Market Update | Oil, Uncertainty and the Cost of Conflict

March 2026 delivered one of the most consequential months for financial markets in recent memory, as a combination of mixed economic data, a historic geopolitical shock and an increasingly cautious Federal Reserve combined to pressure equity markets and send Treasury yields sharply higher. U.S. large-cap equities bore significant pressure throughout the month, with the technology-heavy NASDAQ down 4.8%, officially entering correction territory (a decline of 10% or more from a recent high) in late March. The S&P 500 and Dow Industrials finished the month down 5.0% and 5.2%, respectively. Treasury yields surged to multi-month highs over the course of the month, with the 10-year climbing to 4.30%, its highest level since July 2025, as investors rapidly repriced expectations around monetary policy in response to the energy shock and the growing likelihood that the Federal Reserve will hold rates higher for longer than previously anticipated. International equities, which had outperformed domestic benchmarks through the first two months of the year, also faced headwinds as the global economic implications of a widening Middle East conflict came into sharper focus. MSCI EAFE and MSCI Emerging Markets were down 10.3% and 13.1% in March respectively.

The defining event of March began in the final hours of February, when U.S. and Israeli forces launched coordinated strikes against Iran as part of "Operation Epic Fury," sending global oil markets into a sharp upswing. Brent crude surged more than 50% from pre-conflict levels, hovering around $110 per barrel by late March as Iran's effective closure of the Strait of Hormuz, a critical chokepoint through which roughly 20% of the world's traded oil passes, intensified supply concerns. President Trump announced on March 26th a 10-day moratorium on strikes targeting Iranian energy infrastructure, pausing further military action until April 6th, to allow an offramp for diplomatic negotiations. Markets continued to trade as though the worst pain from the war is yet to come.

While the U.S. is largely energy independent, global oil markets are still priced as one interwoven system, meaning that when supply is removed anywhere in the world, prices rise everywhere. Higher oil prices mean higher gas prices at the pump, leaving households with less to spend elsewhere, while rising transportation and shipping costs for businesses are typically passed on to consumers in the form of higher prices. Airlines, trucking companies and manufacturers all see margins compress as operating costs climb, weighing on corporate earnings and ultimately stock prices almost across the board. This is why a supply disruption thousands of miles away in the Strait of Hormuz is still showing up in portfolios here at home.

The labor market delivered a troubling signal in early March with the release of February's employment report, which showed the U.S. economy shed 92,000 jobs during the month, a sharp reversal from January's relatively firm 126,000 gain and a significant miss relative to economist forecasts. Meanwhile, the unemployment rate ticked up to 4.4% in February. While still relatively low, the increase highlights ongoing softness in a labor market that has struggled to gain momentum so far this year. This compounded an already challenging picture when the Bureau of Economic Analysis revised its fourth-quarter 2025 GDP advanced estimate sharply downward from 1.4% to just 0.7% annualized, driven by weaker consumer spending, a meaningful decline in government outlays stemming in part from last year's government shutdown and softer export activity. For the full year 2025, GDP growth came in at 2.1%, below the 2.8% pace recorded in 2024.

On the inflation front, the data released in March painted a picture of price pressures that were beginning to recede pre-conflict but are now widely expected to re-accelerate. The February Consumer Price Index (CPI), released mid-March, showed headline inflation holding steady at 2.4% year-over-year while core CPI came in at 2.5%, the lowest core reading since March 2021 and a sign that underlying inflation was normalizing, albeit slowly. However, the January Personal Consumption Expenditures (PCE) report told a more complex story, with headline PCE at 2.8% year-over-year and core PCE rising 3.1% annually, still meaningfully above the Fed's 2% target. Both reports predated the oil shock, and the distinction between headline and core inflation becomes important in the months ahead. Headline inflation, which includes food and energy prices, will likely see an immediate and sharp spike as rising oil costs flow directly into gasoline and utility prices. Core inflation, which excludes those volatile categories, tends to move slower. As elevated transportation, shipping and airline costs work their way through supply chains and into the prices businesses charge consumers, core inflation is widely expected to follow headline higher. It is likely the duration of these elevated prices, not the initial spike, that will ultimately determine the depth of economic strain.

The Federal Reserve held its policy rate steady at 3.50% to 3.75% at its March FOMC meeting, delivering what markets characterized as a "hawkish hold" and the updated dot plot showed the median year-end 2026 rate moving up to 3.4% from 2.9% in December, reflecting the oil-driven inflation risk and projecting only a single 25-basis-point cut for the remainder of the year. The Fed also revised its estimate of the long-run neutral rate upward to 3.125%, cementing the signal that the era of near-zero interest rates is unlikely to return even after current geopolitical pressures subside. In a welcome development for markets, Powell offered a more reassuring tone during a public appearance at Harvard University on March 30th, stating that inflation expectations appear to be well anchored beyond just the short term and that the Fed sees no need to raise rates in response to the oil shock, noting that "by the time the effects of a tightening in monetary policy take effect, the oil price shock is probably long gone". The remarks sent the probability of a rate hike by year-end falling, offering investors a measure of relief heading into April.

