The S&P 500 (^GSPC +1.46%) has added 6% year to date and currently trades near its record high. That momentum has been driven by strong earnings growth in recent quarters, which itself has been supported by prodigious investments in artificial intelligence. However, investors may be overestimating the stock market's resilience. President Trump's tariffs and military operations in Iran pose serious threats to the U.S. economy. Last week, Moody's chief economist Mark Zandi said, "We'd likely be in a recession already if not for the AI investment-driven boom." Here's what investors should know. President Trump's military operations in Iran have driven inflation higher Trump's decision to strike Iran in late February has spiraled into the largest oil supply disruption in history, per the International Energy Agency. The conflict has not only closed the Strait of Hormuz, a critical shipping route in the Persian Gulf, but it has also damaged infrastructure. Ramping up oil flows to pre-war levels could take months. Meanwhile, energy prices have increased dramatically. Brent Crude oil, an international benchmark, currently costs $110 per barrel, up 80% since January. And the average price per gallon of regular gasoline in the U.S. is $4.45, up 60% since January, according to the Energy Information Administration. CPI inflation hit 3.3% in March, the highest level since April 2024, and will likely accelerate further as elevated energy prices percolate the economy by raising transportation and manufacturing costs. Indeed, a forecasting tool from the Federal Reserve Bank of Cleveland shows CPI inflation trending to 5.6% in the second quarter. If that projection proves accurate, the Federal Reserve would almost certainly raise interest rates, which would likely trigger a flight to safety. Investors hoping to protect their portfolios from an economic downturn would sell stocks and buy safe-haven assets such as gold and Treasury bonds. President Trump's tariffs are damaging the U.S. economy The Iran war has stolen focus from Trump's trade war, but it remains a source of concern. Earlier this year, the Supreme Court struck down certain tariffs, but tariffs still in effect have raised the average tax on U.S. imports to 11.8%, the highest level since the 1940s, according to the Budget Lab at Yale. In late February, Trump used Section 122 of the Trade Act of 1974 to impose a 10% global tariff, which expires after 150 days unless extended by Congress. But doing so bought the administration time to conduct trade investigations, which are expected to result in more durable, and potentially steeper, tariffs under the authority of Section 301. So what? Several studies have concluded that U.S. companies and consumers, not foreign suppliers, are paying most of Trump's tariffs. That means his trade policies are effectively a tax on consumption and a direct headwind to economic growth. Last year, GDP increased just 2% and the economy added just 116,000 jobs. Neither figure has been so low since the pandemic in 2020. Moody's economist Mark Zandi recently wrote, "We have a year's worth of economic data since Liberation Day, when President Trump announced much higher tariffs on most imported goods and countries, and the data are definitive: The tariffs have done significant damage to the economy." Here's the big picture: Trump is likely to impose fresh tariffs once trade investigations are complete this summer. Those duties could hit the economy at a time when oil prices are still elevated because of the Iran war. Together, those headwinds could trigger a steep decline in the stock market. Historically, the S&P 500 has fallen by an average of 40% when gas prices top $4 As mentioned, U.S. consumers currently pay an average of $4.45 per gallon of regular gas. The national average has only exceeded $4 per gallon twice in history -- the financial crisis in 2008 and the pandemic in 2022 -- and the S&P 500 declined by an average of 40% during those incidents. Of course, past performance is never a guarantee of future results. High gas prices were not the only reason the S&P 500 dropped sharply during those bear markets, nor are they the only threats the U.S. economy faces today. Ultimately, it is impossible to guess how far the stock market will drop during the next drawdown, but investors should be cautious in the current environment.
The S&P 500 (^GSPC +1.46%) has added 6% year to date and currently trades near its record high. That momentum has been driven by strong earnings growth in recent quarters, which itself has been supported by prodigious investments in artificial intelligence. However, investors may…
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The Houthis in Yemen have announced a blockade of Saudi Arabian shipping through Red Sea ports, including at the Bab el-Mandeb strait. The group, described as Iran-backed, stated the measure would target the top oil exporter following recent exchanges of fire.
Reports indicate this could add to existing maritime disruptions in the Strait of Hormuz linked to US-Iran confrontations.
A Reuters poll of economists conducted July 7-16 shows that most Gulf Cooperation Council economies are now projected to contract more sharply in the current year than estimated three months earlier, with median forecasts indicating declines of 8.1% for Kuwait and Qatar, 5.
