TSP Report March 2026
Facts:
- The second estimate for Q4 2025 Gross Domestic Product (GDP) was released on February 20th and indicated the economy grew at a 7% annualized rate during the quarter.
- The Federal Reserve met on March 17-18 and voted to leave interest rates unchanged. The Federal Reserve tends to make policy decisions based on broad inflation and not just energy prices. As such, recently higher fuel costs on their own should not lead to future rate hikes.
- The unemployment rate increased to 4.4% in February following a lackluster jobs report. The report indicated 92,000 jobs were lost during the month, although the data was somewhat skewed due to bad weather and strike activity.
- The US Manufacturing Purchasing Managers Index (PMI) slumped to 51.6 in February. The decrease was mostly attributed to extreme winter weather.
- The G Fund interest rate fell to 4.00 % in March as interest rates broadly declined. Coincidentally, mortgage rates are now at their lowest levels since 2022. Trump has directed Fannie Mae and Freddie Mac to purchase mortgage bonds to put continued downward pressure on rates.
- The S&P 500 (C Fund) is up 0.68% year-to-date while the small/mid cap F Fund is up 1.84%. Energy is the best performing sector year-to-date, with the S&P 500 Energy Index gaining 31.03% so far.
Analysis & Outlook on Iran Conflict
The global markets have dropped and oil prices spiked since the scuffle in Iran began, reaching nearly $120/barrel on March 9th before retreating back to $87 by the day’s end (StockCharts). Prices have inched higher since and currently rest just above $93/barrel
Messaging on both sides of the conflict provide little clarity, with Trump noting that “. . . the war is very complete, pretty much” and that the U.S. is “very far” ahead of schedule in their operation (CNBC). Meanwhile, Iran has noted that it is ready for a long war and will continue to attack energy infrastructure and military targets in neighboring countries to inflict economic pain globally (CNN). Both sides will likely continue to assert that they have the position of strength until one side either yields or presses for a ceasefire.
Much like the “tariff tantrum” of 2025, we find ourselves once again in an event-driven market in which global assets are swinging and swooning with each headline. We won’t pretend to know what will happen over the near term, but we are keenly aware of the risks of a drawn-out conflict. Specifically, an extended engagement in the Gulf that results in disabled energy infrastructure would most likely cause energy prices to rise and stay elevated, triggering a wave of global inflation. Economies can usually handle some inflation, especially over short time horizons, but prolonged higher prices can cause economic stress and potentially even recession (Morningstar).
While the end-date and ultimate resolution of the conflict is unknown, here are some policy paths likely in consideration to provide economic relief in the face of higher energy prices:
- Strategic Petroleum Reserve (SPR) releases – The Strategic Petroleum Reserve was created in 1977 and has been used to mitigate energy supply disruptions since (Department of Energy). The amount of crude oil in the SPR is currently at multi-decade lows (Department of Energy), but some policy makers are still pushing for releases to ease pain at the pump. Overall, we view SPR releases as a short-term solution that would only modestly impact the cost of energy.
- Reinvigorating Venezuela’s oil infrastructure and production – Oil production in Venezuela plummeted by over 50% from 2015 through present (Congress), caused by a combination of economic sanctions, local mismanagement, and decaying infrastructure. It’s Trump’s hope that their new regime, aided by foreign investment, will be able to drastically increase production. This, however, will take time and likely not impact fuel prices over the near term.
- Military escorts in the Strait of Hormuz: The idea of providing military escorts to oil tankers through the Strait of Hormuz has been floated, but this idea is risky. Specifically, this potentially opens the door for escalation, as a well-placed sea mine or missile could damage or sink a vessel, military or civilian.
Of course, the optimal path to economic relief is de-escalation. The likelihood of this occurring over the near term may be that of a coin flip. Longer term, however, politicians know that Americans don’t want an “Iraq 2.0” and Trump will likely take steps to ensure the conflict isn’t drawn out, especially during a mid-term election year.
We will continue to monitor the situation daily for signs of escalation/de-escalation as well as indications that combat may be affecting the health of the global economy. For now, longer term market risk appears to be contained, and recent stock declines should likely be viewed as pullbacks within an ongoing global bull market. And, once calmer skies return, we expect the global uptrend in stocks will resume.
