March 2026 Market Commentary

March 10, 2026

• 4Q25 GDP slows to 1.4%.
• Supreme Court invalidates large portions of President Trump’s tariffs.
• AI-related concerns continue to weigh on markets.
• US and Israel launch large scale military operation against Iran.
• February Returns: S&P 500 -0.9%. Bloomberg US Aggregate Bond index 1.6%

February proved to be another busy month for investors. In addition to the typical cadence of economic data and earnings reports, investors grappled with the ramifications of a key Supreme Court decision on tariffs and military strikes by the US and Israel against Iran. Ongoing concerns about the impact of AI on various industries as well tremors in the private credit market also vied for investors’ attention.

Prior to the US and Israel launching large-scale military operations against Iran, the Supreme Court’s decision regarding President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to levy “reciprocal” tariffs on other countries was arguably the most consequential event of the month. In its much-anticipated decision, the court ruled 6-3 that the tariffs are illegal. The court did not opine, however, on what the ruling means for the ~$160B collected under the IEEPA since last April, leaving those decisions to lower courts, which will invariably hear numerous lawsuits from businesses seeking reimbursement.

Trump immediately responded by utilizing Section 122 of the 1974 Trade Act to enact a 10-15% baseline tariff on all goods entering the country. Section 122 tariffs are limited to 150 days and thereafter can only be extended by Congress. Trump suggested that during those 150 days his administration will conduct investigations into various trading partners to justify levying tariffs under Sections 232 and 301 of the 1974 Trade Act, which can remain in place indefinitely. The court’s ruling ensured trade headlines will continue to feature prominently throughout the year.

At month end, following intensifying threats of military action if negotiations regarding Iran’s nuclear program did not show tangible results, the US and Israel launched large-scale strikes against Iran, killing Ayatollah Ali Khamenei, the country’s Supreme Leader. In response, Iran launched missiles and drones at numerous targets throughout the region, including US military bases, Israel, and energy infrastructure facilities in multiple countries.

Though geopolitical events often have a fleeting impact on financial markets, the current conflict has the potential to be different. As of this writing, Iran has effectively closed the Straits of Hormuz, a narrow passage in the Persian Gulf through which ~20% of the world’s liquid natural gas (LNG) and ~25% of the world’s crude oil passes. In response, oil prices jumped 36% during the first week of fighting, the largest weekly increase on record. In the US, according to AAA, the national average for a gallon of unleaded gasoline rose from $2.98 to $3.32. Should the fighting conclude relatively soon, and energy prices return to prior levels, the economic impact will be limited. However, should the fighting drag on, and energy prices remain elevated for an extended period, that could put upward pressure on inflation, a concern for both consumers and the Federal Reserve. In the near term, with neither side showing a willingness to de-escalate, energy prices are likely to continue moving higher, resulting in heightened equity market volatility.

Economic data released during the month was inconclusive, with a seemingly equal number of positive and negative data points. At a macro level, US economic growth slowed in 4Q25 as GDP decelerated to 1.4%, half the 2.8% consensus, and down from third quarter’s 4.4% pace. While third quarter’s impressive growth was unsustainably high, fourth quarter’s growth was arguably artificially low, impacted by the longest government shutdown on record. Government spending fell 5.1% during the quarter, detracting 0.9% from headline growth. Importantly, consumer and business spending both showed healthy growth, expanding 2.4% and 3.8%, respectively. Adjusting for the slowdown in government spending, underlying growth was closer to 2.5%

January employment data saw nonfarm payrolls add 130K jobs, nearly twice the expected 66K, and the fastest pace of hiring in 13 months. In addition, unemployment declined 0.1% to 4.3%, a three-month low. However, revisions to 2025 data revealed anemic growth, with just 181K jobs created for the full year, 69% fewer than the 584K initially reported. That marked the slowest pace of job growth since 2020, when the economy shed 9.4M jobs. The weaker data corroborated the Fed’s decisions to cut rates three times in late 2025. February’s employment report reversed the enthusiasm created by the January report, making it look more like an outlier than the start of a new trend, as nonfarm payrolls shed 92K jobs and unemployment rebounded to 4.4%.

January inflation data was mixed. In a positive sign, consumer price data (CPI), which tends to garner the most attention, decelerated in January as headline CPI rose just 0.2%, the slowest monthly pace since July 2025. The headline figure was aided by a decline in energy prices which helped offset increased food and shelter prices. Compared to a year ago, headline CPI rose 2.4%, the slowest pace since May 2025. Core CPI, excluding food and energy prices, rose 0.3% for the month and 2.5% from a year ago. That marked the slowest annual pace since March 2021 and continued to defy expectations of a surge in prices following last April’s tariff announcements.

