Iran War Puts Oil Prices, Volatility in Spotlight

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, March 2nd. As markets open, economic ramifications of the Middle East war remain unclear, and turbulent trading seems likely. The fighting, which erupted Sunday when U.S. and Israeli attacks on Iran killed the country's supreme leader, Ayatollah Khomeini, sent crude prices spiking and could accelerate a flight to safety that lifts U.S. treasuries and gold. Volatility might also surge, leading to more dramatic swings in asset prices.

0:52Fighting continued throughout the weekend, with Iranian attacks against Arab Gulf states raising fears about oil production and flow, as the Strait of Hormuz alone carries roughly 20 percent of the world's supplies. U.S. crude oil prices jumped to$75 per barrel soon after the conflict began, up from the mid -$60 last week. Looking back to last June, when war flared in Iran, supply disruptions were limited and markets quickly recovered from the initial shock. The market's relatively quick recovery then underscores how financial markets distinguish between short-lived geopolitical events and sustained supply disruptions.

1:33Investors should remain focused on fundamentals and longer-term potential, not headlines. And whilst wise to continue monitoring events in the Middle East, keep in mind that long-term diversified portfolios are designed to manage these types of events. Investors should avoid overreacting. For the latest updates, tune into the Schwab Network, which begins broadcasting at 8 a.m. Eastern Time, or read the Schwab Market Update daily newsletter published before the open on schwab.com.

2:06Turning to the week ahead beyond geopolitics, investors stare down a full menu of jobs data in coming days. Notably, this Friday brings the February nonfarm payrolls report, which is expected to show jobs growth slowing after January's pleasant surprise. Wall Street emerges from a tough February that saw the S &P 500 index and the Nasdaq composite that fall thanks to several factors, inflation among them. AI spending concerns, software's struggles on AI substitution fears, and geopolitical tension between Iran and the U.S. that sent crude oil prices up sharply all weighed on the markets. Financial stocks had a very hard time in February, with major banks skidding again Friday amid growing private credit market concerns.

2:54Though it's not universal, many private credit firms remain heavily exposed loans in the software arena, which now are coming under scrutiny. Software companies spent heavily in recent years, and now shares are down across the sector. Though no cockroaches have emerged, to use a term for bad loans coined last fall by JPMorgan Chase CEO Jamie Dimon, it's persistent fear of insects that's dragging financials. Banks got roped in along with other lenders, despite a relatively healthy credit market overall. Private credit concerns continued to weigh on investor sentiment last week, and the concerns broadened beyond exposure to software, said Nathan Peterson, director of derivatives research and strategy at the Schwab Center for Financial Research.

3:41A Times report Friday said that Barclays may have exposure to potential losses following the collapse of market financial solutions, a prominent player in the UK bridging and specialist lending markets. AI anxiety reached a new plateau Friday after Block announced plans to lay off 40 percent of its workforce. Though the payments company said this was partly due to overhiring during COVID, it's also moving towards smaller, highly talented teams using AI to automate more work. This sent shivers through the market, capping a month of worries about the jobs climate following last year's disappointing growth in new positions.

4:20There are fears AI could replace workers in numerous industries. The surge in AI capital expenditures, slowdown in job growth, and steady consumer spending are all very central to the vibression term I coined last year, which underscores persistently dour consumer sentiment despite a growing economy, said Kevin Gordon, head of macro research and strategy at the Schwab Center for Financial Research. It's still too early to have high conviction that AI has become the ultimate job disruptor or displacer. Friday's January PPI sent another signal that inflation remains untamed, at least on the wholesale side.

5:02Headline PPI climbed 0.5 % from December, and core PPI excluding food and energy soared 0.8%, well above consensus of 0.3 % for both. We continue to think that inflation is in the driver's seat when it comes to monetary policy over the coming Federal Reserve meetings, given the recent stabilization in the labor markets, said Colin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. This relatively hot PPI report supports the hawks a bit more than the doves, as it suggests the next PCE report might come in a bit hot as well. That's a reference to the Personal Consumption Expenditures, or PCE, price index, which the Fed monitors closely.

5:49Annual PPI growth of 2.9 % topped the consensus of 2.6%, with services growth driving gains while goods prices fell. Rising prices for airfare and physician services helped push the index higher in February, even as some goods prices declined. Another source of increases was a big jump in margins for professional and commercial equipment wholesaling. Goods prices fell in February, mainly reflecting a large drop in gasoline costs. Odds of a rate cut next month were already nil even before PPI, while chances for at least one cut by mid-year were about 55 % as of late Friday, according to the CME FedWatch tool.

6:34Treasuries, which move the opposite of yields, gained ground recently on worries private credit troubles might spread. The 10-year note yield fell briefly below 4 % Friday for the first time since late November, despite the hot PPI. Treasury yields have likely declined due to private credit concerns, Martin said. Inflation is still sticky, the GDP appears to be growing above the 2 % trend, and the labor market has generally stabilized. All those factors support the case for higher Treasury yields, yet the 10-year Treasury yield fell to 3.96%. With investors likely skittish about spillover risks from private credit, it looks like we're seeing a flight to quality in Treasuries, even though the economic backdrop still seems positive.

