US Stock Market | Oil shock and war fears keep markets on edge ahead of key inflation data

A fresh round of inflation data and the first wave of corporate earnings this week are expected to offer crucial clues on how the ongoing Middle East conflict is filtering into the U.S. economy and corporate performance, according to a Reuters report. Investors, who have remained fixated on geopolitical risks for over a month, are now looking for signs that markets can begin to stabilise.

Despite persistent uncertainty, U.S. equities showed some resilience in the past week. The S&P 500 managed to snap a five-week losing streak in a holiday-shortened trading week. However, the broader picture remains fragile. The benchmark index recently logged its weakest quarterly performance since 2022, dragged down by surging energy prices and escalating tensions stemming from U.S.-Israeli military action involving Iran.

The dominant driver across asset classes continues to be oil. The sharp rise in crude prices has shaped inflation expectations, influenced bond markets, and dictated equity sentiment. Oil prices surged past $110 per barrel last week, marking a dramatic climb and reflecting supply concerns tied to disruptions in key transit routes such as the Strait of Hormuz. This narrow but vital shipping lane has seen reduced traffic, intensifying fears of constrained global supply.


According to Reuters, the ripple effects of rising energy costs are now beginning to show up more visibly in everyday economic indicators. U.S. gasoline prices have climbed above $4 per gallon for the first time in over three years, underscoring the immediate impact on consumers.

All eyes are now on the upcoming U.S. consumer price index (CPI) data, due on April 10. The inflation reading is expected to provide an early indication of how deeply the oil shock is feeding into broader price levels. A Reuters poll suggests headline inflation could rise sharply every month, while core inflation, excluding food and energy, may remain relatively contained. Still, even a moderate upside surprise could unsettle markets already grappling with inflation concerns.

The inflation narrative has also reshaped expectations around monetary policy. Markets have largely scaled back hopes of interest rate cuts this year, as persistent price pressures complicate the Federal Reserve’s path forward. Investors will also scrutinise minutes from the Fed’s March meeting for further clarity on the central bank’s stance.

At the same time, corporate earnings will begin to take centre stage. The upcoming results from companies such as Delta Air Lines and Constellation Brands will provide early insights into how businesses are navigating higher input costs and uncertain demand conditions.

The broader earnings season, which kicks off in mid-April, is expected to reflect strong year-on-year profit growth. Reuters notes that S&P 500 companies are projected to deliver double-digit earnings expansion for the first quarter. This anticipated growth is seen as a key pillar supporting equity markets, even as macroeconomic risks remain elevated.

However, the interplay between rising costs, consumer resilience, and corporate margins will be closely examined. While underlying earnings strength could offer some cushion to markets, much will depend on whether companies can absorb or pass on higher costs without significantly denting demand.

In the near term, markets are likely to remain tightly tethered to developments in the Middle East and movements in oil prices.

This week, therefore, could prove pivotal, not just for understanding inflation trends but also for determining whether markets can finally shift focus from geopolitics back to fundamentals.