The S&P 500 fell on Friday as investors watched the latest news from the Middle East. They also thought about future interest rate cuts by the Federal Reserve. The S&P 500 went down by 0.22% to end at 5,967.84.
https://x.com/JavierBlas/status/1937446096705585661
This was its third losing day in a row. The Nasdaq Composite dropped 0.51% to 19,447.41. The Dow Jones Industrial Average went up 35.16 points, or 0.08%, to close at 42,206.82.
https://x.com/DivesTech/status/1937205425977356673
https://x.com/DivesTech/status/1937042606011408471
Chip stocks had a hard day after The Wall Street Journal said the U.S. might give less support to some chip makers. Key stocks in this area lost more than 1%. The S&P 500 started the day higher.
Federal Reserve Governor Christopher Waller said the central bank might be ready for rate cuts as soon as July. But Fed Chair Jerome Powell has been more careful. He said the Fed will keep looking at data to decide.
Things are still tense between Israel and Iran. Reports say Israeli Prime Minister Benjamin Netanyahu told the military to strike “strategic targets” in Iran. President Donald Trump is thinking about having the U.S. get directly involved.
He wants Iran to fully give up. Iran’s supreme leader, Ayatollah Ali Khamenei, called this demand “threatening and ridiculous.”
With more uncertainty in the world, Sam Stovall from CFRA Research said “prior highs act like rusty doors and require several attempts before finally swinging open.” For the week, the S&P 500 lost about 0.2%. The Dow barely gained 0.02%.
The Nasdaq went up 0.2%. President Trump on Monday started to face the possible economic effects of his military strikes on Iran. The strikes could make oil and gas prices go way up at a time when U.S. consumers are already having money problems.
Just the chance of higher energy costs seemed to worry even Mr. Trump. He used social media to push for more oil drilling at home. He also told companies to “KEEP OIL PRICES DOWN.” If not, the president said, they would be “PLAYING RIGHT INTO THE HANDS OF THE ENEMY.” “I’M WATCHING!” he added.
By Monday afternoon, world oil markets didn’t seem bothered by the growing tensions between the two countries. This was just days after Mr. Trump sent U.S. bombers to attack three Iranian nuclear sites.
Prices actually went down on Monday after Iran fired missiles at American bases in other countries. But it was still not clear if Iran would keep responding or if its leaders might make the conflict worse. They could try to block the Strait of Hormuz.
This narrow waterway is a very important entrance to the Persian Gulf. The world ships a lot of oil and gas through it. So any problems with trade there could make energy prices jump all over the world.
A big rise in energy costs could be really hard for American consumers and businesses this summer. It might happen around the same time that Mr. Trump plans to bring back his big tariffs on almost every country the U.S. trades with.
Many economists think those taxes will push up prices after years of high inflation.
Market drops amid Iran tensions
In April, the president announced the very high taxes, then put them on hold.
He wanted to stop a worldwide market crash over his disruptive and legally questioned push to change global trade. But Mr. Trump has not backed down from his plan to put the taxes back in place.
Many economists expect companies to pass the added costs on to their customers. Companies pay the taxes when they get products from other countries. As if a global trade war wasn’t enough for businesses and consumers, the chance of a full-scale war in the Middle East is on the horizon.
This conflict, mainly between Israel and Iran, could have a big impact on the US economy. This is true even though it’s far away from America. Federal Reserve Chair Jerome Powell recently talked about the situation.
He said officials are watching it closely. “What’s tended to happen is when there’s trouble in the Middle East, you may see a quick rise in energy prices, but it tends to come down,” Powell said. He added that these events don’t usually have long-term effects on inflation.
The 1970s were different because of a series of big shocks, like the Iranian Revolution and the Arab oil embargo after the Yom Kippur War. Powell is confident that a similar thing is not likely today. This is because the US economy doesn’t depend as much on foreign oil.
But some economists are not as hopeful. JPMorgan economists wrote in a recent report that “the US and global economies are set to take in multiple shocks this year.” A potential Middle East war is a big concern. James Knightley, Chief International Economist at ING, pointed out that one of the most direct impacts on US consumers would come if the Strait of Hormuz were closed.
The strait connects the Persian Gulf to the Gulf of Oman. It is one of the world’s most important places for oil. The US Energy Information Administration says about 20 million barrels of oil passed through the waterway each day last year.
That’s about 20% of the world’s oil use. Knightley warned that there are very few other ways to send oil if the strait is closed. Experts at S&P Global Market Intelligence think Iran might use its navy to block passage in some places.
Even with the US being energy independent, oil prices could still “rocket higher,” Knightley said. Another factor is the ongoing tariff shock. Tariff-related price hikes haven’t shown up much in inflation reports yet.
But many economists believe it’s only a matter of time. The war between Russia and Ukraine had already pushed gas prices higher. This sped up inflation around the world.
A new jump in gas prices due to the Middle East conflict could strain consumers even more. It could lead to a big slowdown in the economy. “With tariff-induced price hikes already set to squeeze household spending power, higher gasoline prices would make the strain on consumers worse.
This risks a more noticeable slowdown in the economy,” Knightley said. The global economy remains unstable. Both businesses and consumers will have to prepare for potential aftershocks.
These could come from tensions in other parts of the world, far from US borders.
