Is Stagflation In The Air?

*Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

• DJIA 52-wk: +10.98% | YTD: -1.17% | Wkly: -3.01%
• S&P 500 52-wk: +16.81% | YTD: -1.54% | Wkly: -2.02%
• NASDAQ 52-wk: +23.03% | YTD: -3.68% | Wkly: -1.24%
• United States Oil Fund 52-WK: +50.88% | YTD: +57.27% | Wkly: +32.73%
• Russell 2000: Had The Largest Decline — Smaller Companies Are Impacted More When Borrowing Costs Increase.

Market Close 6th March 2026. 

Week of March 2 – March 7, 2026

Russell 2000: −4.1%

Stocks ended the week sharply lower, marking the worst weekly performance since October 2025 as investors reacted to geopolitical tensions, rising oil prices, and weak economic data.

Key Drivers of the Market

1. Weak U.S. Jobs Report

The biggest shock came Friday when the February employment report showed a loss of 92,000 jobs, while economists expected a gain.

• Unemployment rate: rose to 4.4%
• This raised fears that economic growth may be slowing faster than expected.

The report increased concerns about a stagflation scenario—slowing growth combined with rising prices.

2. Oil Prices Surge

Energy markets were extremely volatile.

• Crude oil jumped above $90 per barrel
• Biggest weekly gain in oil since the early 1990s in percentage terms.

The spike was driven by escalating conflict involving Iran and disruptions to oil supply routes, which raised fears of a renewed inflation surge.

3. Geopolitical Tensions

The Middle East conflict created significant market uncertainty.

• Concerns about shipping through the Strait of Hormuz
• Risk of global energy supply disruptions
• Global equities and airline stocks weakened as a result.

Geopolitical events dominated trading throughout the week, and markets moved with each new headline.

4. Inflation and Federal Reserve Concerns

The combination of higher energy prices and a weakening labor market complicated the outlook for the Federal Reserve.

• Rising oil prices increases inflation risk.

1. A weakening job market suggests slower growth.

This creates the classic stagflation dilemma for policymakers.

Sector Performance

Winners

1. Energy stocks outperformed as oil surged.
2. Refiners and exploration companies gained.

Losers

1. Consumer discretionary
2. Technology
3. Small caps (Russell 2000 had the largest decline).

Market Tone

Overall sentiment turned risk-off:

1. Investors moved toward defensive sectors
2. Volatility increased sharply

• Institutional money flowed toward energy and commodities

Markets are likely to remain headline-driven until investors get more clarity on the geopolitical situation and inflation outlook.

Lockheed and 5 More Defense Stocks With Strong Prospects—Whether There’s War or Peace

It’s a dangerous world—as recent events in the Middle East demonstrate. These key defense companies stand to gain.

The iShares U.S. Aerospace & Defense ITA +0.90% exchange-traded fund has gained 12% this year after a 47% gain in 2025, benefiting from expectations of a more dangerous world. Anticipation of a war in Iran accelerated those gains, but now investors are starting to worry about what comes next—peace.

But even when the Iran conflict ends, key trends benefiting weapons makers remain in place. Geopolitical tensions will remain high, prompting record spending on national defense by governments around the world. And warfare is changing with lower-cost artificial-intelligence-trained drones growing in importance over traditional technologies, such as manned fighter jets, which cost tens of millions of dollars to build and maintain.

Those trends have manifested in new ways, such as the Department of Defense’s willingness to invest directly in the sector and its recent battle with AI start-up Anthropic. Despite the sometimes-messy crosscurrents, trends boil down to higher sales and earnings growth for defense stocks—investors’ favorite tailwinds.

Wall Street now forecasts roughly 8% annual earnings growth on 6% sales growth for large U.S. defense contractors over the coming few years, up from essentially no earnings growth and 5% sales growth over the prior few years. For international defense stocks, earnings are expected to grow 20% annually on double-digit sales growth, up from about 10% earnings growth and 7% sales in recent years. And in a more dangerous world, those numbers are likely to continue to rise.

Here are six stocks poised to benefit.

BAE Systems / BAESY

• Recent Price: $121.93
• Market Value: $91.0B
• 2026 PE Ratio: 27.4
• 12 Month Return: 47.4%

Source: Bloomberg

BAE Systems BA+2.98%(BAESY): The war in Iran is an international affair, and Britain’s BAE Systems, a maker of fighter jets, drones, munitions, and naval systems, is a key global defense player. It’s also a big supplier on Lockheed Martin’s F-35 program.

