Thoughts from Themes: From Tehran to the Trading Floor

Markets enter the first week of March navigating a complex and rapidly evolving macro backdrop. A sharp escalation in Middle East tensions, sweeping shifts in US trade policy, and a patient but data-dependent Federal Reserve are colliding at a critical moment for risk assets. Energy prices, inflation expectations, and rate-cut probabilities are all in flux, while equities balance resilient growth against rising geopolitical and policy uncertainty. This week’s labor market data and manufacturing surveys will help clarify whether the US economy can maintain momentum amid higher tariffs and renewed oil volatility. Below, we break down the key developments shaping markets, and what they could mean for portfolios in the near and longer term.

Impact in Iran

The US and Israeli joint military strikes on Iran, under Operation Epic Fury, represent a significant escalation aimed at dismantling Iran’s nuclear and ballistic missile programs, targeting regime security apparatus, and potentially fostering regime change. President Trump announced “major combat operations,” with strikes hitting military, leadership, and infrastructure sites across Iran, resulting in over 200 reported deaths per Iranian state media. Iran has retaliated with missile and drone attacks on US bases in the Gulf region and Israel, heightening risks of broader conflict.

Short-term market impacts are dominated by heightened geopolitical risk, particularly threats to global oil supply through the Strait of Hormuz (a chokepoint for 20% of world oil flows). Pre-strike, Brent crude closed around $72-73 per barrel and WTI near $67, already elevated due to prior tensions. Analysts anticipate sharp spikes, potentially $10-20+ per barrel initially, if disruptions occur, with some forecasting Brent testing $100 amid supply fears, war-risk premiums, and possible tanker rerouting or closures. This could drive immediate inflation pressures and trigger a risk-off sentiment across equities on Monday, with defense stocks potentially gaining as safe havens like gold, the US dollar, and yen strengthen. Crypto markets, including Bitcoin have caught a bid as we continue to learn about the success of the raid and cooperation from Arab nations.

That said Equity markets face downward pressure from energy cost surges eroding corporate margins, reduced consumer spending, and flight to safety. Sectors like airlines, manufacturing, and consumer discretionary could suffer most, while energy firms benefit from higher prices.

Long-term implications hinge on conflict duration and scope. A swift de-escalation or limited strikes might see oil premiums fade, with markets stabilizing as OPEC+ potentially increases output. Prolonged war or Hormuz disruptions could sustain elevated oil, fueling stagflation risks, slower global growth, and higher interest rates. Regime instability in Iran might eventually reduce regional threats, lowering long-term risk premiums and supporting equities and crypto recovery if energy stabilizes. However, escalation involving proxies or allies risks broader Middle East conflict, amplifying volatility.

Overall, while short-term shocks favor commodities like oil and safe havens, long-term outcomes depend on containment. Markets will monitor weekend developments closely for futures openings.

Tariff Talk

The current state of US tariffs and trade protection measures, as of late February 2026, reflects a highly protectionist stance under the second Trump administration, tempered by recent legal and policy shifts.

In 2025, the administration imposed aggressive tariffs, including broad reciprocal duties on major partners like China, Canada, Mexico, and the EU, often via the International Emergency Economic Powers Act (IEEPA). These elevated the average effective tariff rate to around 16-17%, the highest since the 1930s, with significant collections exceeding $140 billion. However, on February 20th, the US Supreme Court ruled that IEEPA does not authorize such sweeping tariffs, invalidating those measures and leading to their termination.

In response, the administration swiftly invoked Section 122 of the Trade Act of 1974 to impose a temporary global import surcharge. Initially set at 10% effective February 24, it was raised to 15% (the statutory maximum), applying to most imports with exemptions for critical items like certain minerals, energy products, pharmaceuticals, agriculture, electronics, vehicles, and USMCA-compliant goods from Canada/Mexico. This temporary measure lasts 150 days (until July 2026) unless extended by Congress. Remaining protections include Section 232 national security tariffs (e.g., on steel, aluminum, autos, semiconductors) and Section 301 actions on unfair practices, maintaining an applied tariff rate around 6.7-10.3% depending on the Section 122 duration, with effective rates (post-adjustments) estimated at 9-13%.

These measures aim to address trade deficits, re-shore manufacturing, and counter issues like illicit drugs and opioids, while new bilateral deals with partners (Japan, Indonesia) introduce reciprocity.

