It’s a stellar time to be an investor on Wall Street. With rumors swirling of a peace deal between the U.S. and Iran, the benchmark S&P 500 (SNPINDEX: ^GSPC) and growth-stock-propelled Nasdaq Composite (NASDAQINDEX: ^IXIC) screamed to new all-time highs. The iconic Dow Jones Industrial Average (DJINDICES: ^DJI) needs less than a 1% up day to join its peers.
In several respects, the stock market is firing on all cylinders. S&P 500 companies are buying back stock at a record pace, corporate earnings are blowing past Wall Street’s consensus expectations (as a whole), and the evolution of artificial intelligence (AI) is fueling growth and excitement among professional and retail investors.
Will AI create the world’s first trillionaire? Our team just released a report on the one little-known company, called an “Indispensable Monopoly” providing the critical technology Nvidia and Intel both need. Continue »
But things may not be as perfect as the Dow, S&P 500, and Nasdaq Composite have made them appear. Arguably, nothing poses a greater threat to the stock market right now than inflation.
Fed Chair Jerome Powell delivering remarks. Image source: Official Federal Reserve Photo. Avert your eyes: the Federal Reserve just offered its first look at projected inflation for May
The U.S. economy is dealing with two price shocks at the moment: President Donald Trump’s tariffs and the Iran war. It’s the latter that’s having a substantive impact on price changes.
On Feb. 28, U.S. military forces, at Trump’s command, began attacks against Iran. Shortly after this conflict commenced, Iran effectively shut down the Strait of Hormuz to commercial vessels, halting the movement of around 20 million barrels of liquid petroleum per day! According to the Energy Information Administration, this represents 20% of the world’s crude oil demand and is the largest energy supply disruption in the modern era.
When the supply of an in-demand good or service is constrained, the law of supply and demand tells us that its price rises until demand tapers off. In the wake of this supply disruption, crude oil prices have soared, leading to pain at the pump for consumers.
According to data from AAA, we’ve witnessed gas prices rise at their fastest pace in more than three decades. On a percentage basis, the increase in diesel prices has been even steeper.
Before the effects of the Iran war began showing up in economic data, U.S. trailing 12-month (TTM) inflation clocked in at 2.4% in February. One month later, TTM inflation jumped 90 basis points to 3.3%.
