The hike in oil prices due to the intensifying tensions between the U.S. and Iran is inflicting investors to fret that rising energy prices will wave U.S. corporate earnings.
While the power sector would profit from higher oil costs, other markets starting from shipping to manufacturing to eateries would see their profit margins shrink as gasoline prices rise. Some traders said they had been acting more carefully against this backdrop.
Although at $70 per barrel, the price of oil remains far under the level that would ship the U.S. into an immediate recession, higher energy prices at a time of accelerating geopolitical risks are likely to go away traders and firms skittish, fund managers and analysts stated.
Throughout 2019, the price of oil has leaped nearly 25% based on Refinitiv data, raising costs for corporations throughout the economy, and leaving less cash in the pockets of consumers.
The battle between the U.S. and Iran heightened early Wednesday with an Iranian missile strike on U.S-led troops in Iraq, sending S&P 500 futures down over 1.5%, before retracing. They had been last down 0.2%. The benchmark S&P 500 ended Tuesday down 0.28% and is up an average 0.2% a week into 2020 after leaping almost 30% in 2019.
The likelihood that oil stays at present levels or strikes higher will drive more buyers into a protective crouch until it becomes clearer how corporations are responding, said Barry James, a portfolio manager at James Investment Research.