Markets rally despite Fed's hawkish stance on interest rates and geopolitical tensions
U.S. markets demonstrated resilience last week despite a wave of economic and geopolitical challenges. Stocks climbed higher even as tensions in the Middle East pushed oil prices up and hawkish signals from the Federal Reserve dampened hopes for a current mortgage rates cut in March.
The S&P 500 and Nasdaq 100 both posted gains, while Treasury yields rose across the board. Meanwhile, a Supreme Court ruling on tariffs and mixed housing data added to the week's volatility.
Geopolitical tensions took centre stage as escalating clashes between the U.S. and Iran drove WTI crude oil prices up by 5%. The surge pushed oil to seven-month highs, with traders fearing potential disruptions to supply routes through key chokepoints.
On the economic front, Federal Reserve officials delivered hawkish remarks that all but ruled out a mortgage rates cut in March. Market expectations for a reduction next month fell below 4%, while Treasury yields climbed. The 2-Year Treasury yield rose by 7 basis points to 3.48%, and the 10-Year yield increased by 3 basis points to 4.08%.
Equity markets defied the headwinds, with the S&P 500 rising 1.1%—its best weekly performance since early January. The Nasdaq 100 also advanced by 1.1%, recovering from an earlier dip as investors weighed concerns over AI-driven capital spending and shifting competitive pressures.
The Supreme Court issued a 6-3 ruling restricting the White House's ability to impose broad tariffs under the IEEPA framework. Treasury Secretary Bessent responded by pledging to explore alternative legal avenues to reinstate the measures. The decision prompted the German government, led by Chancellor Friedrich Merz, to announce plans for a coordinated EU stance ahead of his upcoming Washington visit. Merz aims to discuss trade stability with former President Trump, who has signalled new global tariffs via a separate decree.
Real estate sectors showed mixed results. The Housing Index slipped 1.8% as affordability concerns persisted due to high interest rates. However, the Equity REIT Index edged up 0.3%, with cold storage and retail properties leading gains among 10 of the 20 tracked sectors.
The week ended with stocks higher, oil prices elevated, and Treasury yields climbing. The Supreme Court's tariff ruling has set the stage for further trade discussions between the U.S. and EU, while the Fed's stance keeps interest rates cut expectations in check.
Investors now turn their attention to how these developments—from geopolitical risks to shifting monetary policy—will shape market movements in the weeks ahead.
