Global markets entered March facing an unusual mix of geopolitical uncertainty, strong corporate earnings, and mixed economic data. At the time of this writing, developments in the Middle East have become the primary driver of day-to-day market movement.

 

The United States and Israel entered into conflict with Iran during the final weekend of February 2026. As is often the case in the early stages of war, the “fog of war” has created significant uncertainty for investors. Initial news reports suggested the conflict might be brief—some even describing it as potentially one of the shortest wars in modern history. However, as the week progressed, reporting from Politico indicated that military engagement could continue through September. Markets tend to react quickly to geopolitical risk, particularly when it involves major global powers and oil-producing regions, and this uncertainty has contributed to increased volatility in share prices.

 

One signal that investors often watch during periods of uncertainty is the U.S. Treasury yield curve. Recently, the spread between the 10-year Treasury bond and the 2-year Treasury bond has begun to slope upward again, creating what is known as a positive yield curve. In simple terms, longer-term bonds are now yielding more than shorter-term bonds. Historically, this pattern tends to reflect expectations for future economic growth, as investors demand higher yields to hold longer-term debt.

 

On the corporate side, earnings season has provided some encouraging news. Companies in the S&P 500 collectively reported fourth-quarter earnings that exceeded analyst estimates by more than $3 per share on average. Overall earnings rose more than 8% compared with the fourth quarter of 2024, and nearly three-quarters of companies in the index beat expectations. While the percentage of companies reporting earnings “beats” was somewhat lower than the average rate seen since 2021, the results still show broad strength across corporate America. Importantly, all eleven sectors within the S&P 500 reported year-over-year growth, indicating that the market rally is beginning to broaden beyond a small group of dominant companies.

 

 

Technology, however, faces emerging challenges. According to Bloomberg, early signs of a semiconductor shortage are beginning to appear again. Demand for advanced chips—particularly those used in artificial intelligence applications—has surged dramatically. As AI development accelerates, this demand may be crowding out other industries that rely on semiconductor supply. One potential consequence is pressure on consumer electronics production. Analysts expect the global smartphone market to shrink by nearly 13% in 2026 due in part to chip constraints.

 

The broader economic picture remains mixed. Inflation data from the Producer Price Index (PPI) showed prices rising nearly 3% year-over-year, while core PPI—which excludes more volatile food and energy prices—rose 3.6%. These figures suggest inflationary pressures may be somewhat stronger than previously expected.

 

At the same time, manufacturing data points toward continued economic expansion. The Institute for Supply Management’s Manufacturing Index—also known as the Purchasing Managers Index (PMI)—remained above 50, the threshold that typically indicates economic growth in the manufacturing sector. Notably, this marks the first time in some time that the index has remained above 50 in consecutive readings. Looking deeper into the report, 12 of the 18 major manufacturing industries showed growth, and new orders reached their highest level in roughly four years.

 

Employment data within the manufacturing report was less encouraging. The employment component of the index remained below 50 in February, signaling contraction in hiring within the sector. However, the reading did improve compared with January, suggesting conditions may be stabilizing.

 

Taken together, the data presents a complex picture: resilient corporate earnings, pockets of economic strength, persistent inflation pressures, rising oil prices, and geopolitical uncertainty tied to the war in the Middle East. Under these circumstances, investors should likely expect continued volatility in the weeks ahead.

 

Importantly, volatility alone is not a reason for investors to abandon long-term strategies. Markets have experienced wars, geopolitical conflicts, and economic disruptions many times throughout history. Despite these challenges, equities have historically delivered strong long-term returns relative to fixed income investments and inflation. Over the past three years, the S&P 500 has generated annual returns exceeding 20%, and since 1928 the index has averaged roughly 10% per year.

 

Another encouraging development is the gradual improvement in market breadth. Much of the market’s recent strength had been concentrated in a small group of large technology companies—often referred to as the “Magnificent Seven.” More recently, gains have begun spreading more broadly across sectors, suggesting a healthier and more balanced market environment.

 

As February concluded, market performance reflected both strength and volatility. The S&P 500 finished the month down 0.9% month-to-date and down 0.5% year-to-date, but remained up 15.5% over the previous twelve months. The Dow Jones Industrial Average was slightly positive for the month, up 0.2%, and up 1.9% for the year, with a 12-month gain of 11.7%. Meanwhile, the Nasdaq Composite declined 3.3% during February and 2.5% year-to-date, though it still posted a strong 20.3% return over the past year.

 

While the road ahead may include more market swings, the broader trend of economic growth, expanding earnings, and improving market participation provides reason for cautious optimism. For long-term investors, maintaining perspective during periods of uncertainty remains one of the most important disciplines in successful investing.

 

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