Stocks traded with restraint as the U.S. extended its air campaign against Iran into another night of strikes, even as fresh escalation involving the Houthis in Yemen revived concerns about the economic knock-on effects of a longer conflict. The S&P 500 slipped only marginally on Monday after a losing week and remains about 2% below its June all-time high, suggesting investors are still leaning on earnings momentum rather than war-related macro risks.
Still, strategists and economists warned that rising energy prices and higher bond yields could eventually force a reassessment of inflation expectations and monetary-policy assumptions—an outcome that would filter through to corporate margins and consumer demand.
Key takeaways
- Price move: The S&P 500 fell marginally on Monday after a losing week, remaining roughly 2% under its June record.
- Catalyst: Renewed U.S.-Iran fighting, including an additional round of U.S. strikes and a Houthi-declared maritime embargo, heightened fears of prolonged disruption.
- Market implication: Investors are keeping a “duration” mindset, but sustained oil strength and elevated Treasury yields could pressure earnings estimates and inflation pricing.
- Sector watch: Technology is positioned as relatively insulated, while energy and fuel-dependent logistics face greater downside if crude stays elevated.
- Macro focus: Economists are monitoring whether gasoline-driven inflation reappears in core measures ahead of the Federal Reserve’s next meeting.
What drove the market’s focus on fundamentals
According to CNBC’s reporting, the U.S. completed its 10th straight night of strikes against Iran on Monday. The broader escalation has followed Houthi actions that declared a maritime embargo against Saudi Arabia, amid additional casualties tied to the recent fighting. President Donald Trump vowed retaliatory action in response.
Despite the intensifying headlines, the index’s behavior signals that investors are not yet revising their macro base case. The S&P 500 had earlier rebounded to record levels after a late-March low, benefiting from the market’s assumption that neither side wants a return to open-ended war that could tip the global economy into recession.
Instead of pricing the conflict as an immediate economic shock, investors have emphasized earnings and inflation data. CNBC noted that corporate earnings strength has improved since the start of the second-quarter reporting season, and that last week’s softer-than-expected inflation reading supported risk appetite.
Why energy prices and yields remain the main risk
Even so, investors cannot ignore the market signals from commodities and rates. Brent crude briefly topped $90 a barrel on Monday and hovered just below that level on Tuesday, according to CNBC. At the same time, the U.S. 10-year Treasury yield traded above 4.6% on Monday and remained near that level on Tuesday.
Strategists argued that the key question is not only how high oil and yields go, but how long they stay elevated. Art Hogan, chief market strategist at B. Riley Wealth, said the market is “about duration,” adding that if Brent remains above roughly $85 or $90 into year-end, analysts may have to trim earnings estimates. His view reflects a direct line between energy-driven inflation pressure, monetary-policy expectations, and eventual effects on profit outlooks.
Sector winners and losers as the conflict tests the consumer
Hogan also highlighted a potential sector divergence if energy prices persist. He said the S&P 500 could still benefit from technology strength, pointing to technology’s large weighting in the index and relative insulation from higher energy costs. Energy’s comparatively small share also reduces the index-level mechanical impact if investors rotate away from oil-exposed revenue streams.
However, he flagged energy and fuel-dependent logistics as likely laggards under a prolonged oil-price scenario. CNBC also pointed to company-specific demand sensitivity: Ryanair said weak first-quarter profits reflected delayed bookings tied to the Middle East crisis.
On the consumer side, economists warned that renewed fuel inflation could squeeze households and complicate demand. Mark Zandi, chief economist at Moody’s Analytics, argued there is “nothing but downside” for the U.S. and global economies, depending on how the conflict evolves and what that means for commodity prices. CNBC reported that Zandi estimated the average American household has lost around $1,100 so far from the war, factoring in rising energy costs and higher military expenses. He also linked the pressure to a decline in real disposable income and a pattern consistent with recessionary conditions.
Zandi said consumers have supported spending with savings, but warned the cushion may be limited. Data cited by CNBC showed the personal saving rate at 3% in May, down nearly 2 percentage points from a year earlier, according to the Bureau of Economic Analysis. Gasoline prices rose to $4 per gallon on Monday for the first time in more than a month, according to AAA, according to CNBC.
Economists expect energy-driven inflation to reassert itself through the consumer price index. CNBC noted that May’s 12-month CPI reading was the highest in three years before easing last month as energy costs moderated. The debate for the Federal Reserve, however, centers on whether headline inflation increases will bleed into core inflation measures. Luke Tilley, chief economist at M&T Bank and Wilmington Trust, said higher gasoline readings are likely but emphasized the critical question is whether they show up in core metrics.
For positioning, Consumer Edge analyst Michael Gunther told CNBC that firms with value-focused or driving-dependent consumer bases could face demand pullbacks if fuel prices stay high. He cited potential pressure across retailers and casual dining, while also noting that warehouse clubs such as Costco and Sam’s Club could gain share as consumers seek value. CNBC reported Costco’s record volumes for gas in the end of its third fiscal quarter, describing how war-driven pump prices lifted volumes.
What to watch next for markets and policy
Going forward, investors will likely track whether oil strength persists and whether bond yields remain near current levels—two factors that can quickly translate into revised inflation assumptions. CNBC’s coverage also pointed to the Fed as the next key battleground: Fed funds futures, via CME’s FedWatch tool, were pricing in a more-than-83% likelihood of the central bank holding rates steady at its next meeting. With gasoline recently rising and economists warning about inflation pressure, the market’s next direction may hinge on whether core inflation stays contained and whether conflict headlines continue to push energy risk higher.
