Military operations between the U.S. and Iran intensified over the weekend, with the U.S. completing its 10th consecutive night of strikes against Iran following a Houthi maritime embargo declaration against Saudi Arabia. A third service member death during recent fighting signals the conflict may be entering a more prolonged and costly phase, prompting President Trump to vow retaliation.
Despite the escalation, equity markets showed limited immediate reaction. The S&P 500 fell only marginally in Monday’s session following a losing week, remaining approximately 2% below its all-time high set in June. The index has rebounded significantly from its late-March closing low of 6,343.72, driven largely by assumptions that neither the U.S. nor Iran desires full-scale war and by strong corporate earnings growth. Softer-than-expected inflation data released the prior week also supported investor sentiment.
Energy prices emerged as the primary economic concern, with Brent crude briefly exceeding $90 per barrel and remaining near that threshold. The U.S. 10-year Treasury yield climbed above 4.6%, a key level for traders. Should oil prices and yields remain elevated, analysts suggest equity valuations may face pressure as inflation expectations and monetary policy calculations shift, potentially requiring downward revisions to earnings estimates. The technology sector, representing 38% of the S&P 500’s weighting, is viewed as more insulated from energy cost pressures compared to the 3%-weighted energy sector.
Economists expressed concern about household purchasing power, with one analysis suggesting the average American household has lost approximately $1,100 due to the conflict through higher energy costs and military expenses. Personal savings rates declined to 3% in May from roughly 5% a year earlier, constraining consumers’ ability to maintain spending if energy prices remain elevated. Gasoline prices reached $4 per gallon on Monday for the first time in over a month. Fed funds futures indicated greater than 83% probability the Federal Reserve would maintain rates at its next meeting.
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