Inflation and Earnings in Focus as the Iran Conflict Continues to Unfold

The ongoing conflict between the United States and Iran continues to shift, and financial markets have been responding to each new development. When a ceasefire was announced, it helped calm tensions and pushed oil prices down, with Brent crude (a global benchmark for oil prices) dropping into the $90 range. However, when peace talks fell apart, prices climbed back above $100 per barrel, showing how quickly the situation can change. While things remain uncertain, the most important question for long-term investors is how this conflict affects the broader economy, businesses, and everyday consumers.

Geopolitical conflicts tend to affect financial markets mainly through energy prices. Higher energy costs raise fuel prices, which can then spread through the rest of the economy. How much damage this causes depends largely on how long energy prices stay elevated. To make sense of today’s market environment, it helps to look at three key areas: inflation (the rate at which prices rise), the job market, and corporate earnings (company profits).

Energy costs are pushing overall inflation higher

The most direct way the Iran conflict is hitting consumers is through rising energy prices. The Consumer Price Index (CPI), a measure of how much everyday goods and services cost, showed that energy costs jumped 12.5% compared to a year ago in the March report. Gasoline prices surged 18.9% and fuel oil rose 44.2%. These increases pushed overall (or “headline”) CPI to 3.3%, a noticeable jump that has raised concerns about a return to the high-inflation environment seen in 2022. Much of this increase was expected, since the Iran conflict began at the end of February.

However, the same CPI report also shows that higher energy costs have not yet spread to other major categories of spending. “Core” CPI, which strips out food and energy prices to give a clearer picture of underlying inflation , rose only 2.6% year-over-year. This was below what analysts had expected and only slightly above the prior month’s 2.5%. An even narrower measure that also removes housing costs, sometimes called “supercore” inflation, rose only 2.3%.

These numbers suggest that while energy prices are putting pressure on consumers , with gasoline averaging $4.12 per gallon nationally and even higher in many areas , those pressures have not yet spread widely across the economy. This distinction is important because the bigger concern would be if high oil prices stayed elevated long enough to raise transportation, manufacturing, and other costs, which would then push up the prices of many goods and services.

While higher gasoline prices are a real burden for many households, economists often view these kinds of energy-driven price increases as temporary. The fact that core inflation has stayed relatively stable supports the view that once the Middle East situation calms down, inflation could return to pre-conflict levels. The drop in oil prices following the initial ceasefire announcement adds to that hope. That said, how quickly this happens depends on how the conflict develops, which is difficult to predict.

The job market has softened, though demographic trends add complexity

In addition to inflation, the health of the job market is another key area for investors to watch. The March employment report delivered a positive surprise, with 178,000 new jobs added, well above expectations of just 65,000. However, the previous month was revised sharply lower to a loss of 133,000 jobs, a reminder that these monthly figures can be unreliable and subject to big changes later.

Looking at the bigger picture, job creation has been slowing down. Since the start of 2025, the economy has added only about 21,000 new jobs per month on average, a significant slowdown from the 122,000 monthly average seen in 2024. Interestingly, the unemployment rate, the share of people actively looking for work who can’t find it, has not risen sharply. It edged down slightly to 4.3% in March, but this reflects fewer people looking for work rather than strong hiring activity.

One helpful way to understand this is through the “labor force participation rate,” which measures the share of working-age Americans who are either employed or actively seeking a job. As the accompanying chart shows, this rate has fallen to just 61.9%, its lowest level since the pandemic. This isn’t a new trend, participation has been declining since the early 2000s, largely because the population is aging. For example, more than 11,000 baby boomers are reaching retirement age every single day.

These demographic shifts, combined with reduced immigration, mean fewer working-age people are in the labor force. This changes what a “healthy” job market looks like, since the economy needs fewer new jobs each month to keep unemployment low. That can make the headline job numbers harder to interpret on their own.

Looking inside the jobs report, the picture is also uneven. Most recent job growth has been concentrated in sectors like “Education and Health Services,” while the “Information” sector has seen job losses, consistent with layoff announcements from large technology companies. Wage growth has slowed to 3.4% year-over-year, but this is still faster than overall inflation for many workers, which provides some support for consumer spending.

What does this all mean for investors? Consumers are dealing with higher costs at a time when the job market is losing momentum. However, unemployment remains stable, suggesting that people who want to work are still finding jobs. The key shift is that a smaller share of the overall population is actively participating in the workforce compared to the past.

Corporate earnings growth remains strong

Amid the uncertainty around geopolitics, inflation, and employment, one bright spot for investors has been strong corporate earnings , meaning company profits. Despite the challenges described above, consumers have kept spending and profit margins (the portion of revenue a company keeps as profit) have held up well for many businesses. Current Wall Street estimates suggest that earnings per share for companies in the S&P 500 , a widely followed index of large U.S. companies, have grown approximately 16% over the past twelve months, with expectations for an additional 18% growth over the coming year. These are historically strong numbers, well above the long-term average growth rate of 7.7%.

Of course, earnings estimates should always be viewed with some caution, as they are based on analyst projections that can shift as economic conditions change. Tariff policies, higher energy costs, and a slowing job market could all weigh on company profits in the months ahead. However, the current strength in earnings growth is one reason stock market valuations, essentially how expensive stocks are relative to their earnings, have improved recently, alongside the market pullback.

This is a good reminder that periods of uncertainty, while uncomfortable, can also be when investment opportunities become more attractive for long-term investors. When markets become volatile due to geopolitical events, earnings expectations often don’t fall as much as stock prices do. This doesn’t mean markets will bounce back quickly, but it does suggest that investors who keep a long-term perspective and hold well-diversified portfolios are often rewarded for their patience.

Have a wonderful Spring season!