The U.S. has intensified military actions against Iran, completing its 10th consecutive night of strikes, coinciding with the Houthis in Yemen declaring a maritime embargo against Saudi Arabia. This escalation has raised concerns among economists about the potential for increased energy prices to negatively affect consumers and the broader economy.
Despite these tensions, the S&P 500 has shown resilience, only marginally declining and remaining close to its all-time high. Analysts suggest that the market's current stability is based on the assumption that neither the U.S. nor Iran desires a full-scale war, as both would suffer economically.
However, the recent rise in oil prices, with Brent crude briefly exceeding $90 a barrel, could lead to adjustments in inflation expectations and monetary policy, impacting corporate earnings. Art Hogan, chief market strategist at B. Riley Wealth, noted that sustained high oil prices could necessitate downward revisions of earnings estimates.
While sectors like technology may remain insulated from energy price hikes, industries reliant on fuel, such as airlines, are likely to face challenges. Mark Zandi from Moody's Analytics highlighted that the average American household has already lost approximately $1,100 due to rising energy costs, which could further strain consumer spending.
As gasoline prices rise, economists are closely monitoring the potential for increased inflation and its implications for Federal Reserve policy. The consumer price index is expected to reflect higher gasoline prices, although core inflation may not rise correspondingly, potentially allowing the Fed to maintain current interest rates.
Retailers may see shifts in consumer behavior as households adjust to rising costs, with value-oriented stores likely benefiting as consumers seek to manage their budgets amidst these economic pressures