Wall Street on Friday plummeted, giving up all its gains for the week and ending in the red. The decline was due to a sharp escalation between Israel and Iran, with both countries trading missile strikes and stoking concerns of a war in the Middle East. There are real concerns that this war could escalate into getting other countries, including the US, involved.
On the positive side, the May consumer price index and producer price index reports were published this week. Both sets of readings came in softer than anticipated, and, coupled with signs of cooling in the labor market, led traders to raise their Federal Reserve rate cut expectations. For four months, many economists have predicted that US inflation would reignite, in large part due to President Donald Trump’s trade war and the effects his tariffs would have on the economy. But for a fourth month in a row, data released by the Bureau of Labor Statistics came in lower than expected. The consumer price index, excluding the volatile food and energy categories, increased only 0.1% from April.
For the week, the S&P slipped 0.4%, while the Nasdaq shed 0.6%. The Dow fell 1.3%.
Future Wealth’s View
The breakout of war between Israel and Iran is an absolute failure of American diplomacy. For years, President after President has been able to contain the lingering threat of a war between the two countries and yet, within a few months into his Presidency, Trump has been unable to hold enough leverage to prevent this long lasting feud between the two countries from deteriorating into an all out war.
This is what happens when America loses the stranglehold as the world’s peacekeeper and that stems from the lack of credibility and respect that has long been the domain of the US President. While we may brush aside Trump’s silly behavior, pettiness and vindictiveness, other countries interpret it as immaturity and childishness that they no longer need to respect. Once the respect is lost, there are no longer any boundaries. Russia is unlikely to stop the war. Neither will Israel. And China is getting ready to begin its own conquest of Taiwan.
For investors, these factors may not impact our portfolio near term largely because US companies continue to perform well despite the tariffs and will likely manage the uncertainty from the war between Israel and Iran. But, the bigger question that we have to ask ourselves is “What will be the greater impact on our lives and those of our children from the structural shift in political order once it becomes clear that the US is no longer able control the actions of the rogue countries?”