Global markets remain preoccupied with the economic fallout from the conflict in the Middle East, as a series of policy and data releases scheduled for next week could begin to reveal the extent to which oil supply disruptions and higher energy costs are filtering through to the U.S. economy and corporate results.
Traders entered the holiday-shortened week weighing mixed indicators about whether the war - which has escalated with U.S.-Israeli strikes on Iran - might be winding down. Equity benchmarks managed to eke out gains over the shortened period, with the S&P 500 posting a weekly rise that ended a five-week losing streak. That rebound, however, followed the index’s worst quarter since 2022, a decline that began in late February as the conflict pushed energy prices higher.
Market strategists warn that geopolitics, and the implications for oil, remain the dominant narratives. "It’s going to be hard to get the market’s attention off the Middle East, oil prices and the risks that have emerged," said Matthew Miskin, co-chief investment strategist at Manulife John Hancock Investments. He added that investors have been narrowly focused on how the geopolitical developments will play out.
Equities have been under pressure so far this year, with the S&P 500 last reported to be down nearly 6% from its late-January all-time high. That weakness has been compounded by concerns beyond geopolitics, including the potential disruption from artificial intelligence adoption and strains in private credit markets. Together, these factors have intensified investor caution.
Energy markets remain the central channel through which the war is influencing broader financial conditions. The Strait of Hormuz - a key artery for Middle East oil shipments - has seen traffic slow, heightening worries about supply. U.S. crude oil prices climbed back above $100 a barrel earlier in the week and topped $110 a barrel on Thursday, reflecting those concerns.
"The market is pricing off oil," said Doug Huber, deputy chief investment officer at Wealth Enhancement Group. "Inflation expectations, bond markets - everything is stuck to this concept of what oil is doing."
Inflation gauges and gasoline at the pump
Investors will receive a key read on inflation next week when the March consumer price index is released on April 10. That report is widely viewed as an early test of the energy-driven shock from the conflict. U.S. crude has risen roughly 90% since the start of the year, and the national average price for gasoline rose above $4 a gallon this week for the first time in more than three years.
In a note previewing the CPI release, BNP Paribas said it expects that "the first stage of oil price pass-through will have arrived in March via motor fuel." According to a Reuters poll cited ahead of the report, the March CPI is expected to show a 0.9% month-on-month increase, while "core" CPI, which strips out energy and food, is forecast to have risen 0.3%.
Miskin said he will be watching for "ripple effects" in prices across other goods and services due to the surge in energy costs, but he cautioned that March may be too soon to detect broader inflationary consequences from the conflict. "You’re just trying to get as much real-time data as you can to formulate where the inflation and economic growth trends are going," he said.
Policy, growth updates and corporate results
Heightened inflation concerns tied to the war have pushed markets to largely discount the possibility of interest-rate cuts this year - an outcome that had been a foundational assumption in many optimistic stock forecasts. "The market already has inflation on the brain," said Patrick Ryan, chief investment strategist at Madison Investments. He warned that a materially higher-than-expected CPI print could be received negatively by investors.
Next week will also bring the personal consumption expenditures price index, another inflation measure, although that data will cover February and therefore largely predate the full onset of the regional conflict. An updated estimate of fourth-quarter U.S. economic growth is scheduled as well, and the Federal Reserve will publish the minutes from its March meeting on Wednesday - material the market will scrutinize for signals about the likely path of interest rates.
Corporate earnings are set to return to center stage as reporting season approaches. The coming week sees early releases from companies including Delta Air Lines and Constellation Brands, which will provide an initial glimpse of first-quarter corporate performance ahead of the broader season that begins the following week.
S&P 500 companies as a whole are forecast to report a 14.4% increase in first-quarter earnings compared with the same period a year earlier, according to LSEG IBES estimates. Deutsche Bank equity strategists noted in a research note that "the Q1 earnings season beginning in mid-April should show that underlying earnings growth is still strengthening and broadening." Investors will look to those results for evidence that corporate profit trends remain resilient despite the geopolitical shock.
Outlook
In the near term, markets will be driven by the interplay of oil price dynamics, the forthcoming inflation data and the early signals from corporate earnings. Those elements together will inform investors’ assessments of growth, inflation and the likely trajectory of monetary policy - with implications for equities, bonds and other asset classes tied to interest-rate expectations and commodity prices.