divisions across the company and across several divisions including enterprise software and cloud network and could be announced as soon as this month, and could be positions that would be less needed due to AI. As of May the company had 162,000 employees globally. 

Other News



• Ratepayer Protection Pledge: Several hyperscalers/big tech companies met the Trump Administration at the White House and signed the Ratepayer Protection Pledge where they all agreed to protection the American consumer from price hikes relating to energy due to the energy required to run data center infrastructure as well as lowering electricity costs for consumers over the long run.

• Tariffs: Treasury Secretary Bessent said the administration is likely to implement the 15% global tariff sometime soon, increasing it from the 10% Trump announced just after the Supreme Court shot down his reciprocal tariffs. He also said tariffs will return where they were (before the Supreme Court called them illegal) within five months.

• China: China held its National People’s Congress last week and announced a GDP growth target of 4.5% to 5.0% for 2026, the lowest growth target for its economy since early 1991. President Xi said the economy is being faced with mounting pressures and job strains, impacting economic growth, while at the same time acknowledging its growth model of the past 40 years is under pressure resulting in a shift to focus on domestic demand and efforts to boost consumption.

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