Producer price inflation (PPI) was not nearly as benign as the CPI data, surprising to the upside and suggesting consumer prices may see renewed upward pressure in the coming months. On a headline basis, PPI increased 0.5% in January, the largest monthly gain since September. Compared to a year ago, headline PPI rose 2.9%, ahead of the 2.6% estimate, but slower than the 3.0% pace recorded in December. Core PPI, excluding food and energy prices, rose 0.8%, the steepest monthly increase since last July. Compared to a year ago, core prices rose 3.6%, the largest increase since last March. In addition to the implications for consumer prices, the PPI data pushed out the anticipated timing for the next Fed rate cut.

Concerns about AI continued to swirl in February, as investors remained on edge about its potential near- and long-term impacts. At the start of the month, Anthropic released updates to its AI model Claude, designed to accomplish tasks in a variety of fields including sales, finance, legal, and customer support. The releases renewed fears that AI models may render certain types of software obsolete. Since its peak in late October, through the end of February, the S&P 500 Software index has fallen 30%.

Longer-term concerns about the macroeconomic impacts of AI were inflamed by a research report from industry group Cintrini Research which hypothesized what the economy might look like in 2028. While not fully dystopian, it described an economy in which AI agents render obsolete hundreds of thousands of white-collar jobs leading to 10% unemployment. The report, which had its share of critics, heaped further pressure upon software stocks.

AI-induced pressures on software stocks also spilled into the private credit sector where concerns continued to percolate. Following the Great Financial Crisis, new banking regulations effectively prevented traditional banks from making risky loans to companies. Into that void stepped private credit funds, raising and lending billions of dollars directly to companies. Though estimates vary, the private credit industry is often stated to be between $1.8-2.0T. Within that, it is estimated 20-25% of all loans are made to technology/software companies.

By their very nature, private credit funds can be opaque as they provide loans to companies, for which there is limited public data. The limited visibility combined with investors’ heightened concern about the impact of AI of software companies has led many investors to take a “shoot first, ask questions later” approach to exiting the market. That in turn has put pressure on some of the largest private credit firms in the industry, one of which announced the sale of $1.4B in assets across three funds to meet investor redemptions, while halting redemptions in one of its funds.

As JP Morgan CEO Jamie Dimon so presciently stated last October, following several high-profile private credit defaults, “when you see one cockroach, there are probably more.” Events since then have proven him correct, suggesting there are likely to be additional high-profile defaults in the months ahead. Despite the concerns, many large firms continue to expand their presence, including Bank of America which committed $25B of its own capital to private credit deals

Despite all the macroeconomic, geopolitical, and trade-related headlines, markets have proven quite resilient. One explanation is continued strong corporate fundamentals, i.e. earnings growth, which ultimately drives markets over longer time periods. Fourth quarter 2025 saw consolidated S&P 500 earnings growth of 14%, the fifth consecutive quarter of double-digit earnings growth, aided by strong revenue growth and margin expansion, both of which came despite lingering concerns about the effects of tariffs.

Domestic market returns for the month were mixed with large caps (S&P 500), sliding 0.9%, while small caps (Russell 2000) gained 0.7%. International markets enjoyed a strong month, with developed markets up 4.5% and emerging markets (MSCI EM) up 5.4%

Bond markets enjoyed positive returns in February, with the Bloomberg US Aggregate Bond index, the broadest measure of the US bond market, up 1.6%. The gains came despite conflicting signals for future monetary policy actions. January employment surprised to the upside while goods inflation appeared more stubborn, leaving the Federal Reserve’s rate cut path further in question. By month end, several Fed officials signaled a preference for patience, with Cleveland Fed President Beth Hammack suggesting rates could remain on hold for “quite some time.” Treasury yields responded with a pronounced rally, particularly at the front end of the curve. By late February, the two-year yield fell to its lowest level since 2022, while the ten-year yield dropped below 4%, to its lowest level since November. Additionally, the 30 year yield declined 24 basis points (0.24%), marking the largest one-month drop since February 2025.

Municipal bonds maintained tight ratios to Treasuries while absorbing robust reinvestment money. State and local debt maturing in 10 years stayed in a narrow range between 61% and 62% of Treasuries throughout the month. This historically tight ratio reflects strong technical support from consistent investor demand, with municipal bond funds recording inflows topping $1 billion for multiple consecutive weeks. Issuance accelerated as the month progressed, with municipalities bringing approximately $195B of new supply to market. Separately managed accounts investing in municipal bonds surged to an estimated $1.3T, up 6% from a year earlier. Heavy reinvestment flows more than compensated for elevated supply leaving ratios locked in. The steepness of the municipal bond curve continues to emphasize that value can be found by extending duration rather than assuming credit risk.

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