Iran Conflict Jolts Energy Markets as Yields Rise and Labor Data Declines

Matthew Rubin Chief Investment Officer

 

1. Rising oil prices tied to conflict in Iran weighed heavier on international equity markets than on U.S. stocks.
2. Treasury yields rose as markets pushed back expectations for Federal Reserve rate cuts and inflation expectations edged higher.
3. February job losses and downward revisions to prior months signaled softer labor market conditions amid broader economic uncertainty.

 

1. Higher Oil Prices Weigh on International Equities

Oil prices moved sharply higher last week as the conflict in Iran intensified, with West Texas Intermediate crude climbing above $90 per barrel for the first time since 2023.¹ Equity markets reacted unevenly across regions. U.S. stocks finished the week modestly lower, while several international markets experienced steeper declines.

European equities faced notable pressure, with the Euro Stoxx 50 falling more than 4% over the week.¹ In Asia, Japan’s Nikkei declined nearly 8%.¹ Emerging markets also weakened. Hong Kong’s Hang Seng dropped about 5%, while Korea’s KOSPI recorded a much larger decline.¹

Higher dependence on imported energy likely contributed to the sharper reaction abroad. According to World Bank data, the Euro area imports roughly 68% of the energy it consumes, while Japan and Korea import more than 80%.² By comparison, the United States is a net exporter of oil, which can reduce the economic impact of rising crude prices.

Oil price spikes linked to geopolitical tensions have historically been temporary. In addition, projections from the U.S. Energy Information Administration indicate that global petroleum production could exceed consumption over the next two years, which may limit sustained price increases.³

2. Treasury Yields Move Higher as Rate-Cut Expectations Shift

Treasury yields moved higher last week, marking the fourth consecutive day of increases. The 10-year Treasury yield closed at 4.14%, reflecting shifting expectations about monetary policy and inflation.¹ A key factor behind the move was the rise in oil prices, which may pressure broader inflation measures.

Markets priced in the adjusted outlook for interest-rate cuts as the week progressed. Expectations for the next Federal Reserve rate reduction shifted to June, while projections for a second cut moved further into the future, closer to the Fed’s most recent policy outlook.⁴ Inflation expectations, which play an important role in bond yields, also increased modestly. Market-implied 10-year inflation expectations based on Treasury Inflation-Protected Securities rose about six basis points from early last week to roughly 2.4%.⁵

3. Payroll Declines Add to Signs of a Cooling Labor Market

The U.S. labor market weakened last month as payrolls declined and earlier hiring figures were revised lower. Data released last week by the U.S. Bureau of Labor Statistics showed that employers reduced payrolls by 92,000 positions in February, despite economists expecting modest job growth of roughly 50,000 positions. The unemployment rate edged higher to 4.4%, slightly above the previous month’s level.⁶

Revisions to prior data also pointed to slower hiring. January payroll growth was adjusted from 130,000 to 126,000 jobs, while December’s figure was revised from a gain of 50,000 positions to a loss of 17,000.⁶ With those adjustments, 2025 recorded several months of declining employment, highlighting the uneven pace of labor market growth.

Job losses in February were spread across multiple sectors, including information technology, transportation and warehousing, and the federal government. Healthcare employment also declined, reflecting the temporary impact of a major strike that removed roughly 31,000 workers from payrolls during the month.⁶ Many other industries, including manufacturing, construction, retail, and finance, showed little change.

For the period ending 3/6/26.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ FactSet
² World Bank, Energy imports
³ U.S. Energy Information Administration
⁴ CME FedWatch
⁵ Federal Reserve Bank of St. Louis
⁶ U.S. Bureau of Labor Statistics

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