Potential impacts on equity and broader financial markets are mixed but significant. Tariffs potentially act as a tax on imports, raising costs for US firms and consumers (e.g., household burdens of $400-1,300 annually), with pass-through to prices. The concern is that this will fuel inflation, squeeze margins in import-reliant sector (retail, manufacturing), and disrupt supply chains, prompting shifts to domestic or alternative sourcing.

Equity markets initially reacted negatively to uncertainty and escalation risks in 2025, with sharp declines, but rebounded strongly as businesses adapted and growth persisted. The recent SCOTUS ruling and Section 122 shift reduced some uncertainty, supporting gains in US equities by lowering peak rates and signaling stability. However, persistent high tariffs could pressure corporate earnings, elevate volatility, and weigh on growth-sensitive stocks, while favoring domestic producers or inflation-hedged assets (e.g., commodities, TIPS). Broader markets face risks from retaliation, dollar dynamics, and policy unpredictability, though resilient US growth and pricing power have mitigated downside so far. Overall, while tariffs support select sectors, they introduce headwinds to global trade-exposed equities and heighten macro uncertainty.

As of late February 2026, the Federal Reserve maintains the federal funds target range at 3.50%–3.75%, unchanged since the January 2026 FOMC meeting following three 25-basis-point cuts in late 2025. The effective rate stands around 3.64%. This pause reflects a balanced but cautious stance amid solid economic growth, a stable labor market (unemployment near 4.4%), and inflation progressing toward—but not yet fully at—the 2% target, with some upward pressure from tariffs and other factors.

An Interest in Interest

Near-term expectations center on the upcoming March 17-18, 2026, FOMC meeting, where markets price in a high probability (around 96%) of rates holding steady, per CME FedWatch Tool and futures data. Only a small chance (3-4%) exists for a 25-bp cut. Market-implied paths suggest a gradual easing later in the year: modest declines of 8-24 bps by mid-to-late 2026, with the rate potentially dipping toward 3.1%–3.35% by year-end in some forecasts.

The FOMC remains divided. Recent minutes indicate many participants favor holding steady to assess disinflation progress, while others see room for further cuts if inflation trends lower as expected. The December 2025 dot plot and analyses (e.g., CBO projecting 3.4% by Q4 2026) point to one or two 25-bp reductions in 2026 overall, bringing the range closer to a neutral 3%–3.5%.

Key influences include resilient growth (projected ~2.4% in 2026), tariff effects on prices, labor market strength, and policy uncertainty under the new administration and Fed leadership transition (e.g., nominee Kevin Warsh). Markets expect no aggressive cuts absent clear weakness, favoring stability in the near term before any measured easing if data cooperates. This supports borrowing costs remaining elevated but not restrictive, with implications for equities, housing, and fixed income.

Macro Minute

US investors face a data-heavy week ahead with key macroeconomic releases poised to influence Fed policy expectations, inflation views, and equity/bond market sentiment amid persistent tariff effects and resilient growth.

The week kicks off Monday, March 2, with the ISM Manufacturing PMI for February signaling whether factory activity continues modest expansion or softens further amid trade uncertainties. Tuesday brings potential Fed speakers and supporting data, but the focus builds toward labor market indicators. Wednesday, March 4, features the ADP Employment Change for February as a precursor to official jobs data, alongside the ISM Services PMI. Thursday includes Challenger Job Cuts (YoY) and Initial Jobless Claims, offering early labor market clues.

The marquee event arrives Friday, March 6: the February Nonfarm Payrolls report, with consensus expecting 60,000 jobs added (down sharply from January’s 130k surprise), unemployment steady at 4.3%, and average hourly earnings rising 0.3% MoM (easing from 0.4%). A softer print could reinforce gradual Fed easing hopes, while resilience might sustain higher-for-longer rates.

Other notable releases include January retail sales, expected -0.2% or weaker, reflecting consumer caution post-tariffs, and supporting metrics like productivity, trade prices, and inventories.

Broader context: Recent hotter-than-expected January PPI and elevated core PCE casts heighten inflation vigilance, with January PCE data delayed to mid-March.

Geopolitical risks specifically Iran tensions impacting oil, and AI disruption themes add volatility. Markets price low odds for a March 17-18 FOMC cut, favoring stability unless jobs data weakens significantly. These indicators will shape near-term rate paths, corporate earnings outlooks, and sector rotations, favoring vigilance on labor strength versus inflation persistence.

Disclosures:

All data sourced from Bloomberg as of February 27, 2026, unless otherwise cited.

Views expressed in this newsletter are the current opinion of the author (Paul Marino). The author’s opinions are subject to change without notice. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Past performance is not indicative of future results.

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