Iran War Puts Oil Prices, Volatility in Spotlight

Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with

a recap of recent news and look at what's ahead.

I'm Keith Landsford, 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 Kamani, 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.

Fighting continued throughout the weekend, with Iranian attacks against Arab Gulf states

raising fears about oil production in 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-60s 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 markets relatively quick recovery then underscores how financial markets distinguish

between short-lived geopolitical events and sustained supply disruptions.

Investors 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.

With 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.

Turning to the week ahead beyond geopolitics, investors stare down a full menu of jobs

data in coming days.

Notably, this Friday brings the February Non-Farm 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

fall thanks to several factors, inflation among them.

AI spending concerns, softwares, struggles on AI substitution fears, and geopolitical

tension between Iran and the U.S. that sent crude oil prices up sharply all weight on

the markets.

Several stocks had a very hard time in February, with major banks skidding again Friday amid

growing private credit market concerns.

Though it's not universal, many private credit firms remain heavily exposed to 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

JP Morgan Chase CEO Jamie Diamond, its 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.

A 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 toward 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.

There are fears AI could replace workers in numerous industries.

The surge in AI capital expenditures, slow down in job growth, and steady consumer spending

are all very central to the vibe-pression 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, had line PPI climbed 0.5 percent from December, and core PPI excluding

food and energy soared 0.8 percent, well above consensus of 0.3 percent 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.

Annual PPI growth of 2.9 percent topped the consensus of 2.6 percent 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 percent as of late Friday, according to the

CME Fed watch tool.

Treasuries which move the opposite of yields gained ground recently on worries private

credit troubles might spread.

A 10-year note yield fell briefly below 4 percent Friday for the first time since late

November, despite the hot PPI.

Treasuries yields have likely declined due to private credit concerns, Martin said.

Treasuries still sticky, the GDP appears to be growing above the 2 percent trend, and

the labor market has generally stabilized.

All those factors support the case for higher treasure yields, yet the 10-year treasure

yield fell to 3.96 percent.

With investors likely skittish about spill over risks from private credit, it looks like

we're seeing a flight to quality in Treasuries even though the economic backdrop still seems

positive.

Our 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.

Erning's season is wrapping up, but not without some fireworks this week, as semiconductor

giant Broadcom reports Wednesday afternoon, Target, Costco, Best Buy, and Kruger 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,

and other major cybersecurity firms saw its shares fall in mid-February when investors

reacted unhappily to its guidance.

CEOs 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.

Defensive areas including health care, staples, and utilities also provided support, with

eight of 11 sectors ending the day higher.

Stables and tack 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.

But now 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.

The 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 remain just above support, Peterson said.

I don't mean to pay to 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 to 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.

That's the lower end of what's generally considered mid-range for this moment of metric.

The NASDAQ 100 has an RSI in the same ballpark down sharply from its 2026 peak above 60 recorded

a month ago.

Utility 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.

Before we've plunged 20% Friday following a quarterly report that featured widening

losses and rising debt, weak 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.

Online stocks descended as crude oil rose and geopolitical fears intensified.

The NASDAQ bank index fell 5% hit by private credit worries and falling treasure yields

that could hurt profitability for some banks.

Asset management firms exposed to software were among the hardest hit.

In video, it continued its dissent Friday from mid-week earnings-related peaks dropping

4%, the company announced a $30 billion investment in open AI which triggered investor anxiety.

Chip stocks in general played defense amid competition and hyper-scalers 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 sales

force 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.

Silver rebounded last week amid private credit concerns and shaky stock market trading.

A 6.3% gain on Friday took the medal price back to $93.12, its highest mark in nearly a month.

Copper remains above $6, historically pricey, while gold stayed above $5,200.

The 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 6,078.888,

and the NASDAQ composite retreated 210.17 points or 0.92% to 2688.21.

For the week, the Dow Jones industrial average dropped 1.05%, the S&P 500 fell 0.43%,

and the NASDAQ lost 0.92%.

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