Despite West Texas Intermediate crude climbing to $111.54, U.S. stocks ended last week higher for the first time since February 20. This rebound was fueled by a slight drift lower in interest rates and a domestic economy that remains resilient despite heightened geopolitical risks amid the ongoing conflict in the Middle East. This stability has been supported by heavy investment in artificial intelligence (AI), robust high-income consumer spending and the tailwinds of Federal Reserve rate cuts in late 2024 and 2025, alongside fiscal stimulus from the One Big Beautiful Bill Act. Notably, the Hutchins Center at Brookings estimates that fiscal policy will add 2.1 percent to gross domestic product (GDP) growth in Q1 2026.
However, the economy remains in a delicate balance. The recent conflict-driven surge in oil prices threatens higher inflation and has spiked interest rates back to nearly where they were before the Fed began cutting rates in September 2025. The two-year Treasury moved from a pre-conflict low of 3.37 percent in late February to a high of 3.98 percent on March 26 before settling at 3.79 percent last week. Similarly, the 10-year note rose from 3.94 percent to 4.43 percent last week before ending at 4.34 percent. Higher rates threaten to unwind previous monetary stimulus and continue to place downward pressure on equities, which could eventually dampen consumer spending.
While last week’s labor data was generally positive, particularly Friday’s jobs report, it still reflected underlying labor weakness in March and does not yet signal a break from the softening trend of the past 15 months. Despite employers adding 178,000 jobs last month (nearly triple the 65,000 forecast), the data also reflects a cautious environment. The unemployment rate inched down to 4.3 percent from 4.4 percent, a drop attributed to 396,000 people departing the labor force rather than a massive surge in hiring. Average hourly earnings rose only 0.2 percent for the month and 3.5 percent annually, the latter marking the slowest yearly pace in nearly five years.
Inflationary pressures also remain sticky. The Institute for Supply Management (ISM) Manufacturing Prices Paid index hit its highest level since June 2022, while the S&P Global US Services Purchasing Managers’ Index (PMI) fell into contraction at 49.8, the first decline since January 2023. The “stagflationary environment of stalled growth and surging price pressures” presented a major challenge to policymakers as business confidence began to dip, noted Chris Williamson, Chief Business Economist at S&P Global. Energy disruptions from the Middle East conflict are a primary concern, he added, which could prompt firms to pass on higher costs while potentially trimming headcounts.
While overall growth remains positive, the Atlanta Fed’s GDPNow tracker has faltered from over 3 percent in early March to 1.6 percent as of April 2. Given the trio of stubborn inflation, labor weakness and geopolitical instability, we continue to prioritize diversification and a long-term outlook. Broadening market participation beyond a few AI-leveraging stocks suggests that a diversified approach remains the best antidote to near-term uncertainty. For a deeper dive into our investment strategy, read our latest Asset Allocation Focus.
Wall Street wrap
Economic expansion continues despite slowing growth: The March 2026 S&P Global U.S. final PMI indicates that economic growth continued but lost momentum, with the composite index slipping to 50.3 from 51.9 in February—the lowest level since September 2023. The deceleration was driven by a cooling services sector, while manufacturing provided a relative bright spot, with its PMI rising to 52.3 on the back of firmer output and new orders. Most notable was the decline in the services sector from the preliminary “flash” reading taken earlier in the month that registered 51.1, with the report noting that panelists commonly linked deterioration in activity to the impact of the conflict in the Middle East. The report highlighted the critical question of how long the conflict will last, noting that “the fact that business confidence has merely dipped and not slumped is a sign that businesses are hopeful of a swift resolution to the war.”
Job growth rebounds, but labor uncertainty remains: The March 2026 Employment Situation report, released by the Bureau of Labor Statistics (BLS) on April 3, revealed a significant rebound in the U.S. labor market as nonfarm payrolls surged by 178,000 jobs. This performance far exceeded the consensus forecast of roughly 65,000 and effectively reversed a revised loss of 133,000 jobs from February. The unemployment rate fell to 4.3 percent from 4.4 percent.
Positively, overall job growth broadened, with more than half (56.8 percent) of all sectors gaining jobs in March, up from February’s 49.2 percent. However, job growth was still primarily driven by the education and health care sector, which added 91,000 positions, largely due to 35,000 workers returning from a strike at physician offices. Construction also showed strength with a gain of 26,000 jobs, while the transportation and warehousing sector added 21,000. Conversely, the federal government continued to trim its workforce, shedding 18,000 jobs during the month. Wage growth remained moderate, with average hourly earnings increasing 0.2 percent in March and 3.5 percent over the past year, providing a snapshot of a cooling but stable inflationary environment for labor costs.
Retail sales rebound in February: Last week’s data from the U.S. Census Bureau revealed that retail sales rebounded more strongly than expected in February, rising 0.6 percent to a total of $738.4 billion. This performance beat analyst forecasts and pushed the year-over-year growth rate to 3.7 percent. The gains were broad-based, with “core” retail sales—which exclude more volatile auto and gasoline numbers—climbing 0.5 percent, marking their first monthly increase in three months.
The recovery was led by significant surges in clothing and accessory stores, which saw their largest monthly gain in nearly two years at 2 percent, while health and personal care stores jumped 2.3 percent. Auto dealers also recovered from earlier pullbacks with a 1.2 percent increase. Grocery and furniture stores both saw 1 percent declines, however.
The week ahead
Monday: The March ISM Services PMI report is scheduled for release today, Monday, April 6, at 10:00 AM ET. February’s Services PMI surged to 56.1 percent (from 53.8 percent in January), the fastest expansion since July 2022. We will be watching to see if this strength continues or if the Middle East conflict has an impact on prices and growth like we witnessed in last week’s S&P US Servies PMI, which fell into contraction.
Tuesday: The ADP Research Institute will release the latest NER Pulse (National Employment Report Pulse) at 8:15 AM ET, providing preliminary estimates of the week-over-week change in private-sector employment.
Thursday: The U.S. Bureau of Economic Analysis has scheduled the next Personal Income and Outlays report, which contains the Personal Consumption Expenditures (PCE) Price Index, at 8:30 AM ET. February’s report showed that core inflation has been stuck around the 3 percent level since the end of 2023. We will be watching to see where this inflation measure settled ahead of the conflict in the Middle East.
Friday: The BLS) release Consumer Price Index (CPI) data on Friday, April 10, at 8:30 AM ET. This will mark the first inflation reading that incorporates the impacts of the Middle East conflict. Expectations are for a large 1 percent month-over-month increase in Headline CPI. We will be monitoring whether these inflation pressures spill over into core inflation, which is expected to check in at a much tamer 0.3 percent month-over-month rise.
The BLS will also publish its March 2026 Real Earnings report at the same time, detailing inflation-adjusted wage data.
Separately, preliminary Michigan Consumer Sentiment data for April, measuring household confidence in the economy, is also scheduled for release at 10:00 AM ET. We will be monitoring the state of the U.S. consumer given the increased inflation since the onset of the Middle East conflict as well as recent market volatility. This release will include five- to 10-year consumer inflation expectations, which are closely monitored by the Fed to see if inflation is becoming embedded in the U.S economy.
Brent Schutte, CFA, is chief investment officer of the Northwestern Mutual Wealth Management Company.
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Brent Schutte, CFA® Chief Investment Officer
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