US Stocks to Face Middle East Developments and Inflation Data Headwinds Next Week

Financial Markets Report: March 6-12

Key Developments:

• Brent crude topped $90 a barrel on Friday, up from $70 before the weekend strikes, as markets react to the escalating conflict in the Middle East.
• The Cboe Volatility Index (VIX) hit its highest level in nearly a year, indicating rising investor anxiety.
• The U.S. jobs report for February showed a surprise drop in payrolls and a rise in the unemployment rate to 4.4%, weighing on stocks.

Market Outlook:

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• Oil prices are a key focus for investors, with higher prices potentially dampening equities by translating into higher gasoline prices and weakening consumer spending.
• Changes in oil prices will be a good barometer for whether risk assets will perform well or poorly, according to Michael Arone, chief investment strategist at State Street Investment Management.
• Oil breaching $100 a barrel would be a psychological milestone that would spook markets more, Arone said.

Economic Data:

• The consumer price index (CPI) for February is due on Wednesday, with a Reuters poll expecting a 0.2% increase on a monthly basis.
• A surprise spike in inflation could be particularly problematic, as it would fuel fears about inflation expectations rising and be bad for markets.

Interest Rates:

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• Market-based expectations for a cut of at least 25 basis points at the Federal Reserve's June meeting stood at 45% late on Friday, according to LSEG data.
• Investors generally associate lower interest rates with higher prices for stocks and other assets.

Impact on Stocks:

• The S&P 500 remained just over 3% from its all-time closing high set in late January, despite the weekly decline.
• Developments in the Middle East will move really all financial markets, according to Dominic Pappalardo, chief multi-asset strategist for Morningstar Wealth.