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Vertical Research Partners analyst Rob Stallard, who has a $132 price target on the stock, calls it a top defense pick. The company ended 2025 with a record backlog of some $110 billion. Sales in 2025 amounted to about $33 billion, while Wall Street expects double-digit sales growth over the coming years.

Curtiss-Wright / CW

• Recent Price: $704.72
• Market Value: $26.0B
• 2026 PE Ratio: 47.0
• 12 Month Return: 126.20%

Source: Bloomberg

Curtiss-WrightCW+0.44% (CW): President Donald Trump wants to boost the defense budget—and Curtiss-Wright, a supplier of defense electronics, aerospace parts, naval technologies, and nuclear power components, should be one of the biggest beneficiaries.

Trump has suggested a $1.5 trillion budget for fiscal year 2027, up from about $1 trillion in 2026. A 50% increase in one year isn’t likely, but spending numbers are going up. And that means Curtiss-Wright’s profits should, too. “The company is still only at the beginning of its earnings growth journey,” writes Deutsche Bank analyst Scott Deuschle, who has a Buy rating on the stock.

Lockheed Martin / LMT

• Recent Price: $661.25
• Market Value: $152.1B
• 2026 PE Ratio: 22.1
• 12 Month Return: 51%

Source: Bloomberg

Lockheed Martin (LMT): Lockheed has become a victim of its own success. Its fifth-generation F-35 fighter jet is used by more than a dozen countries and accounts for some 25% of Lockheed’s annual revenue. That revenue could be at risk if autonomous drone technologies replaced manned fighters.

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The value of manned fighter jets, however, has been on display in Iran, with thousands of missions establishing air dominance. And Lockheed makes Patriot missiles, which will need to be restocked.

Lockheed stock has underperformed its peers over the past 12 months and now trades for almost 22 times estimated 2026 earnings. Shares could soon take wing.

Karman / KRMN

• Recent Price: $97.98
• Market Value: $13.0B
• 2026 PE Ratio: 152.6
• 12 Month Return: 206.70%

Source: Bloomberg

Karman Holdings (KRMN): Drones are the future of war, and Karman is a near-perfect play. It supplies solid rocket motors for missiles, drone parts, and protective shrouds for satellites launched into space. In February, it agreed to acquire Seemann Composites and Materials Sciences, which makes sea-based drone technology.

Shares trade for about 140 times estimated 2026 earnings after gaining 205% over the past year. Earnings, however, are expected to grow by 50% annually for the coming three years while sales double. If Karman can meet—and beat—those targets, expect the stock to keep working.

Kratos Defense & Security Solutions / KTOS

• Recent Price: $88.45
• Market Value: $16.3B
• 2026 PE Ratio: 114.5
• 12 Month Return: 233.30%

Source: Bloomberg

Kratos Defense & Security Solutions (KTOS): The U.S. needs more drones and counter-drone tech—and that’s where Kratos comes in. It makes Valkyrie, which will one day fly beside manned fighter jets, as well as strike drones, propulsion, and counter-drone

solutions.

RTX / RTX

• Recent Price: $209.27
• Market Value: $281.0B
• 2026 PE Ratio: 30.6
• 12 Month Return: 65.20%

Source: Bloomberg

RTX (RTX): RTX is a primary missile system supplier to the U.S. military, recently agreeing with the Department of Defense to increase production of interceptors, advanced medium-range air-to-air missiles, and Tomahawk cruise missiles. Its interceptor products are protecting U.S. naval and other assets, while hundreds of tomahawks have struck Iranian targets.

Citi analyst John Godyn calls RTX a “marquee megatrend stock,” benefiting from higher military spending and strong demand for commercial air travel. Airbus and Boeing’s backlog stretches for years, ensuring strong demand for years to come.

Key catalysts for the coming week include:

1. U.S. CPI inflation report
2. Consumer sentiment data
3. Fed commentary on inflation and growth

• Developments in the Middle East conflict and oil prices

These events could determine whether the market stabilizes or sees another leg lower.

Stagflation refers to a period of stagnant economic growth combined with rising prices. It’s not an encouraging topic to enter the market conversation at this stage. While I don’t currently see this scenario developing, the growing chatter around it is something that should be taken seriously.

Although the market rallied off its lows on Friday, the strength behind the move was noticeably weaker than in recent sessions. To me, this suggests that the investment community—after committing significant capital to dip-buying over the past several weeks—may be taking a pause. For now, it’s prudent to proceed with caution.

– Richie

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