* Nonfarm payrolls for March expected to show modest jobs

rise

* Iran developments set to sway assets

* Retail sales, Nike ( NKE ) earnings also due in coming week

By Lewis Krauskopf

NEW YORK, March 27 (Reuters) - Next week's U.S.

employment report headlines a fresh batch of economic data for

stock investors, who also will closely follow developments in an

Iran war that is entering its second month.

Markets will continue to fixate on the fallout for energy

prices from the Middle East conflict, which has choked off a big

chunk of oil supplies. U.S. crude is up more than 60%

year-to-date to nearly $100 a barrel, leading U.S. gasoline

prices to surge to $4 a gallon, which could squeeze consumer

spending. As investors worried about inflation, benchmark

Treasury yields jumped to their highest since last summer,

creating a possible pressure point on equity valuations.

Sharp stock market declines on Thursday put the benchmark

S&P 500 on pace for its fifth straight weekly drop,

extending its slide to nearly 6% since the U.S.-Israeli military

strikes on Iran in late February. The Nasdaq Composite

ended down more than 10% from its October all-time high,

confirming it was in a correction.

During the week, conflicting indications of potential

de-escalation of the crisis whipsawed asset prices, and stocks

were likely to remain "headline driven" in the coming days, said

Jim Baird, chief investment officer with Plante Moran Financial

Advisors.

"Any signs of positive breakthroughs in terms of discussions

with Iran and a cessation of the conflict there would go a long

way towards providing some reassurance to investors and a boost

in sentiment," Baird said. "Anything that would lead to

indications that this might become more long and drawn out, that

would be a negative for investor sentiment and certainly would

weigh on the market."

Tuesday brings an end to a rough first quarter for U.S.

equities. On top of the Iran conflict, concerns about business

disruptions from artificial intelligence and weakness in the

private credit market also have rattled stocks. The S&P 500 is

down more than 5% so far in 2026, following three straight years

of solid double-digit percentage gains.

"There's a lot of uncertainty out there overall," said James

Ragan, co-CIO and director of investment management research at

D.A. Davidson. "So as we get into the last couple of days of the

quarter, I just think you could see the market sentiment kind of

rolling over a little bit."

A POSITIVE JOBS NUMBER?

The payrolls report for March is expected to show an

estimated increase of 48,000 jobs and an unemployment rate of

4.5%, according to Reuters data. The report is due on April 3,

when U.S. stock markets will be closed for the Good Friday

holiday.

The prior report for February was surprisingly weak, showing

a decline of 92,000 jobs. Given that two of the past three

monthly reports yielded negative job growth, "any positive

number would probably be good for the market," Ragan said.

Retail sales data for February and reports on manufacturing

and services activity are also due next week.

Worries about a deteriorating labor market prompted the

Federal Reserve to cut interest rates last year. But the U.S.

central bank will face a bind if more severe employment concerns

arise.

Inflation was already above the Fed's target, so surging

energy prices present an obstacle to further rate cuts. Now,

markets are factoring in no more rate cuts for this year, with

fed funds futures actually pricing in a modest chance of a hike

in 2026, according to LSEG data as of Thursday.

RISING YIELDS, FALLING VALUATIONS

Meanwhile, the benchmark 10-year Treasury yield

has climbed to 4.4% from about 4% before the war started.

"The equity market is also taking very careful notice" of

the rise in yields, said David Bianco, Americas chief investment

officer at DWS. "This affects so many things," he said,

including mortgages, the debt sustainability of the U.S.

government and what is a fair price-to-earnings valuation.

Indeed, the market's valuation has moderated in recent

weeks. The S&P 500's P/E ratio, based on earnings estimates for

the next 12 months, was last just under 20, down from over 22 at

the start of the year, according to LSEG Datastream. That P/E

ratio remains well above its long-term average of 16.

Investors are seeking to understand implications for

corporate profits from the war and the resulting surge in energy

prices. In the face of higher fuel and other costs, companies

such as Delta Air Lines ( DAL ) and FedEx ( FDX ) recently had

reports that encouraged investors. Nike ( NKE ) will post

quarterly results on Tuesday, while the bulk of first-quarter

results are a couple of weeks away.

"I think the U.S. economy remains a safe distance from

recession," Bianco said. "We can debate the odds of recession

going up as oil prices go up, but I still think we are a safe

distance from a recession being likely."