7:20Lower yields can support stocks, though they often accompany weakness in the U.S. dollar, which can be inflationary. The dollar was flat in February. Investors' concerns about credit might want to monitor corporate spreads this week. They're up a bit this year, but still low in absolute terms, generally healthy with corporate profits near all-time highs. Investors can monitor the spreads of key corporate bond indexes through FRED, the St. Louis Federal Reserve Economic Data website. It's possible this is more of a liquidity issue than a solvency issue, Martin said. Either way, this should result in more volatility in the riskier parts of the market, like high-yield bonds and bank loans, and it's a good reminder that these higher-rated investments still come with risks.

8:10Earnings season is wrapping up, but not without some fireworks this week, as semiconductor giant Broadcom reports Wednesday afternoon. Target, Costco, Best Buy, and Kroger are also on tap. Tomorrow afternoon brings earnings from CrowdStrike, turning focus back to the battered software sector. Cybersecurity stocks have been struggling with the rest of software, and Palo Alto Networks, another major cybersecurity firm, saw its shares fall in mid-February when investors reacted unhappily to its guidance. Bulls argue that the growth of AI raises needs for this segment's services. On Friday, major indexes declined across the board, small caps performed the worst, while the broader market, represented by the S &P 500 index, did best, helped by energy as Middle East tensions lingered.

9:04Defensive areas, including health care, staples and utilities, also provided support, with 8 of 11 sectors ending the day higher. Financials and tech were well in the red, keeping the overall index down. For market bulls, February was a month to forget. The S &P 500 index fell almost 1 % for the month and the NASDAQ 100 dropped 2.3%. The S &P 500 is up a trace for the year, while the NASDAQ 100 is down 1.1 % so far in 2026. The Dow Jones Industrial Average managed slight February gains to bring its monthly win streak to 10. Technical weakness characterized the last few sessions. Both the NASDAQ and NASDAQ 100 encountered resistance at their respective 100-day moving averages last week, weighing on sentiment.

9:58The S &P 500 index again tested technical support Friday at its 100-day moving average near 6 ,830 and found buyers. While the technicals didn't necessarily deteriorate last week, they didn't improve either, and several indices remained just above support, Peterson said. I don't mean to paint a dour backdrop for stocks because the economy and earnings look healthy, but uncertainty is elevated and the near-term setup for stocks looks challenging. Bullish sentiment has dropped significantly this year, according to analysts who monitor that metric. That's evident in the Relative Strength Index, or RSI, for the S &P 500 index, which fell to around 46 on Friday from the mid-50s a week earlier.

10:46That's the lower end of what's generally considered mid-range for this momentum metric. The Nasdaq 100 has an RSI in the same ballpark, down sharply from its 2026 peak above 60 recorded a month ago. Volatility resumed Friday for the SIBO Volatility Index, or VIX, which closed just below 20, a level that signals choppiness ahead. In individual trading Friday, Netflix soared 14 % after the streaming giant declined to match Paramount Skydance's bid to buy Warner Bros. Discovery. This makes Paramount the winner of this long war between Netflix and Paramount. Corweave plunged 20 % Friday following a quarterly report that featured widening losses and rising debt.

11:34Weak guidance also added pressure. Block climbed 17 % on its layoff announcement. Dell surged 21 % on solid earnings and guidance helped by AI-related demand. Credit card issuers fell Friday on concerns that employment would fall if AI replaces workers. Airline stocks descended as crude oil rose and geopolitical fears intensified. The Nasdaq Bank Index fell 5%, hit by private credit worries and falling treasury yields that could hurt profitability for some banks. Asset management firms exposed to software were among the hardest hit. NVIDIA continued its descent Friday from midweek earnings-related peaks, dropping 4%.

12:19The company announced a$30 billion investment in OpenAI, which triggered investor anxiety. Chip stocks in general played defense amid competition and hyperscaler spending concerns, and the PHLX Semiconductor Index slid close to 1.5 % for the week. Software stocks managed around a 1 % weekly gain, helped by strong earnings from Salesforce and Snowflake. Bitcoin slipped nearly 3 % Friday and ended the week slightly lower. The S &P 500 Equal Weight Index, which weighs all components the same, not by market capitalization, managed a light gain Friday and was up slightly for the week. Friday marked its second consecutive all-time high close, suggesting that under the surface the market remains in decent shape.

13:10Silver rebounded last week amid private credit concerns and shaky stock market trading. A 6.3 % gain on Friday took the metal price back to$93.12, its highest mark in nearly a month. Copper remains above$6, historically pricey, while gold stayed above$5 ,200.

13:34The Dow Jones Industrial Average capsized to 521.28 points Friday, or 1.05%, to 48 ,997.92. The S &P 500 index dipped 29.98 points, or 0.43%, to 6 ,878.88, and the Nasdaq Composite retreated 210.17 points, or 0.92%, to 22 ,688.21. For the week, the Dow Jones Industrial Average dropped 1.05%, the S &P 500 fell 0.43%, and the Nasdaq lost 0.92%. This has been the Schwab Market Update podcast. To stay informed, visit www.schwab.com slash market update or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show.

14:37Join us for another update tomorrow.

14:44For important disclosures, see the show notes and schwab.com slash market update podcast.