Geopolitics rules the day
What a week… Troubles are coming at investors from all sides. And it is somewhat surprising that the market has not yet collapsed in earnest.
The past week began with the U.S. Supreme Court overturning Trump's tariffs. Market participants were rattled, of course, but the reaction remained contained. A modest selloff on Monday faded over the following days and was offset by positive sentiment around the global improvement in the artificial intelligence landscape. Optimism was further supported by anticipation of the quarterly earnings report from the world's largest company, Nvidia (NVDA). The report landed ahead of analyst expectations – but that was not enough to spare the market from a selloff. Investors grew nervous once again and began gradually rotating into shares of defensive-sector companies, a pattern we have already seen several times this year.
Finally, last Friday delivered a gut punch in the form of inflation data. The Producer Price Index (PPI) unexpectedly surged, showing monthly inflation accelerating from 0.3% to 0.5%, while annual inflation jumped from 2.6% to 2.9%. Core inflation (excluding utilities and fuel) rose to 3.5% year-over-year. Naturally, market participants could not shrug off this negative data and began selling off their portfolios fairly aggressively.
By the end of the week, losses stood at: -0.95% for the broad market S&P 500, -1.31% for the blue-chip Dow Jones (DJIA-30), and just -0.44% for the technology-heavy NASDAQ Composite. The latter is quite surprising, given that at the sector level, technology and cyclical stocks were among the worst performers of the week, with average losses of -1.65% and -1.17% respectively. Only financial stocks fared worse, with average losses exceeding 2%.
On the opposite end, defensive companies from the commodities, utilities, energy, and consumer staples sectors performed as expected, with average gains ranging from 2.07% in oil-and-gas companies to 4.23% in commodities.
Against this backdrop, the ITS family of indexes held up quite well. Losses here were smaller than those of the leading U.S. indexes: -0.17% for the global equities index ITS World (ITSW) and -0.51% for the Islamic securities index ITS Shariah (ITSS).
The current situation indicates that companies are passing tariff costs on to consumers, which complicates the path toward Federal Reserve rate cuts, and this will, of course, weigh on overall market conditions.
Growing pessimism about the near-term outlook for the U.S. stock market among retail investors is also reflected in the latest sentiment surveys from the American Association of Individual Investors (AAII).
Nearly half of respondents characterized the earnings guidance provided by companies for Q4 2025 as "roughly in line with expectations." AAII also reported that bearish sentiment – that is, expectations of falling stock prices over the next six months – rose 2.8 percentage points to 39.8% (the highest since 42.7% on November 26, 2025). Bearish sentiment has now exceeded its historical average of 31.0% for the sixth time in 13 weeks.
Bullish sentiment – expectations of rising stock prices over the next six months – fell 1.3 percentage points to 33.2%, dropping below its historical average of 37.5% for the second time in 13 weeks.
Neutral sentiment – expectations that stock prices will remain largely unchanged over the next six months – declined 1.5 percentage points to 27.0%, falling below its historical average of 31.5% for the 84th time in 86 weeks.
The bull-bear spread narrowed by 4.2 percentage points to approximately -6.6% from approximately -2.4% the previous week. The spread has now fallen below its historical average of 6.5% for the third time in 13 weeks.
As we can see, market sentiment is not great. And this is before accounting for what happened over the weekend in the Middle East, where events have begun to unfold according to the worst-case scenario.
Market outlook for March 2
The weekend's events turned everything upside down. War is war – investors have no love for it. So it comes as no surprise that on Monday morning all markets are painted a deep shade of red, losing around 2% on average. Active trading is still concentrated mainly in Asian markets, while European investors are just getting started and will most likely wait to see how their American counterparts react.
U.S. equity index futures are currently down just over 1%. But as they say, the day is not over yet.
Oil prices have taken the hardest hit from the U.S.-Iran conflict. Crude oil prices surged more than 7% and could well continue climbing. Gold is up around 2% for now, but should the situation escalate further, it too could shoot sharply higher.
And of course, the Middle East situation is now the single biggest source of tension and uncertainty for investors worldwide.
As for other events expected this week, the main focus will be on labor market data: on Wednesday, as usual, the ADP report will be released, followed on Friday by official figures from the Bureau of Labor Statistics (BLS).
In addition, the quarterly earnings reports from well-known U.S. retailers Target (TGT), Best Buy (BBY), and Costco (COST) will attract keen interest.
Target's shares will be particularly worth watching, having already delivered exceptional results year-to-date: +15.6% – outpacing Walmart by 15% and significantly beating the broader market (+0.6%). It is worth noting that Target's stock has declined following each of its last five quarterly releases. Nevertheless, the recent momentum suggests that market participants are expecting upbeat guidance from management before the market opens on Tuesday, March 3.
Target is expected to report earnings of $2.17 per share on revenue of $30.52 billion, implying year-over-year changes of -10% and -1.3% respectively. Consensus estimates edged up following management's guidance update on February 10 and have remained unchanged since.
On the broader retail earnings season for Q4 2025: results have now been reported by 22 of the 30 retailers in the S&P 500. Aggregate earnings for these 22 retailers grew +6.9% year-over-year, with revenue up +8.6%. 50% of companies beat EPS estimates, while 77.3% beat revenue estimates.
Even so, geopolitics will be driving markets this week – there is no getting around it. So rather than making forecasts, the only thing to do is keep a close eye on how events unfold.