Most wars in recent decades have depressed stock prices initially but have had relatively minor effects on investment returns a year later, making a compelling case against abrupt action in response to recent headlines. The energy risk remains a key variable: if oil prices stay elevated, higher inflation and slower growth become more meaningful concerns. For investors with broadly diversified portfolios rather than those concentrated in a handful of individual stocks, patience has consistently proven to be the more rewarding instinct in moments like this.

Legal Update | DOL Proposes Fiduciary Safe Harbor for Investment Selection

At the end of March, the U.S. Department of Labor (DOL) issued a proposed regulation designed to clarify how plan fiduciaries can satisfy ERISA’s duty of prudence when selecting investment options for participant‑directed retirement plans, including 401(k) and 403(b) plans. The proposed regulation, entitled Fiduciary Duties in Selecting Designated Investment Alternatives, is in response to an August 2025 Executive Order directing the DOL to facilitate participant access to diversified investment options, reflecting a policy focus on flexibility balanced with fiduciary discipline.

The proposal is intended to reduce fiduciary uncertainty and litigation risk by reinforcing a longstanding principle: fiduciary prudence is determined by a sound, well‑documented decision‑making process—not by investment outcomes viewed in hindsight.

Key Elements of the Proposal

Process‑Based Fiduciary Safe Harbor  

The proposed rule establishes a process‑driven fiduciary safe harbor. Investment committees would be deemed to have acted prudently if they follow a structured, objective and consistently applied evaluation process when selecting designated investment alternatives (DIAs). The proposed safe harbor reinforces that fiduciary prudence is grounded in a reasoned, well‑documented process, applied consistently and evaluated at the time decisions are made—rather than judged by outcomes in hindsight.

Committees are not required to weigh each factor equally. The focus is on reasoned judgment, consistency and documentation, rather than a checklist approach.

Importantly, prudence is evaluated at the time a decision is made, based on the information reasonably available then.

Applies to All Investment Options

Although the proposal was prompted by increased market interest in alternative investments (such as private equity, private credit, digital assets and real estate), the proposed safe harbor is asset‑neutral and applies broadly to all designated DIAs, including, but not limited to, mutual funds, collective investment trusts and target date funds. However, the DOL also makes clear that investments accessed through a self‑directed brokerage window are not treated as DIAs under the proposal.

Importantly, the proposal does not require plans to include—or prohibit—the use of any particular asset class. Investment committees retain full discretion to determine which investment options are appropriate based on their plan design, governance process and participant population.

Summary of the Six Factor Fiduciary Safe Harbor

The proposed DOL safe harbor identifies six core factors that generally should be considered when selecting designated investment alternatives. The Department emphasizes that these factors reflect established fiduciary principles drawn from ERISA case law, regulations, prior guidance, Executive Order 14330 and stakeholder input. The relevance and weight of each factor depend on the facts and circumstances of the specific investment.

1. Performance (Risk-Adjusted Returns)

Fiduciaries should evaluate whether an investment’s risk‑adjusted expected returns, over an appropriate time horizon and net of fees, further the plan’s purpose of helping participants maximize retirement outcomes. The focus is on long‑term expectations, not short‑term results, and recognizes that lower‑risk strategies may be prudent where they improve risk‑adjusted outcomes.

2. Fees and Expenses

Fees must be assessed in context, considering the investment’s expected performance and overall value proposition. The proposal confirms that prudence does not require selecting the lowest‑cost option where higher fees are justified by features, services, diversification benefits or other value supporting plan objectives.

3. Liquidity

Fiduciaries must determine whether an investment offers sufficient liquidity to meet anticipated plan‑ and participant‑level needs (e.g., withdrawals, reallocations, loans). Liquidity restrictions may be acceptable where they are understood, documented, and reasonably balanced against the investment’s expected benefits.

4. Valuation

Fiduciaries should confirm that investments can be valued accurately and timely, using appropriate, reliable and—where applicable—independent valuation processes. The proposal highlights the importance of avoiding conflicts of interest in valuation methodologies.

5. Performance Benchmarks

Each investment should be evaluated against a meaningful benchmark that reflects comparable objectives, strategies and risks. The DOL clarifies there is no single benchmark appropriate for all investments and acknowledges that innovative products may require tailored or composite benchmarking approaches.

6. Performance Complexity

Fiduciaries must assess whether they have the skills, knowledge and experience to understand the investment well enough to fulfill their duties, or whether assistance from a qualified advisor or investment professional is necessary. Complexity alone does not preclude prudence, but it must be appropriately managed. Committees are not required to weigh each factor equally. The focus is on reasoned judgment, consistency and documentation, rather than a checklist approach.