Trade Winds: March 2026

By Coley Lynch

Economic and capital market overview as of month-end February 2026.

February Overview
With stabilizing employment data and “somewhat elevated” inflation, the Fed held rates steady at its last meeting. The minutes from the meeting highlighted a range of views amongst participants. The “vast majority” of Fed officials thought that downside risks to employment had moderated and wanted to see more progress on the inflation front before considering further rate cuts. Two Fed governors dissented from the decision and supported another rate cut. However, “several” not only backed the decision to leave the Fed funds rate unchanged but would have preferred a more balanced statement that alluded to the possibility of future rate hikes as well as cuts. With the risks to the dual mandate seemingly moving back into balance, incoming data appears set to drive future Fed decisions. A change in Fed chair, subject to Senate confirmation, injects some added uncertainty into potential Fed decisions, though.

Image

In terms of employment, despite the annual benchmark revisions reducing the average monthly level of 2025 job additions from +49K per month to +15K, the January 2026 job numbers themselves came in above market expectations. Nonfarm payrolls increased by +130K for the month and were again led by gains in the healthcare area, with construction and professional business services also contributing to the job gains. The three-month average change in nonfarm payrolls increased to +73K from -22K the previous month. The household survey showed employment growth outpacing labor force growth over the month, with the unemployment rate falling to 4.3%. Within the JOLTS report data, the quits rate and layoff rate remained stable, pointing to a possible continuation of the low hiring and low firing levels of 2025, though the drop in job openings is of some concern.

Although marginally better on the month, consumer sentiment surveys highlighted some ongoing worries, with both The University of Michigan’s consumer sentiment index and the Conference Board’s consumer confidence measure both still below historic averages. Meanwhile, the NFIB Optimism index showed that business optimism remained relatively level over the month. Manufacturing surveys improved at the national level despite showing some variation at the regional level. The ISM Manufacturing Index jumped to the highest level since 2022.

Image

Image

January’s CPI report came in lower at the headline level (+0.2% for the month), led by a notable drop in energy prices and more tempered food price gains, despite an uptick at the core level, which increased to +0.3% for the month. Core goods prices remained flat, with a decrease in used vehicles prices offsetting gains in areas such as recreation and personal care products. On the core services side, the pace of prices gains increased to +0.4% for the month. A spike in airline fares, amongst other transportation service price increases, helped drive core services inflation higher despite the pace of shelter price increases slowing to +0.2% in January. On an annual basis, the headline CPI inflation rate stood at +2.4%, while core CPI inflation came in at +2.5%. The core PCE inflation rate came in at +0.4% for the month and +3.0% for the year, perhaps strengthening the argument of those on the Fed who are more concerned about inflation.

Within the Q4 GDP report, personal consumption expenditures rose at a +2.4% annualized rate, with services carrying the weight as goods consumption fell slightly. Business investment grew at a +3.7% annualized rate, led largely by spending on equipment and intellectual property products. The government shutdown contributed to a sharp drop in federal government expenditures, pulling overall real GDP growth down to a +1.4% annualized rate. However, final sales to private domestic purchasers increased at a more robust +2.4% annualized rate.

Capital Market Implications
With employment data showing signs of stabilization and inflation still above target, Fed rate cuts do not appear likely in the very near term. However, while money market yields were little changed in February, intermediate to longer maturity Treasury yields fell. Equity market performance was mixed. Most fourth quarter earnings reports appeared solid, but many investors seemed to grow increasingly concerned about potential disruption, driven by AI advances, for software companies and other businesses.

Image

Capital Markets
Fixed Income Returns
Fed minutes shared its intent to hold rates steady in the near term, while heightened geopolitical risk, trade policy uncertainty and a more cautious tone towards credit risk left Treasury yields lower for the most part while credit spreads moved wider as AI disruption, private credit and heavy supply weighed on sentiment.

Image

Image

Equity Total Returns
Equity market performance was mixed. For the month, the Dow posted a positive total return, while the S&P 500 and Nasdaq fell. Most fourth quarter earnings reports appeared solid, but many investors seemed to grow increasingly concerned about potential disruption, driven by AI advances, for software companies and other businesses.

Image

Image

READ MORE FROM NEW ENGLAND ASSET MANAGEMENT

Originally published by NEAM in March 2026. This is not an offer to conduct business in any jurisdiction in which New England Asset Management, Inc. and its subsidiaries are not registered or authorized to conduct business.

© 2026 New England Asset Management, Inc.
 
All rights reserved. This publication has been prepared solely for general informational purposes and does not constitute investment advice or a recommendation with respect to any particular security, investment product or strategy. Nothing contained herein constitutes an offer to provide investment or money management services, nor is it an offer to buy or sell any security or financial instrument. The investment views expressed herein constitute judgments as of the date of this material and are subject to change at any time without notice. Future results may differ significantly from those stated in forward-looking statements, depending on factors such as changes in securities or financial markets or general economic conditions. While every effort has been made to ensure the accuracy of the information contained herein, neither New England Asset Management, Inc. (“NEAM, Inc.”) nor New England Asset Management Limited (together, “NEAM”) guarantee the completeness, accuracy or timeliness of this publication and any opinions contained herein are subject to change without notice. This publication may not be reproduced or disseminated in any form without express written permission. NEAM, Inc. is an SEC registered Investment Advisor located in Farmington, CT. This designation does not imply a certain level of skill or training. In the EU this publication is presented by New England Asset Management Limited, a wholly owned subsidiary of NEAM, Inc. with offices located in Dublin, Ireland and London, UK. New England Asset Management Limited is regulated by the Central Bank of Ireland. New England Asset Management Limited is authorized by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. This is not an offer to conduct business in any jurisdiction in which New England Asset Management, Inc. and New England Asset Management Limited are not reigistered or authorized to conduct business.