A new reading on inflation and early company results next week could begin to show the effects of the Middle East war on the U.S. economy and U.S. businesses, as investors hope to begin to move past a conflict that has consumed markets.
Traders were grappling with mixed signals about a potential end to the war that began more than a month ago with U.S.-Israeli military strikes against Iran.
The S&P 500 posted a gain during the shortened holiday week, ending a five-week losing streak. The benchmark index closed at the start of the week its worst performing quarter since 2022, weighed down since the end of February by the war and the resulting surge in prices. energy prices.
“It’s going to be difficult to divert attention from the Middle East market, oil price and the risks that have emerged,” said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. “Markets have been very myopic on geopolitical risk and … how this is going to shake out.”
Stocks have stumbled this year as concerns about artificial intelligence disruption and weak private credit compounded uncertainty about developments. Conflict in the Middle East. The S&P 500 was last down nearly 6% from its all-time high in late January.
The war’s impact on oil supplies and energy prices remained a focus for investors, particularly the status of the Strait of Hormuz, a key oil transport channel in the Middle East where traffic has come to a standstill. U.S. crude topped $110 a barrel on Thursday after the commodity stabilized above $100 a barrel earlier in the week for the first time since 2022.
“The market is pricing oil,” said Doug Huber, deputy chief investment officer at Wealth Enhancement Group. “Inflation expectations, bond markets, everything is linked to this conception of oil action.”
CPI WILL JUMP, HIGH PUMP PRICES
Next week’s consumer price index, a closely watched inflation gauge, provides an early test of the war’s energy shock. While the price of American crude has jumped some 90% since the start of the year, the average price of gasoline in the United States this week exceeded $4 per gallon for the first time in more than three years.
“We believe that the first stage of the oil price pass-through will have arrived in March via fuel,” BNP Paribas said in a note announcing the oil price development. CPI report.
The March CPI report, due April 10, is expected to have climbed 0.9% on a monthly basis, according to a Reuters poll released Thursday. Excluding energy and food prices, the “core” level of the CPI is expected to have increased by 0.3%.
Miskin said he would study “ripple effects” on other goods and services stemming from the war and soaring energy prices, while adding that the March report may be too early to see a broader inflationary impact.
“You’re just trying to get as much real-time data as possible to formulate where inflation is and economic growth trends change,” Miskin said.
Q1 RESULTS ARE COMING, WITH HIGH EXPECTATIONS FOR PROFITS
War-induced inflation fears have led markets to largely rule out any interest rate cuts this year, after such cuts were a key part of many bullish outlooks on stocks.
“The market already has inflation on its mind,” said Patrick Ryan, chief investment strategist at Madison Investments. If the CPI were to “surprise with a much higher number, that could also be something the market would take negatively.”
Next week will also see the release of another measure of inflation, the Personal Consumption Expenditures Price Index, but this PCE data will cover February, a period largely before the start of the war. An updated reading of fourth-quarter U.S. economic growth is also expected, while investors will also analyze Wednesday’s release of minutes from the Federal Reserve’s March meeting for clues about future rate developments.
The start of earnings season will also begin to attract attention from Wall Street, with investors counting on an overall strong outlook for corporate earnings to support U.S. stocks this year. Delta Airlines and beverage manufacturer Constellations Brands are among those due to report next week.
These reports will provide a preview of the first quarter reporting season, which begins the following week. Overall, S&P 500 companies are expected to post a 14.4% increase in first-quarter profits compared to the year-ago period, according to LSEG IBES.
“THE First Quarter Earnings Season from mid-April should show that underlying earnings growth continues to strengthen and broaden,” Deutsche Bank equity strategists said in a note.