Week Ahead on Wall Street: Iran and the Oil Surge

Estimated reading time: 5 minutes

At a Glance

• The news: Investors will be closely watching how the ongoing conflict in Iran impacts energy prices. The upcoming consumer inflation report is the main data release this week.
• The context: Crude oil and gasoline prices have surged, raising concerns about a new wave of energy-driven inflation that could affect the price of many other products and services.
• Your move: Brace for more volatility. As higher pump prices strain budgets and eat into corporate profit margins, stock valuations could contract. If these costs bleed into broader inflation, the Federal Reserve may be forced to hold off on interest rate cuts — or potentially even consider raising them.

As shockwaves from the war with Iran upend global energy markets, the focus will be on inflation here in the U.S. 

Crude oil prices have spiked since fighting broke out at the end of February, and consumers are already seeing higher prices at the gas pump. 

Over time, higher energy costs can even have a broader effect on the economy, increasing the price of transporting goods, operating factories, and maintaining supply chains. That means if the spike in oil lasts, businesses could start to pass those costs on to their customers, impacting a variety of other prices. 

That brings us to this week’s inflation report, the February Consumer Price Index reading. Though it won’t reflect the impact of the war, it could have an impact on benchmark interest rates. Federal Reserve officials have already been hesitant to cut rates more. If the February data shows that price pressures were building before the current energy shock, that could be enough to take rate cuts off the table for the foreseeable future. It could even put rate hikes back on the table.

The most recent labor data was relatively positive, with 130k jobs added (vs. expectations for 65k) and an unemployment rate that fell from 4.4% to 4.3%. That’s encouraging and sends a message of stability or even strengthening, though it’s not the full picture. 

Monday

• February New York Fed Survey of Consumer Expectations: This is a measure of peoples’ expectations for inflation, jobs prospects, earnings growth, and more.
• Earnings: Hewlett Packard Enterprise (HPE)

Tuesday

• February NFIB Small Business Optimism: This measures how small business owners feel about current and future economic conditions. 
• February Existing Home Sales: Most home transactions in any given month tend to come from the existing market, and as a result set the tone for the broader housing market.
• Earnings: Oracle (ORCL)

Wednesday

• February Consumer Price Index: The CPI is one of the most popular indicators for tracking consumer price trends and is a marquee release for market watchers. 
• February Treasury Statement: This summarizes the U.S. federal government budget by tracking government revenues and expenditures.
• Weekly Mortgage Applications: Mortgage activity gives insight on demand conditions in the housing market.
• Earnings: Campbell Soup (CPB), PTC (PTC)

Thursday

• January Trade Balance: Trade, made up of exports and imports, is an important driver of economic activity. 
• January Building Permits and Housing Starts: Construction data is a leading indicator of economic activity.
• Earnings: Adobe (ADBE), Dollar General (DG), Lennar (LEN), Ulta Beauty (ULTA)

Friday

• January Personal Income and Spending: These numbers give insight into how Americans are doing, which is important since consumer spending accounts for about two-thirds of economic growth in the United States. 
• January Personal Consumption Expenditures Price Index: The Fed targets this inflation measure for its price stability mandate and believes PCE to be the best measure of consumers’ spending habits. 
• January Factory and Durable Goods Orders: These metrics give insight into underlying trends for leading cyclical indicators.
• 4Q GDP Second Estimate: The primary measure of economic activity in the United States, which is measured as total expenditure on a country’s goods and services. 
• March University of Michigan Consumer Sentiment: How consumers feel about economic conditions affect their spending habits. This survey places a particular focus on inflation and its trajectory. 
• January Job Openings: A key measure of business demand for labor is the number of job openings, since reducing openings is easier and preferable to layoffs.

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