1% for Bahrain, and 0.5% for the UAE. Saudi Arabia and Oman remain the only GCC economies expected to expand. The poll links the revisions to reduced export volumes through the Strait of Hormuz, higher freight costs, and weaker investor sentiment, even as oil prices have risen.
Initial reports indicate that a limited number of vessels transited the waterway during the first full day after the United States implemented a naval blockade of Iran. These observations have not been independently verified.
The head of the UN’s nuclear agency yesterday signaled that Iranian nuclear enrichment sites would be visited by his inspectors, a key component in the interim deal between the US and Iran to reach an end to their war. The comment by International Atomic Energy Agency (IAEA) Director-General Rafael Grossi was the firmest yet from the agency, which is viewed as key in determining the status of Iran’s nuclear stockpile.
Since Israel launched a 12-day war on Iran last year, the IAEA has been blocked by Tehran from visiting enrichment sites where the Islamic republic is believed to store enough highly enriched uranium to potentially build as many as 10 nuclear weapons.
Photo: AP Iran has said that its program is peaceful, although it would be the only country in the world to have uranium enriched up to 60 percent purity without a weapons program. The US and Iran offered contradictory remarks on Tuesday about whether those sites would be inspected.
“I can understand political statements, they are part of the reality, but the fundamental thing I would like to remind you and draw your attention to is that there has been a memorandum of understanding, signed by both presidents,” Grossi told journalists at a news conference at the Fukushima Dai-ichi nuclear power plant.
The accord “explicitly states that the nuclear activities that are going to be carried out with the regards of the nuclear material facilities will be supervised by the IAEA — in all letters,” he said. “Obviously, to do that, we have to inspect,” Grossi added.
BOOST: By operating the same advanced systems as the US military, Taiwan would be better positioned to share and integrate intelligence with partners, an expert said The first batch of MQ-9B SkyGuardian drones has arrived in Taiwan, and is being assembled and tested by drone manufacturer General Atomics and the military ahead of flight trials as part of the air force’s acquisition to bolster its aerial surveillance capabilities, a source said yesterday.
The air force allocated a budget of NT$21.7 billion (US$687 million) from 2022 to 2029 to procure four MQ-9B uncrewed aerial vehicles (UAVs) manufactured by General Atomics along with associated equipment such as ground control stations. The US has agreed to deliver the four MQ-9Bs to Taiwan in two batches this year and next ‘BRAZEN’: The holiday did not stop China from activities that infringe on Taiwan’s maritime jurisdiction, but the CGA is ready to defend the nation, Kuan Bi-ling said Beijing is intensifying maritime pressure on Taiwan, but the nation will never yield, Ocean Affairs Council Deputy Minister Sung Chen-en (宋承恩) said.
The Coast Guard Administration (CGA) has adopted a “shadowing and monitoring” approach to avoid falling into a Chinese trap to escalate tensions and deepen the conflict, Sung said in an interview published yesterday in the Chinese-language Liberty Times (the Taipei Times’ sister newspaper).
China Coast Guard formations patrolling waters east of Taiwan, as well as official Chinese vessels entering areas around Itu Aba Island (Taiping Island, 太平島) and Pratas Islands (Dongsha Islands, 東沙群島) show Beijing’s attempts to significantly step up Taiwanese firms’ China investments have dwindled to less than 1 percent of their total foreign investments, putting China-based investments on track for a record low this year, Ministry of Economic Affairs data showed.
Taiwan’s investments abroad in the first five months of this year reached US$35.92 billion, Department of Investment Review data showed. Investments outside China totaled US$35.61 billion, up 133.94 percent year-on-year, while investments in China totaled US$310.
3 million, down 32.3 percent and about 0.86 percent of the total, data showed. Major overseas projects included Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) US$30 billion capital injection into an overseas subsidiary, VARYING OPINIONS: People with different political affiliations have different views on how bilateral ties with the US, Japan and China would affect Taiwan’s security Two-thirds of Taiwanese view closer US and Japan ties as beneficial to security, a survey by Taiwan’s top military think tank showed.
To gauge the Taiwanese public’s perceptions of how different external relationships affect security, the Institute for National Defense and Security Research commissioned a survey by National Chengchi University’s Election Study Center asking respondents whether closer relations with the US, Japan and China would strengthen or weaken Taiwan’s national security.