Markets (S&P 500) ended the week lower as concerns about AI and the sectors it might disrupt continued to proliferate. Oil prices reached their highest level since July as President Trump continued to threaten Iran with the specter of war if a satisfactory agreement regarding the country’s nuclear program was not reached. Interest rates fell following Friday’s stronger-than-expected PPI inflation report which pushed out the expected timing of the Fed’s next rate cut. The 10-Year Treasury yield closed at 3.95%, its lowest level since October.
On Monday, industry group Cintrini Research released a report hypothesizing what the economy might look like in 2028. While not fully dystopian, it described an economy in which AI agents render obsolete hundreds of thousands of white-collar jobs leading to 10% unemployment. The report, which had its share of critics, contributed to the S&P 500 software index suffering its worst day since last April.
On Sunday, following intensifying threats of military action by President Trump if negotiations regarding Iran’s nuclear program did not show tangible results, the US and Israel launched large-scale strikes against Iran, killing Ayatollah Ali Khamenei, the country’s Supreme Leader. In response, Iran launched ballistic missiles and drones at US forces in the region in addition to targeting a number of countries including Israel, Bahrain, Kuwait, Qatar, the United Arab Emirates, and Jordan.
What happens next remains uncertain. President Trump has called on the people of Iran to rise up and overthrow the current regime. Despite the killing of Khamenei and other senior military leaders, that may prove difficult without large-scale defections by miliary personnel.
Market reactions are also unclear. As of this writing late Sunday evening, oil prices are up over 6%, while S&P 500 futures are down nearly 1%. If the fighting in coming days is relatively one-sided with Iran failing to inflict any significant damage against US forces, Israel, or energy infrastructure in the region, market reaction will likely be limited. Oil prices will be the best barometer of market sentiment. Already, Iran has threatened to close the Straits of Hormuz, a narrow passage in the Persian Gulf, by targeting oil tankers. Approximately 20% of the world’s liquified natural gas and 25% of crude oil passes through the Straits. A successful closure would likely result in even higher oil price, though the US would almost certainly target Iran’s capabilities to carry out a closure, reducing the chances of a prolonged closure.
