Wall Street ended the week lower as conflict in the Middle East erupted after Iranian Supreme Leader Ayatollah Ali Khamenei was killed, triggering war escalations between the U.S. and Israel vs. Iran, and uncertainty within oil supply chains.
Oil prices rose more than 36% this week, while oil and gas producers, refiners, and energy infrastructure companies also surged. Crude oil prices reached a high of $92.61 per barrel. Oil prices are expected to continue to climb as disruption to traffic in the Strait of Hormuz is expected to last, heightening volatility across commodities. Prices at the gas pump are likely to jump significantly in the next few weeks in the US.
U.S. Treasury yields rose significantly as the manufacturing prices gauge jumped more than expected in February, raising inflation concerns. The 10-Year bond yield now stands at 4.6%. February U.S. private sector employment grew by 63K jobs in February but U.S. nonfarm payrolls dropped by 92,000 in February, vs. the 60,000 consensus taking unemployment to 4.4%
For the week, the S&P lost 2.0%, while the Nasdaq dipped 1.2%, and the Dow fell 3.0%.
Future Wealth’s View
It is not often that both inflation and unemployment rise at the same time. This goes against the fundamental theory of economics known as the Phillips Curve. When that happens, the Fed simply runs out of choices – cutting interest rates will drive up inflation while raising interest rates will increase unemployment. As such, it is widely believed that the Fed will now stay put and make no changes in the next meeting.
That will incur the wrath of our President who is being played by Netanyahu, the Prime Minister of Israel, a country that is 20 times smaller than the State of California. There was simply no reason for the US to invade Iran and put ourselves in the midst of another war that will likely drag on for years. Russia is suddenly feeling that it can now win the war as US weaponry is being diverted to fight the war in Iran. But, the bigger risk for investors is determining what will China do as it watches the US using up its precious military to fight several wars in Ukraine and Iran.
If there was ever an opportune time for China to strike Taiwan, look no further. The damage of an assault by China on Taiwan will make the recent sell off look like a walk in the park.