Markets managed to snap a painful five-week losing streak this past week, helped by cautious optimism that the U.S.-Iran war may eventually move toward some form of de-escalation, even if the outlook remains highly uncertain. For the week, the Dow gained 2.98%, the S&P 500 rose 3.38%, the Nasdaq added 4.46%, and the small-cap Russell 2000 climbed 3.34%. Those were welcome numbers after weeks of selling pressure. Even so, the first quarter still closed on a difficult note for most major U.S. equity indices, with the S&P 500 down 4.63%, the Dow off 3.58%, and the Nasdaq lower by 7.11%, while energy was one of the few standout areas of strength. Markets enter the second quarter on somewhat firmer footing, but still in an environment where headlines can drive sentiment quickly in either direction.

The geopolitical backdrop remains the dominant story, though there was not a great deal of incremental news last week beyond continued speculation about a possible offramp. The closure of the Strait of Hormuz continues to disrupt global oil flows and keep energy markets on edge, with WTI crude trading near $114 per barrel at points during the week. President Trump’s Wednesday night address offered no clear resolution, and mixed messaging from both Washington and Tehran has left investors wrestling with a wide range of possible outcomes. Adding to the tension, markets are entering tonight on edge as a U.S. deadline for Iran to reopen the Strait approaches, with the risk of further escalation if no agreement is reached. While diplomatic channels remain active, public reporting suggests the odds of a last-minute breakthrough appear slim. While markets responded positively at times to signs that the Administration may be willing to end the military campaign before a full reopening of Hormuz, the broader situation remains unclear and headline volatility is likely to stay high.

What does this mean at the gas pump? Potentially quite a bit. Gasoline prices averaged $3.75 per gallon in March, up from less than $3 in February, a jump of roughly 20% in just one month. Wholesale prices suggest retail gas could reach $4.40 or higher by mid-April. That is meaningful pressure on household budgets, particularly for lower- and middle-income consumers, and it is starting to show up in how people feel about the economy. Consumer confidence edged up in March, but the details underneath the surface pointed to rising anxiety, with inflation expectations jumping sharply. At the same time, the consumer picture is not entirely one-sided. February retail sales came in at a solid +0.6%, with control-group sales also ahead of expectations, suggesting spending retained some momentum heading into the spring, even if that data predates the full impact of higher gasoline prices.

The jobs market also sent mixed signals. March non-farm payrolls came in at a surprising 178,000, above expectations. But the details were more nuanced. The return of roughly 30,000 striking nurses and a weather-related bounce in other sectors likely helped the headline number. More telling was the fact that the unemployment rate’s dip from 4.4% to 4.3% happened alongside a decline in labor force participation, as fewer people were looking for work. The labor force actually shrank. Wage growth also softened, coming in at 3.5% year-over-year, the slowest pace since May 2021. Meanwhile, initial jobless claims fell to just 202,000, their lowest level since early January, suggesting layoffs remain low for now. Taken together, the labor market does not appear to be breaking down, but it does continue to show signs of gradual moderation beneath the surface.

Elsewhere in the data, manufacturing stayed in expansion territory with the ISM Manufacturing Index printing at 52.7 in March. A reading above 50 indicates expansion, so that was an encouraging sign, though some underlying components were softer. More broadly, the economic backdrop still looks like one of slowing but positive momentum rather than an outright contraction. Tax refunds running about 12.5% higher than last year may also be providing a temporary cushion for consumers, helping offset some of the pain at the pump, though that support is likely to fade as the year progresses.

The Federal Reserve remains in a difficult spot, but last week the bigger story was lower interest rates across the Treasury curve rather than any major shift in Fed messaging. Chair Powell’s remarks earlier in the week were relatively measured, including the view that longer-term inflation expectations remain well anchored. Market pricing has shifted around notably over the last couple of weeks, but Fed fund futures still show low odds for any rate cuts this year. For now, interest rates appear to be responding more to the crosscurrents between geopolitical risk, higher energy prices, and a more cautious growth outlook than to any meaningful change in Fed policy itself.

Looking ahead, investors will be focused on the March CPI report, February PCE-related data, the FOMC meeting minutes, and the first read on April consumer sentiment. The main themes we are watching in the weeks ahead are whether the Iran conflict begins to move more clearly toward de-escalation, how much higher energy prices weigh on the consumer, and whether softer labor market trends become more visible in the hard data. Volatility is likely to remain elevated, but periods like this can also create opportunity when sentiment swings more sharply than fundamentals.

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