Schwab Market Perspective
March 13, 2026
Our point of view on recent market and economic activity.
Iran-related geopolitical risk has boosted stock volatility, especially in sectors like Energy. Uncertainty remains high and there are a range of scenarios for how this conflict could be resolved and how it might affect economic conditions and markets. It also has affected expectations for further Federal Reserve interest rate cuts, as officials may hesitate to lower rates until there's more clarity around the war's economic impact.
U.S. stocks and economy: Leadership shifts
- Despite relatively flat, low-volatility headline indexes, market internals show widening dispersion, falling correlations, and broadening participation.
- Equal-weighted indexes, small caps, and international equities are outperforming cap-weighted benchmarks, echoing past periods when heavy Tech concentration constrained index-level gains and increased vulnerability beneath the surface.
- Iran-related geopolitical risk has boosted Energy leadership and volatility, while elevated stock- and sector-level swings reinforce the importance of diversification, rebalancing, and fundamentals-driven, active decision-making.
International stocks and economy: Energy supply shock
- The war in Iran has evolved from a geopolitical event to a global energy supply shock. The disruption to energy and commodity supplies is likely to have an increasingly negative impact on economic and financial conditions the longer it goes on.
- Even if military activity ends soon, the impacts to growth, inflation, and commodity prices could linger. And the longer energy and commodity supplies remain disrupted, the greater the potential economic damage. Asia appears most vulnerable, with Europe also facing meaningful exposure.
- While markets would likely rebound in the case of an end to military operations, international developed and emerging market stocks may not resume their outperformance.
Fixed income: Fed's next move?
- Recent geopolitical events and private credit market concerns have increased bond market volatility, influencing expectations for Federal Reserve policy and Treasury yields while raising questions about credit market spillover risks.
- Contrary to typical perceived safe-haven behavior, 10-year Treasury yields rose sharply after the attacks on Iran, driven by inflation expectations and a shifting federal funds outlook. We expect the 10-year Treasury yield to stay above 4%, supported by inflation and fiscal concerns.
- Investors are advised not to overreact, favor intermediate-term maturities and higher-rated bonds, and prepare for potential short-term volatility amid uncertain economic and geopolitical conditions.