MARCH 2026 MARKET UPDATE
03/06/2026
Thrivent Asset Management contributors to this report: John Groton, Jr., CFA, director of administration and materials & energy research; Matthew Finn, CFA, head of equity mutual funds; and Charles Hofstrom, CFA, investment product manager
Expectations remain stable for two cuts anticipated in 2026.
Strengthened due to uncertainty around AI’s market impact and geopolitical risk.
Oil prices climbed sharply.
The economy: Economic data released in February was broadly supportive, though February’s employment report released in early March indicated increasing softness in the labor market. Fourth quarter gross domestic product (GDP) came in below expectations, but that was largely due to less government spending, which was a result of the government shutdown. Consumption, a key driver of the U.S. economy, remained solid. February’s data also showed an uptick in consumer confidence and stability in manufacturing, encouraging investors. Oil prices rose late in the month amid concerns about conflict in the Middle East and surged in early March, adding to inflation concerns.
Stocks: Earnings were broadly positive but concerns about investment in artificial intelligence (AI) and AI-related disruption grew, resulting in further dispersion in U.S. stock returns. The S&P 500® Index and the Nasdaq Composite Index both fell over the period, while the Russell 2000 Index of small-cap stocks rose. Within the S&P 500 Index, more defensive and industrial sectors, including materials, utilities and energy, led the index’s performance during the month as investors rotated away from large technology stocks. International equity markets once again outperformed despite a relatively stable U.S. dollar.
Bonds: Benchmark 10-year Treasury yields declined in February, from 4.26% at the end of January to 3.96%, as enthusiasm for longer-term U.S. government bonds rose over the period largely due to uncertainty about AI’s impact on the stock market and rising geopolitical risks. Shorter-term Treasury yields were more stable as the outlook for interest-rate cuts was little changed over the period. The Bloomberg U.S. Aggregate Bond Index, which is predominantly comprised of Treasuries, investment-grade corporate bonds and U.S. mortgage-backed securities, rose 1.64% in February.
The economy: Economic data has been encouraging, and we continue to expect the economy to find support from strong corporate earnings, a relatively low unemployment rate, lower interest rates, tax cuts, deregulation and an expansionary fiscal policy. However, the outlook for employment remains unclear, and rising geopolitical risk creates additional uncertainties, particularly inflation if oil prices continue to rise, stretching consumer budgets.
Our base case remains that growth will moderate from its 2025 rate, but the economy will avoid a recession.
Stocks: We maintain a modest overweight position in equities over fixed income, given our structurally positive long-term outlook for the economy and our bias toward prioritizing economic fundamentals and corporate earnings as the primary determinants of investment returns over the long term. However, we have modestly reduced our overweight exposure to large-cap technology stocks and increased our exposure to international equities, while rotating some style exposure from growth to value.
Maintain exposure, favoring higher-quality and large-cap stocks, but increasing diversification within equities could reduce portfolio volatility in the near term.
Bonds: The war in the Middle East can pressure interest rates in opposite directions. Higher oil prices can fuel inflation and send Treasury rates higher. At the same time, a sustained increase in oil prices could dampen consumer spending and the economy, pressuring rates lower. As of early March, interest rates had risen, indicating concern about inflation and market expectations that any rate cuts by the U.S. Federal Reserve (Fed) will be delayed until there is more clarity about the impact of the war and oil prices on the U.S. economy. In response, we are positioned roughly neutral, looking to add back interest-rate risk with clarity on the war, favoring short- to intermediate-maturity Treasury securities, which are more sensitive to Fed rate cuts. In the corporate credit market, increased volatility in credit spreads leads us to favor higher-quality corporate bonds in the current environment.
Stay at the short end of the Treasury curve and favor higher-quality corporate bonds with less exposure to tariff uncertainty and macroeconomic weakness.
GDP slowed significantly in the fourth quarter of 2025 to 1.4% from 4.4% in the third quarter. However, the six-week government shutdown was a significant drag on growth, with some analysts suggesting it could have detracted a full percentage point from the growth estimate. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers’ Index (PMI) slipped to 52.4 from 52.6 in January. Because the ISM PMI is constructed to indicate that any reading below 50 signals a contraction, January and February’s readings above 50 could signal a rebound in manufacturing activity.
After falling sharply in January, The Conference Board reported that its consumer confidence index ticked up in February and revised its January estimate higher. While the February index’s measure of short-term expectations for income and the job market rose four points to 72, it remains below 80, a level that typically signals significant weakness. The University of Michigan’s Consumer Sentiment Index for February also showed a modest improvement in sentiment, rising from 56.4 in January to 56.6 in February. Retail sales data for February showed a small rise of 0.2% from January, less than expectations closer to a 0.6% rise.
The Bureau of Labor’s delayed January employment report, released on February 11, was stronger than expected, with 130,000 new jobs added over the month—the highest new jobs total in over a year—and the unemployment rate falling to 4.3%. However, the February employment report, released on March 6, showed a loss of 92,000 jobs over the month versus expectations of a gain of 55,000 jobs. The report also revised downward by 69,000 the total jobs created in January and December. In another sign of a weakening labor market, the unemployment rate increased to 4.4%.
While the monthly payroll data provide an important window into the health of the labor market, it’s important not to put too much weight on a single payroll number as the data often are heavily revised in subsequent months. For example, the revisions to the total number of jobs created in 2025 were significant, showing that only 181,000 jobs were created during the year, or approximately 15,000 per month.
