Markets React to US-Israel Strike Against Iran

Last week was a reminder that markets don’t always react the way headlines suggest. Producer inflation came in much hotter than expected, yet mortgage rates moved lower on the day (very odd). At the same time, the strike that killed Iran’s Supreme Leader pushed oil higher and are pushing stocks lower today (as expected) but mortgage rates higher as well (unexpected).

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Iran Strikes Cause Market Turmoil

U.S.–Israeli strikes killed Iran’s Supreme Leader Ayatollah Ali Khamenei over the weekend, triggering Iranian retaliation across the region and immediate volatility in global markets. Oil prices moved higher as traders priced in the risk of disruption to the Strait of Hormuz — the narrow waterway between Iran and Oman where roughly 20% of the world’s oil supply passes each day. Any threat to that shipping lane can quickly squeeze global energy markets.

Higher energy prices feed directly into inflation through gasoline, shipping, and production costs, and it was one of the reasons why Trump was eager to lower oil prices as soon as he got into office in 2025. With oil prices higher and geopolitical tensions elevated, the Fed would be unlikely to want to cut in the long term. We typically see geopolitical shocks push money into U.S. Treasuries and temporarily help mortgage rates, but that's not happening here as the inflation concerns are clearly outweighing the safe haven status of U.S. treasuries. It introduces fresh uncertainty at a time when markets were starting to price in a smoother path toward lower rates.

Case-Shiller Data Signals a Shift in Leverage For Som

National home price growth continues to cool. The latest S&P CoreLogic Case-Shiller index shows prices rose just 1.3% year over year in December and fell 0.3% month over month before seasonal adjustment. Inflation outpaced home price gains for much of 2025, meaning real (inflation-adjusted) home price returns turned slightly negative for the first time in over a decade. That sounds dramatic, but in reality it reflects normalization — not collapse. After years of outsized appreciation, the market is adjusting to higher mortgage rates and a more balanced supply-demand dynamic.

Always remember that national stats don't tell the local story. In Austin, buyers hold the cards. In January 2026, the median sales price came in at $400,495, down roughly 20% from the median home price in February 2022. Active listings rose to 10,083 up nearly 10x since 2022. That combination of softer prices and rising inventory is a signal to buyers that they have the power to negotiate the deal they want in this market. However, in markets like Boca Raton, Florida, it's still a predominantly seller's market with tight inventory rising home prices and many transactions either taking place off-market or going above ask after bidding wars. It's important to understand your local market and not pay attention to the national headlines.

PPI Comes in WAY Hotter than Expected

Last Friday, U.S. producer prices rose more than expected in January, adding to concerns that inflation pressures remain sticky. The Producer Price Index increased 0.5% for the month, while core PPI jumped 0.8% — the largest gain in over three and a half years. Much of the increase was driven by wider business margins and tariff-related cost pass-through. The stronger data makes it less likely the Fed resumes rate cuts in the near term and supports the view that policymakers will stay cautious before easing further, but interestingly enough, mortgage rates fell lower on the day.

What to expect this week?

This week shifts the focus squarely back to the labor market. While markets are reacting to the Iran-related volatility this week, the main story will be employment data — starting with ADP midweek and culminating in Friday’s official jobs report. After hotter producer inflation last week, labor now becomes the key variable in determining whether rate cuts get pushed further out.

Wednesday brings ADP employment, with expectations around 50,000 jobs added. That’s modest growth and would reinforce the narrative of a gradually cooling labor market. We’ll also get ISM services and the Fed’s Beige Book, which could provide anecdotal evidence about hiring trends and wage pressures across regions.

Thursday shifts to inflation at the global level with the Import Price Index. Markets will be watching to see whether foreign cost pressures are building, especially with tariffs and energy volatility in the background. A hotter reading could complicate the inflation outlook.

Friday is the main event: the February employment report. Payrolls are expected to rise by 54,000, a sharp slowdown from last month’s 130,000 gain. The unemployment rate is projected to tick down to 4.3%, while hourly wages are expected to rise 0.3% month over month. If hiring comes in weaker than expected, markets could revive rate-cut expectations. If wages stay firm, the Fed will likely stay patient.