March 2026
As the war with Iran drags on and the tactics seem evermore chaotic, the capital markets are normalizing after the extreme volatility that gripped them six weeks ago. The two-year note is trading at 3.79%, well below the 3.99% touched at the start of the conflict and the 2-year/30-year yield curve stands at 111 basis-points, midway between the 94 – 140 basis point range this year. Equally surprising is the equity market. The S&P 500 which had “corrected” by 10% at the end of March and had many market watchers forecasting a prolonged bear market has now retraced nearly all of that loss.
Similarly, the U.S. dollar has resumed the weakening trend with the Euro rallying to above $1.18 and the British Pound now trading above $1.35. While the return to normalcy is welcome, it comes without a definite resolution to the conflict or even a modicum of certainty. While the missiles have ceased, the Strait of Hormuz remains closed hindering global trade and the cost of oil remains elevated above is recent range.
The war has been a distraction from hard economic data, but recent data has portrayed the economy as expanding moderately. The February employment report was mostly good news. According to the BLS, the economy added 178,000 jobs in the month, far exceeding the consensus expectation of 65,000. However, last month’s disappointing contraction in the jobs count was revised from -92,000 to -133,000. Most economists were looking for an upward revision. The report also revealed that the unemployment rate ticked down to 4.3% from 4.4% in the prior month.
Durable goods ex-transportation registered a better-than-expected monthly gain of 0.8%, personal spending rose 0.4% over the prior month, and initial claims for unemployment insurance continue to remain tame.
The March inflation report was both good news and bad news. The BLS’s release of consumer prices showed that the overall monthly change was an elevated 0.9%, as expected, with the steep rise in energy pushing the index higher. But the core year-over-year inflation rose a more moderate 2.6%, up slightly from the 2.5% recorded in February.
The Producer Price index was not as well behaved. The year-over-year core index ticked lower to 3.8% from 3.9% the prior month, but that remains uncomfortably elevated. As with CPI, energy prices are the culprit.
While the Federal Reserve is unlikely to view inflation as tame enough to cut rates at the next meeting, in our view, it is most certainly not enough to force them to raise it. The next Open Market Committee meeting is April 29th.
Copyright 2026, Halyard Asset Management, LLC. All rights reserved.
