Dear Clients and Friends,

Markets are working through a challenging combination of rising oil prices, geopolitical conflict, and renewed inflation concerns. That mix has created a more volatile environment, with stocks under pressure, bond yields moving higher, and investors watching both economic data and overseas developments very closely. While this kind of backdrop can feel unsettling, it is also a reminder that markets often react sharply to uncertainty in the short run, even when long-term investment principles remain the same.

What’s Driving the Markets

The clearest short-term driver right now is crude oil. Schwab noted that U.S. crude briefly surged near $120 overnight before settling back toward $100, and the firm’s futures commentary pointed to supply disruptions through the Strait of Hormuz as a major reason prices moved so sharply. That matters because energy markets are forward-looking. They are not just pricing today’s conditions, but the risk that supply shortages could persist longer than expected.

At the same time, market volatility has risen significantly. The VIX, which is often used as a gauge of expected stock market volatility, moved above 30 for the first time since last April. That does not guarantee further losses, but it does tell us investors are paying more for protection and are bracing for larger day-to-day swings. In plain English: the market is nervous, and nervous markets tend to move around more than usual.

Another part of the story is the tension between inflation and growth. On one hand, rising oil prices can reignite inflation worries by pushing up the cost of energy and transportation. On the other hand, those same higher costs can slow consumer spending and weaken business activity. Schwab’s fixed income team described the market as grappling with an “inflationary shock” from the war and higher oil prices while also worrying about a broader slowdown in growth. That push and pull helps explain why both stocks and Treasuries have been under pressure.

The economic backdrop has added to that unease. Schwab reported a surprise February jobs decline of 92,000, and it also noted that retail sales fell 0.2% in January after stalling in December. Those data points do not tell the whole story, but they do suggest investors are no longer thinking only about inflation. They are increasingly asking whether the economy may also be losing momentum.

What to Watch This Week

This week’s economic calendar matters because it could either calm the market or add to the uncertainty.

First, investors will be watching the Consumer Price Index (CPI) report. CPI is one of the clearest measures of how quickly prices are rising for consumers. Even though Schwab pointed out that this report will not yet reflect the full impact of the current conflict, it will still be important because markets want to know whether inflation was already proving sticky before the oil spike.

Second, the market will focus on Personal Consumption Expenditures (PCE), which is the Federal Reserve’s preferred inflation gauge. PCE often shapes expectations for future Fed policy. If inflation looks firmer than expected, that can keep pressure on yields and make markets worry that interest rates may stay higher for longer.

Third, Treasury auctions deserve attention. Schwab highlighted upcoming 3-year and 10-year auctions as important events because they will show how willing investors are to buy U.S. debt at current yields. Strong demand could suggest a search for safety. Weak demand could imply investors want higher yields as compensation for inflation risk. Either way, these auctions can influence borrowing costs and overall market sentiment.

Fourth, there is corporate earnings, especially from Oracle and Adobe. These are not the only companies that matter, of course, but in a market where technology has played such a large leadership role, results from major software companies can offer a useful read on business spending and demand trends. Schwab specifically called Oracle a possible tech barometer for the week.

Finally, investors will be watching housing data and mortgage rate trends. Schwab noted that mortgage rates have been below 6.25% for the past two months and briefly dipped below 6% in late February, yet existing home sales in January still fell 8.4% to 3.91 million units. That suggests the housing market remains constrained, with many homeowners still reluctant to give up older ultra-low mortgage rates. Housing starts, permits, Lennar earnings, and existing home sales may all help show whether lower rates are actually reviving activity.