TD Securities analysts expect the US ISM Services index to weaken in March due to uncertainty linked to Iran. They forecast the index at 54.2, which would reverse February’s increase. They anticipate slower readings across most ISM Services components. They also expect the employment component to move back into contraction. They note that ISM manufacturing rose more than expected, but survey comments pointed to weaker sentiment tied to geopolitical risks. They expect services survey data to show similar effects this week. They see a possible upside risk from supplier delivery times. This is linked to supply chain disruption connected to the Iran conflict, which was also referenced in the manufacturing survey. The article was produced using an AI tool and checked by an editor. We believe the recent geopolitical uncertainty will start to weigh on the US services sector, creating an environment ripe for specific derivative plays. Looking back to a similar period of tension in early 2025, we saw how sentiment can sour quickly, even when underlying activity is firm. This suggests preparing for a repeat where survey data, like the ISM, begins to cool off in the coming weeks. The March 2026 ISM Manufacturing Index, which was released last week, already showed signs of this stress with new orders dipping slightly. While the headline number was stable, commentary pointed to growing concerns over supply chains and global risks. We therefore expect the latest March ISM Services report to show a decline from its February high, potentially falling back below the 54.0 mark. For traders, this outlook suggests positioning for a more cautious Federal Reserve. A slowdown in the massive services sector could push the timeline for any further rate hikes out, making bets on lower rates more attractive. Fed funds futures are already pricing in a slightly more dovish path, a trend we expect to continue if the data softens as predicted. This environment is also a textbook setup for higher volatility. The CBOE Volatility Index, or VIX, has already climbed from its recent lows below 14 to over 16 as uncertainty builds. Purchasing VIX call options or futures provides a direct way to gain from the market anxiety that often accompanies geopolitical flare-ups. We also anticipate underperformance in service-heavy sectors like consumer discretionary and transportation. During the 2025 slowdown, we saw these areas lag as service sector employment briefly contracted. Buying puts on relevant ETFs could be an effective way to position for a similar dip in consumer and business activity. One key risk to watch is the supplier deliveries component within the ISM data. As we noted in manufacturing reports from 2025, supply chain disruptions can lengthen delivery times, which paradoxically boosts the headline ISM figure. This could create a confusing signal for markets, so any bearish positions should be managed carefully around data releases.

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