Baker Market Update 2026-03-13

A steady stream of economic data and geopolitical shocks moved through markets this week, creating a turbulent environment across both fixed income and equity markets.

This morning brought the first revision of fourth quarter 2025 GDP, the broadest measure of domestic economic output and the primary gauge of overall economic health. GDP rose at a rate of just 0.7% on an inflation- and seasonally adjusted basis, coming in well below the consensus estimate of 1.4%. Real GDP in Q4 was largely propped up by personal consumption expenditures, which accounted for 68% of the quarter’s composition, but was dragged down by a notable decline in government spending and a normalization in the net export function.

That theme of consumer resilience from the revised Q4 GDP report carried into 2026, with January data showing personal spending came in above expectations while personal income fell short. This morning’s University of Michigan Consumer Sentiment Index reading reinforced that theme, likewise topping analyst estimates of 54.8 with a realized value of 55.5.

Wednesday’s release of the February Consumer Price Index (CPI) was one of the more closely watched data points of the week. The year-over-year reading held steady at 2.5%, matching both the prior value and consensus estimates, while the month-over-month figure came in at 0.3%, in line with expectations but ticking up 0.1% from the prior month.

Taken at face value, the consumer sentiment readings, as well as the February inflation reading, would have you believing the domestic economy is currently in a state of euphoria. However, a look under the hood at what is happening with oil and gas prices paints a very different picture. Movements in oil and gas prices have long served as a reliable barometer for the stability of the global geopolitical landscape, and this week’s changes in oil and gas prices were no surprise given current events in the Middle East.

This volatility, caused by the current conflicts overseas, also carried over into fixed income markets. The 10-year Treasury yield has traded in a 33-bps range over the past two weeks, indicating that the geopolitical landscape is creating spillover effects and contributing to economic uncertainty on the domestic front.

Looking ahead, next week brings the second Federal Open Market Committee (FOMC) meeting of the year. While no change in policy rates is anticipated, the committee's updated economic outlook amid the current backdrop of mixed data and geopolitical uncertainty could offer valuable insight into where they see the domestic economy heading from here. Have a great weekend, everyone!