Plus retail sales, the price of gas, market fundamentals and holiday wishes.
After a few days of positive momentum in stock prices that temporarily lifted investor spirits, financial markets opened lower today following the president’s Wednesday-night address on the war with Iran.
There were no declarations of victory and no definitive promises for an end to the military operation, only a reference to needing another two to three weeks to achieve the administration’s objectives. Indeed, there was even an escalation of rhetoric as the president said he plans to hit Iran “extremely hard” and will bomb it back to the “Stone Ages,” likely by targeting key electricity plants in the event no ceasefire deal is reached.
These factors have resulted in oil prices swinging higher and stock markets treading water as we go to press.
The week’s economic news was positive, though backward-looking. U.S. retail sales rose 0.6% in February, surpassing the 0.5% gain expected and marking the largest monthly increase since July 2025. Year over year, retail sales rose 3.7% in February, the largest annual gain in five months. The report showed widespread gains in categories like health and personal care sales, clothing, sporting goods, electronics, building materials and expenditures at restaurants. After a pullback in January, which was due in good part to inclement weather across much of the U.S., consumers ramped up activity in February.
However, we must keep in mind that the Iranian conflict and the resulting increase in energy prices will dampen consumer spending in March. The average price of gasoline pushed above $4 a gallon in the U.S. on Monday for the first time since mid-2022. This underscores the pain consumers are already feeling from the more than four-week war, and more broadly, the potentially lasting threat to American spending power.
Some economists estimate that for every $1 increase in prices at the pump, upwards of $1 billion can be diverted from spending elsewhere. In other words, instead of buying that new TV, or going out to eat, consumers are simply filling up the family car at a higher cost.
That’s why last night’s messaging is roiling the momentary investor optimism that the impacts to the American economy would be limited and were behind us. The longer this goes on and the longer energy prices stay at these levels, the greater the risk of recession.
But we want to reiterate that earnings growth is running close to 14% and is not decelerating. Thanks to AI-driven productivity gains, significant capital investment in data centers and technology, and a remarkably resilient consumer, we will mark our sixth consecutive quarter of double-digit earnings growth for the S&P 500 Index. That is not a backdrop to a recession.
Now I acknowledge that markets can and do experience volatility even when earnings are growing and GDP growth is positive, but usually that volatility is not long-lasting. Hence why we are so convinced that now is not the time to veer off course from your investment plan by making material changes in a moment when fundamentals are diverging from market moves. It is the same advice we give when markets are soaring and unhinged from fundamentals, to not let your investment allocation get out of whack but to prudently rebalance so you are onsides when conditions change.
As I survey the landscape, I think much of the market volatility we are experiencing relates less to the war but more to the increasing reality that the Federal Reserve is now firmly on the sidelines from cutting interest rates, and the feeling that the inflation bogeyman has not been banished. We entered 2026 with a lot of hope that interest rates would be downshifting, giving relief to borrowers of all kinds, and that prices at grocery stores, pharmacies, restaurants, hotels—you name it—would finally stabilize and maybe even move meaningfully lower.
During this week of Passover and Easter, when many celebrate renewal, hope and overcoming adversity, we want to extend to you our sincere best wishes that 2026 is a year of all good things for you and yours. At my house, there is more excitement about the home opening games of the Red Sox than the Easter egg hunts and chocolate bunnies of the past. This reminds me that there is a season to all things, and a cycle of change that is comforting in its own predictable way. Sometimes the ebbs and flows are a good thing, even when they can feel hard in the moment.
Written by a human.