Monitoring Inflation Shock Potentially Transitioning to Growth Shock
Stuart Katz
Executive Summary
The S&P 500 fell for the third week in a row, with the Nasdaq down eight times in the last nine weeks. The dollar strengthened against the major currencies as investors moved toward safer assets and ended at its strongest level of the year albeit still down year over year. Rising oil prices pushed investors to worry about higher inflation even as they also feared slower economic growth. Treasury Yields rose, with the 10-year moving up to around 4.28% as markets adjusted to the inflation shocks from energy. Investors pushed back expectations for the Fed’s next rate cut (<2 forecasted), with September increasingly seen at the earliest window. Bond selling accelerated, particularly in the shorter-dated Treasuries, as investors repositioned for a “higher-for-longer” rate backdrop. Credit stress signals rose as spreads are beginning to modestly widen as investors grow more cautious about corporate balance sheets in a higher-cost environment. Oil remained volatile as markets weigh various policy headlines including release of emergency supplies. Commodities were mixed: oil rebounded toward $100 per barrel as the Strait of Hormuz remained closed, while gold posted a modest loss despite the market volatility. The VIX Index fell below 30 as oil stabilized but remains elevated with tensions unresolved.
Key Takeaways
1.Tensions in the Middle East continue to impact markets. The Strait of Hormuz remains effectively closed, and the energy shock remains the dominant market story. Oil has surged roughly 40% since the strike, the VIX spiked to an 11-month high before partially recovering, and Fed rate-cut expectations for 2026 have dropped from three to one. Equity markets have held up better than might be expected, with the S&P 500 down ~ 3% since February 28. The key question is how quickly oil flows normalize, which will determine whether the supply disruption is contained or becomes a drag on economic growth. Implication – Markets are likely to remain volatile until geopolitical tensions ease.
2. The U.S. economy lost -92,000 jobs in February, below expectations for +50,000–60,000. Prior months were also revised lower, with December flipping from +48,000 to -17,000, meaning the labor market has shed jobs in three of the past five months. Unemployment edged up to 4.4% from 4.3%. Part of the weakness was due to a Kaiser Permanente strike that kept ~31,000 healthcare workers off payrolls during the survey period, though it has since been resolved. Implication – Labor market conditions increase pressure on the Fed to resume cutting rates, though the timing seems delayed heading into the March 17–18 meeting. While some of the weakness reflects temporary distortions, the broader trend points to a softening labor market.
3. The January retail sales report showed a modest decline of -0.2% m/m, below expectations for a flat reading. Weakness in motor vehicles and gasoline stations pulled the headline lower, though reduced gas spending largely reflected lower January fuel prices rather than weaker demand. Stripping out those categories, sales rose +0.3%, and the control group, which feeds directly into GDP calculations, also gained +0.3%, suggesting underlying consumer spending was more resilient than the headline implied. Implication – The underlying consumer picture in January was stronger than the headline suggested. However, the recent oil shock introduces a new variable that could weigh on consumer spending in the months ahead.
4. Inflation data came in line with expectations last month. Headline CPI rose +0.3% m/m and +2.4% y/y, in line with January. Core inflation, which excludes the volatile food and energy categories, rose +0.2% m/m and +2.5% y/y. Shelter costs, which have been the most stubborn component of inflation, continued to ease, with rent posting its smallest monthly gain since January 2021. The data suggests inflation continued to ease early in 2026. Implication – February’s data is encouraging, but it was collected before the oil shock. Looking ahead, the question is whether the rise in oil prices will impact inflation more than economic growth, complicating Fed policy.
Weekly Commentary
Monitoring Inflation Shock Potentially Transitioning to Growth Shock
Stuart Katz
Executive Summary
The S&P 500 fell for the third week in a row, with the Nasdaq down eight times in the last nine weeks. The dollar strengthened against the major currencies as investors moved toward safer assets and ended at its strongest level of the year albeit still down year over year. Rising oil prices pushed investors to worry about higher inflation even as they also feared slower economic growth. Treasury Yields rose, with the 10-year moving up to around 4.28% as markets adjusted to the inflation shocks from energy. Investors pushed back expectations for the Fed’s next rate cut (<2 forecasted), with September increasingly seen at the earliest window. Bond selling accelerated, particularly in the shorter-dated Treasuries, as investors repositioned for a “higher-for-longer” rate backdrop. Credit stress signals rose as spreads are beginning to modestly widen as investors grow more cautious about corporate balance sheets in a higher-cost environment. Oil remained volatile as markets weigh various policy headlines including release of emergency supplies. Commodities were mixed: oil rebounded toward $100 per barrel as the Strait of Hormuz remained closed, while gold posted a modest loss despite the market volatility. The VIX Index fell below 30 as oil stabilized but remains elevated with tensions unresolved.
Key Takeaways
1. Tensions in the Middle East continue to impact markets. The Strait of Hormuz remains effectively closed, and the energy shock remains the dominant market story. Oil has surged roughly 40% since the strike, the VIX spiked to an 11-month high before partially recovering, and Fed rate-cut expectations for 2026 have dropped from three to one. Equity markets have held up better than might be expected, with the S&P 500 down ~ 3% since February 28. The key question is how quickly oil flows normalize, which will determine whether the supply disruption is contained or becomes a drag on economic growth. Implication – Markets are likely to remain volatile until geopolitical tensions ease.
2. The U.S. economy lost -92,000 jobs in February, below expectations for +50,000–60,000. Prior months were also revised lower, with December flipping from +48,000 to -17,000, meaning the labor market has shed jobs in three of the past five months. Unemployment edged up to 4.4% from 4.3%. Part of the weakness was due to a Kaiser Permanente strike that kept ~31,000 healthcare workers off payrolls during the survey period, though it has since been resolved. Implication – Labor market conditions increase pressure on the Fed to resume cutting rates, though the timing seems delayed heading into the March 17–18 meeting. While some of the weakness reflects temporary distortions, the broader trend points to a softening labor market.
3. The January retail sales report showed a modest decline of -0.2% m/m, below expectations for a flat reading. Weakness in motor vehicles and gasoline stations pulled the headline lower, though reduced gas spending largely reflected lower January fuel prices rather than weaker demand. Stripping out those categories, sales rose +0.3%, and the control group, which feeds directly into GDP calculations, also gained +0.3%, suggesting underlying consumer spending was more resilient than the headline implied. Implication – The underlying consumer picture in January was stronger than the headline suggested. However, the recent oil shock introduces a new variable that could weigh on consumer spending in the months ahead.
4. Inflation data came in line with expectations last month. Headline CPI rose +0.3% m/m and +2.4% y/y, in line with January. Core inflation, which excludes the volatile food and energy categories, rose +0.2% m/m and +2.5% y/y. Shelter costs, which have been the most stubborn component of inflation, continued to ease, with rent posting its smallest monthly gain since January 2021. The data suggests inflation continued to ease early in 2026. Implication – February’s data is encouraging, but it was collected before the oil shock. Looking ahead, the question is whether the rise in oil prices will impact inflation more than economic growth, complicating Fed policy.
Disclosure and Source
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2026 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A3153
Talk To Us