We prefer to look at longer periods than a single month for trend analysis, such as the three-month moving average of payrolls, which remains positive but is soft at +27,000 jobs a month.
January’s Core Consumer Price Index (CPI) rise of 2.5% from January last year was the smallest increase since 2021, providing some optimism on the outlook for inflation. However, the January Core Producer Price Index (PPI) released late in the month rose 0.8% from December, much higher than the roughly 0.3% rise that was expected, increasing concerns about the path of inflation. Rising oil prices (particularly the surge in early March) have added to the concerns that upward pressure on headline inflation could be building.
The S&P 500 Index of large-cap stocks fell 0.87% in February, and the technology-heavy Nasdaq Composite Index fell 3.38%. However, the Russell 2000 Index of small-cap stocks rose 0.71% as investors rotated into smaller capitalization stocks. At the sector level, investors broadly shifted from technology and technology-related sectors (communication services, information technology and consumer discretionary were the worst-performing sectors in February) to more defensive and industrial sectors such as materials, utilities and energy—the top three performing sectors over the period.
The table below shows the past month and quarter-to-date performance results of the 11 sectors:
The MSCI ACWI ex-USA Index, which tracks stocks across developed and emerging-market economies across the world (excluding the U.S.), rose 4.91% in February, significantly outperforming the S&P 500 Index. Japan led the index higher, boosted by a strong election win providing the current prime minister the first supermajority since World War II. In Europe, eurozone inflation was reported below target, while the U.K. and Norway were supported by higher energy prices.
Benchmark 10-year Treasury yields fell over the month to 3.96%, 0.21% below their yield at the end of January. Enthusiasm for longer-term U.S. government bonds rose over the period as uncertainty about AI’s impact on the stock market and geopolitical concerns grew. Shorter-term Treasury yields were more stable as the outlook for interest-rate cuts was little changed over the period. The market expects two rate cuts of 0.25% in the second half of 2026.
Investment-grade corporate bond yield spreads (the amount of yield paid over comparable U.S. Treasuries) widened in February. While spreads ended the period still well below their 10-year average, concerns about AI-related risk in the software sector, particularly in private-credit markets, weighed on corporate bond valuations. The Bloomberg U.S. Aggregate Bond Index rose 1.64% in February.
The Nominal Trade-Weighted U.S. Dollar Index lingered near its multi-year lows for much of the month and ended February down 0.07%. The U.S. dollar found some stability in relatively strong economic data over the period and had its largest two-day rally in nearly a year when conflict in the Middle East expanded in early March as international investors sought safety in the dollar.
The S&P GSCI Index (a broad-based and production-weighted index representing the global commodity market) rose 2.13% in February, led by strong returns in precious metals such as gold and silver. The cost of a barrel of West Texas Intermediate (a grade of crude oil used as a benchmark in oil pricing) rose 2.78% over the month, primarily due to tensions in the Middle East, bringing its year-to-date gain to 16.72%. In early March, as conflict in the Middle East escalated, oil prices surged, trading above $70 a barrel.
Before making a change in your investment portfolio, you may wish to consult with a financial professional to determine how that may align with your long-term goals and objectives.
Media contact: Callie Briese, 612-844-7340; callie.briese@thrivent.com
All information and representations herein are as of 03/06/2026, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
This article refers to specific securities which Thrivent Mutual Funds may own. A complete listing of the holdings for each of the Thrivent Mutual Funds is available on thriventfunds.com.
The S&P 500® Index is a market-cap weighted index that represents the average performance of a group of 500 large-capitalization stocks.
The Russell 2000® Index is an unmanaged index considered representative of small-cap stocks.
The Nasdaq Composite Index is a stock market index that includes almost all stocks listed on the Nasdaq stock exchange. The Nasdaq – National Association of Securities Dealers Automated Quotations – is an electronic stock exchange with more than 3,300 company listings.
The MSCI ACWI ex-USA Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the U.S.
The Bloomberg U.S. Aggregate Bond Index is an unmanaged index considered representative of the U.S. investment-grade, fixed-rate bond market.
The Federal Funds effective rate is the interest rate at which depository institutions (mainly banks) lend reserve balances to other depository institutions overnight on an uncollateralized basis. In simpler terms, it's the rate banks charge each other for short-term loans to meet their reserve requirements.
The Consumer Confidence Index (CCI) is a survey administered by the Conference Board. The CCI measures what consumers are feeling about their expected financial situation, whether that's optimistic or pessimistic.
The University of Michigan Consumer Sentiment Index is a consumer confidence index published monthly by the University of Michigan.
The Consumer Price Index measures the monthly change in prices paid by U.S. consumers for a basket of goods and services.
The Core Consumer Price Index (CPI) measures changes in the prices of goods and services, with the exclusion of food and energy.
The Personal Consumption Expenditures (PCE) Price Index, also known as consumer spending, is a measure of the spending on goods and services by people of the U.S.
The Core Personal Consumption Expenditures (PCE) Price Index, also known as consumer spending, is a measure of the spending on goods and services, excluding food and energy prices, by people of the U.S.
The Nominal Trade-weighted U.S. Dollar Index measures the value of the U.S. dollar based on its competitiveness versus trading partners.
The Institute for Supply Management Purchasing Managers Index (PMI) measures the month-over-month change in economic activity within the manufacturing sector.
Any indexes shown are unmanaged and do not reflect the typical costs of investing. Investors cannot invest directly in an index.
Past performance is not necessarily indicative of future results.
The Core Producer Price Index (PPI) measures the average change over time in the selling prices received by domestic producers for their output.
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