Inflation Pressures Build While Markets Try to Find Direction
Markets continued to drift lower last week, marking the third consecutive week of declines. The S&P 500 was essentially flat (down slightly), but that doesn’t tell the full story. The NASDAQ has now been down in eight of the last nine weeks, which signals a market that is struggling to gain traction.
The dominant issue remains the same: geopolitics and energy. Specifically, the situation involving Iran and the growing focus on what sustained $100+ oil could mean for the global economy.
Energy Is Leading—For the Wrong Reasons
Energy was once again the top-performing sector, up over 2% for the week. Technology and utilities also held up relatively well.
But the more important takeaway is what’s happening underneath:
Financials fell about 2.6%
Industrials dropped roughly 2%
Consumer discretionary declined about 1.75%
This is not a broad-based strength. It’s a selective movement driven largely by rising energy prices and defensive positioning.
Inflation Is Not Going Away
The latest inflation data came in at 2.5% year-over-year, which on the surface looks manageable.
However, multiple forces are building that could push inflation higher in the near term:
Tariffs are continuing to work their way through the system
Rising vehicle prices
And most importantly, higher oil prices
There is a reasonable case that inflation could re-accelerate toward 3.5% by mid-year if these trends persist.
That is something the market is not fully pricing in yet.
The Economy Was Strengthening Before the Conflict
It’s important to keep perspective.
Before the current geopolitical situation escalated, the U.S. economy was actually gaining strength:
Unemployment claims remain low
Productivity growth is strong
Consumer confidence has held up surprisingly well
In other words, this is not an economy that was rolling over. It was moving in the opposite direction.
That matters when thinking about what happens next.
Oil Is the Key Variable Right Now
Low gasoline prices had been one of the few areas helping consumers feel some relief. That dynamic is now changing.
If energy prices stay elevated:
It directly impacts consumer spending
It puts pressure on inflation
And it complicates policy decisions
There is also a structural issue. While emergency oil reserves can help in the short term, they are not a permanent solution. If supply disruptions persist, oil prices could move decisively higher.
Interest Rates Are Calm—For Now
One of the more interesting developments is that the 10-year Treasury yield has remained relatively stable, hovering between 4.0% and 4.25%.
That calm could be temporary.
If oil-driven inflation picks up, interest rates are unlikely to stay contained for long.
Earnings Are Still Holding Up
Despite everything going on, there is one data point that stands out.
Earnings estimates for 2026 and 2027 have actually moved higher over the past two weeks.
That tells you something important:
Corporate profitability has not yet been meaningfully impacted by current events.
As long as earnings remain intact, it becomes harder to make the case for a sustained market decline.
A Historical Signal Worth Noting
There was also an unusual market event last week.
The S&P 500 had a trading day where it opened weak but finished strong—something that has only happened 26 times since 1982.
Historically, after similar setups:
Markets were higher about 7% six months later
And roughly 14% higher one year later
No guarantees, but it’s a data point worth respecting.
What This Likely Means Going Forward
The current environment is shaping up to be mildly stagflationary:
Slower growth due to higher energy costs
Higher inflation driven by supply-side pressures
That’s not an ideal combination, but it’s also not a collapse scenario.
The more important question is duration.
If energy prices spike and stay elevated for an extended period, it will begin to impact demand, earnings, and ultimately market direction.
If it’s contained, the broader expansion likely continues.
My Perspective
At this stage, the market is dealing with uncertainty—not deterioration.
The underlying economy was solid heading into this period. Earnings are still holding. Financial conditions are not restrictive.
But there is no room for complacency either.
Higher energy prices have a way of working through the system, and when they do, they tend to show up in places investors don’t expect.
Bottom Line
Here’s what matters right now:
Inflation pressures are building again
Energy prices are the swing factor
Earnings remain stable—for now
Markets are volatile but not broken
This is the kind of environment where discipline matters. Reacting to headlines rarely works. Understanding the underlying drivers does.
About Gary Hager
Gary K. Hager, CFP®, CBEC, CTFA, is the founder of Integrated Wealth Management. He advises business owners and families on exit planning, estate strategies, and long-term wealth structuring.