**The US-Iran conflict has reshaped global energy markets and inflation expectations as it enters its fourth month, with traders now bracing for the May jobs report that could determine the Federal Reserve's next move.
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Iran war enters fourth month as oil holds above $90, jobs data looms
The US-Iran conflict has reshaped global energy markets and inflation expectations as it enters its fourth month, with traders now bracing for the May jobs report that could determine the Federal Reserve's next move.
Brent crude held above $91 a barrel as the US-Iran war entered its fourth month, with a potential ceasefire deal failing to ease supply concerns through the Strait of Hormuz, which handles about a fifth of global oil shipments.
"The rally has been largely tech-led and supported by resilient earnings, but the key question is whether it can be sustained," said Angelo Kourkafas, senior global strategist at Edward Jones.
The S&P 500 rose 0.2% to a record 7,580.06 on Friday, extending its winning streak to seven sessions and capping a 5.1% monthly gain. The Dow added 363 points to 51,032.46, while the Nasdaq climbed 0.2% to 26,972.62. Technology stocks within the S&P 500 surged more than 15% in May, even as most other sectors lost ground.
The conflict has pushed oil prices well above pre-war levels — Brent was at $70 in late February before the war began — feeding into the fastest inflation reading in three years. The Fed's preferred inflation measure accelerated in April to its highest level in three years, and with the central bank expected to hold rates steady at its June meeting, Friday's jobs report will be critical in shaping the policy path.
The war has stifled the flow of oil shipments through the Strait of Hormuz, where roughly a fifth of the world's oil and natural gas is shipped. Brent crude for August delivery settled at $91.12 a barrel on Friday, down 1.7% on reports that the US and Iran are working toward a ceasefire extension. Still, prices remain well above the $70 level seen in late February before hostilities began. US benchmark crude for July delivery fell 1.7% to $87.36.
Higher oil prices have rippled through the economy, pushing up gasoline costs and a wide range of goods. Consumer confidence has slipped as inflation squeezes households. The personal consumption expenditures price index — the Fed's preferred inflation gauge — accelerated in April to its fastest annual pace in three years, complicating the central bank's policy calculus.
Oil's Grip on Markets Widens
The S&P 500's technology sector rose more than 15% in May, powering the benchmark index to a 10.7% year-to-date gain even as most other sectors declined. Corporate earnings have provided a buffer: companies in the S&P 500 reported profit growth of 28% for the most recent quarter, according to FactSet. But with the bulk of earnings season behind them, investors may refocus on inflation, consumer behavior and the path for interest rates.
The last time oil prices sustained above $90 for multiple months due to a Middle East conflict was in 2022 following Russia's invasion of Ukraine, when Brent averaged $99 a barrel and the S&P 500 fell into a bear market. The current dynamic differs in that corporate earnings have remained resilient, but the risk of a prolonged supply disruption through Hormuz could test that resilience.
The Fed has held its benchmark rate steady as it monitors rising inflation. According to the CME's FedWatch tool, markets expect the central bank to continue holding through the year. Cutting rates could lower borrowing costs and boost the economy, but it risks worsening inflation at a time when prices are already elevated.
Friday's May jobs report will provide the next major data point. If payrolls come in hot, it could reinforce the case for rates to stay higher for longer. A weak print, by contrast, would amplify concerns that the war-driven inflation is starting to weigh on economic growth.
This article is for informational purposes only and does not constitute investment advice.
