Iran conflict jolts markets

Transcript

Hi and welcome to market weekend review for the weekend ending March 6, 2026. I'm Paul Idleman from investment strategy here at Russell Investments and this has certainly been a very volatile week in financial markets on the back of the ongoing conflict across the Middle East. Um for investors really the primary transmission mechanism of the conflict onto financial markets is from energy prices. Uh and we have had a notable increase in energy prices this week. Uh for example, West Texas Intermediate crude oil is up uh roughly 17% from last Friday's close uh sitting here on a Thursday in Seattle uh with that WTI price now being up close to $80 a barrel. The moves in other global markets uh in some cases have been even larger. So for example, Dutch TTF, a measure of sort of European natural gas prices, is up over 50% over the same period. So a fairly large shock onto global energy markets. And on the back of that, we're seeing um kind of pretty classic moves cascading across the global financial system. From an equity market perspective, what we're generally seeing is the US outperform non- US markets uh during a period of draw down. uh and we're seeing uh energy defense names and generally speaking more defensive sectors outperforming cyclical areas of the market so far this week. So to give some numbers to that uh through Thursday's close here in Seattle, the S&P 500 index is down but only uh 7/10en of a percent. In Europe uh the draw downs are somewhat larger. The Euro stock 600 index, for example, is trading down roughly 4 and a.5% on the week through Thursday's close. And the the biggest sell-offs have been in the emerging markets where we've had quite a lot of volatility again through Thursday's close. The emerging markets index as measured by MCI is uh down roughly 8% on the week uh with particularly large moves in uh some economies like South Korea. Um, generally speaking, that ordering at least uh makes sense given the relative sensitivities of each of these markets to energy shocks out of the Middle East. Uh, the United States, for example, today is a net exporter of oil um and is much more resilient to these issues than it was uh four or five decades ago. Uh moving away from equity markets, uh on the fixed income side, we've had interest rates move up globally. Uh we think some of that is a reset of yields which had fallen an awful lot globally ahead of the weekend on the back of concerns over AI disruption. But some of it as well is an impulse from this conflict where investors are having to think more seriously about inflation risks over the short to medium term and what that could mean in terms of a potential hawkish shift from some global central banks that need to consider this new inflation impulse onto the global economy. So when we look at sovereign rates markets globally uh the US uh we're seeing yields higher at the 10-year point of the curve by about 18 basis points on the week through Thursday uh with similar moves in Germany and somewhat larger moves in the United Kingdom which is uh quite sensitive to developments in natural gas prices. The UK 10-year guilt yield for example is up 31 basis points on the week. So quite a bit of volatility across financial markets. Um, I would emphasize though on the fundamental side of the equation, the global picture uh does look pretty solid uh as best as we can tell going into this conflict. Um, we're recording this video ahead of uh the important US jobs report for the month of February. Uh, but generally speaking, US and global fundamentals have been solid, if not accelerating uh coming into this shock. Uh in terms of earnings, for example, we've been in a global earnings upgrade cycle now for several months. In the United States, we've seen companies deliver five consecutive quarters of double digit earnings growth. And from an economic perspective, this week we got um two business surveys from the Institute for Supply Management. And when we kind of mashed them together in our macro models, they looked to be consistent with the US economy that into the end of February was growing and accelerating towards a sort of 3% real GDP growth pace. So I think that's important. It certainly doesn't rule out a material disruption from the Middle East, but it does suggest that uh solid fundamentals uh were kind of there as an important foundation to absorb what's happening right now uh to energy prices. So I think there's a lot for investors to keep their eyes on over the coming days and weeks. Obviously we'll look towards the US jobs report on Friday morning states side and uh around this ongoing conflict in the Middle East. Really the disruption of energy supply around the straits of Hermuz and globally uh is really going to be key for uh price action over the week ahead. Uh that's all we have for this week. Thanks for tuning in. Hi, I'm Sophie Anton, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.

Key takeaways

Oil and gas prices surge amid Iran war
Bond yields rise on inflation concerns
U.S. enters conflict on solid economic footing

Energy prices move sharply higher

Energy markets drove this week’s market volatility, with the conflict in Iran triggering a sharp rise in oil and natural gas prices. Through Thursday’s close, West Texas Intermediate crude oil was up roughly 17% from last Friday, pushing prices close to $80 per barrel. Moves in natural gas were even more pronounced, with Dutch TTF — a benchmark for European gas prices — climbing more than 50% over the same period.

This represents a fairly large shock to global energy markets, with effects rippling across the global financial system. Equity markets have responded in largely textbook fashion, with the U.S. outperforming non-U.S. markets amid the drawdown and defensive sectors of the market generally faring better than cyclical ones.

Through Thursday’s close, the S&P 500 Index was down roughly 0.7% on the week. In Europe, the STOXX 600 fell approximately 4.5%. Emerging markets experienced the largest decline, with the MSCI Emerging Markets Index plummeting by about 8%.

This uneven performance reflects structural differences in energy exposure across various regions. The United States, for instance, is now a net exporter of oil and is far less vulnerable to energy shocks than it was decades ago. Europe and some emerging market economies, meanwhile, remain more directly exposed to imported energy costs.

Yields spike on inflation worries

Sovereign bond yields also moved higher across major markets this week. Part of that move reflects a reset, as yields had fallen sharply prior to the onset of the conflict amid concerns about AI-related disruption. This week’s energy shock reversed some of that decline.

But part of the rise in yields also reflects renewed inflation concerns. Higher energy prices increase the risk that inflation could become stickier in the short to medium term, raising the possibility of a more hawkish stance from some global central banks.

In the U.S., the 10-year Treasury yield rose roughly 18 basis points on the week through Thursday. German bond yields moved by a similar magnitude, while the UK 10-year gilt yield climbed about 31 basis points, reflecting the UK’s sensitivity to natural gas prices.

U.S. economy showed momentum into late February

The U.S. economy entered the conflict on solid footing, as evidenced by the recent stretch of strong corporate earnings, including five consecutive quarters of double-digit earnings growth.

The latest ISM (Institute for Supply Management) surveys point to a U.S. economy that, into late February, was growing at a roughly 3% clip. While that doesn’t rule out a material disruption from the Middle East conflict, it does suggest the U.S. entered this period with solid fundamentals in place to absorb the rise in energy prices.

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