Oil and yields test markets as U.S.-Iran fighting intensifies
Wall Street is weighing higher crude, Treasury yields and fuel costs as the U.S.-Iran conflict raises risks for consumers and corporate earnings.
By Marcus V. Thorne · Markets Editor
· 4 min read
A renewed escalation in the U.S.-Iran war is forcing investors and economists to reassess how long higher energy prices and borrowing costs can be absorbed by markets and households. The S&P 500 remains about 2% below its June record, while Brent crude briefly moved above $90 a barrel and the 10-year Treasury yield traded above 4.6% on Monday, according to CNBC market reporting.
CNBC reported that the United States carried out a 10th consecutive night of strikes against Iran on Monday, after Yemen’s Houthis declared a maritime embargo against Saudi Arabia. The latest fighting followed the death of a third U.S. service member in recent hostilities. President Donald Trump said on Truth Social that “they will pay.”
Equities have so far shown limited stress from the escalation. CNBC reported that the S&P 500 slipped only modestly on Monday after a losing week. Since closing at 6,343.72 in late March, the index has recovered to record levels, helped by stronger corporate earnings and softer-than-expected inflation data last week.
Energy prices feed through to earnings and inflation
Art Hogan, chief market strategist at B. Riley Wealth, told CNBC that the market impact depends on how long crude remains elevated. “It’s about duration,” Hogan said. He added that if oil stays above $85 or $90 through year-end, 2026 earnings estimates would probably need to be reduced.
The transmission mechanism is direct. Higher crude prices raise fuel, shipping and input costs for companies, while higher Treasury yields increase the discount rate applied to future earnings and can tighten financing conditions. If both persist, investors may reassess inflation, Federal Reserve policy and corporate margins.
Sector exposure differs sharply. Technology, the largest S&P 500 sector, carries a 38% index weight and is less exposed to fuel costs than many industries, according to S&P Global data cited by CNBC. Energy accounts for about 3% of the index. Hogan said technology, financials and health care may be better supported, while energy users, including logistics businesses, face greater pressure. Ryanair said Monday that weaker first-quarter profit reflected delayed bookings tied to the Middle East crisis, according to CNBC.
Marko Papic, macro and geopolitical strategist at BCA Research, told CNBC he is watching whether Iranian hardliners gain influence and whether the United States sends more troops to the region. Passage through the Strait of Hormuz remains a focus for energy markets.
Consumers face a fuel-price squeeze
Mark Zandi, chief economist at Moody’s Analytics, told CNBC the economic risk is skewed lower because the impact depends on oil and other commodity prices. Zandi estimated that the average U.S. household has lost about $1,100 from the war so far, including higher energy costs and military spending.
Zandi said real disposable income has recently been negative or close to flat on an annual basis, a pattern he associated with recessionary periods. Consumers have used savings to maintain spending, he said. The personal saving rate was 3% in May, almost 2 percentage points lower than a year earlier, according to the Bureau of Economic Analysis.
Gasoline averaged $4 a gallon on Monday for the first time in more than a month, according to AAA. Economists told CNBC that higher fuel prices would lift headline consumer inflation. Luke Tilley, chief economist at M&T Bank and Wilmington Trust, said the Federal Reserve’s focus will be whether gasoline costs pass through into core inflation, which excludes food and energy.
Fed funds futures implied a more than 83% probability that the central bank leaves rates unchanged at next week’s meeting, according to CME’s FedWatch tool. The Bureau of Labor Statistics reported that the 12-month consumer price index reading reached a three-year high in May before easing in June as energy costs declined.
Consumer Edge analyst Michael Gunther told CNBC that higher fuel prices could make value-focused and driving-dependent shoppers more selective, affecting companies such as Dollar General, Tractor Supply and Texas Roadhouse. He said warehouse clubs including Costco and Sam’s Club could gain share as consumers look for cheaper fuel and goods. Costco reported “record-breaking volumes” in gasoline at the end of its fiscal third quarter, according to CNBC.
This story draws on original reporting from CNBC.
