Why War Isn’t Spooking Wall Street—Yet

0:00Voices are powerful things. At Vanguard, investors are also owners, and their voices are heard. And now with investor choice, they have an even greater voice when investing. It's just another reason millions of investors have turned to Vanguard for 50 years. 50 million investors, 50 million voices. Vanguard. Vanguard is owned by its funds, but are owned by Vanguard's fund shareholder clients to learn more, visit vanguard.com. All investing is subject to risk. Vanguard Market Incorporation Distributor figure as of January 2025. Goalfleaders insist on crippling Iran's regime before ending the war. Plus, as fighting drags on, we'll look at why Wall Street isn't freaking out, at least not yet. So we see the shortage of this conflict will be so small as the impact should be on the economy and the consumer, but as of now, we're actually having a stack of stationary risk that is growing by the day without equipped escalation. And bad news for the struggling U.S. Postal Service as Amazon plans to take its business elsewhere.

1:02It's Wednesday, March 18th. I'm Luke Vargas for the Wall Street Journal, and here is the am edition of What's News, the top headlines and business stories moving your world today. Goalfeficials say they want the U.S. to keep up the fight against Iran in order to render it incapable of future attacks. A major pivot from a region that once courted Tehran. Speaking to the journal, Emirati and Katari officials described Iran as the belligerent party, citing its attacks on infrastructure and civilian targets, while another senior golf officials said the only acceptable outcome of the war would be in Iran so infebold that it could never imperil its neighbors again. Iranian leaders in recent days have said they'd only accept a ceasefire with the U.S. in Israel if the country received reparations and ironclad guarantees against future attacks. Meanwhile, Iran struck central Israel with missiles overnight, causing heavy damage and killing two people,

2:03raising the death toll in Israel since the start of the war to at least 14. And authorities in Iraq report that the U.S. embassy in Baghdad suffered a fresh attack without providing more details. The compound was hit by a missile over the weekend and targeted by rockets and drones Monday and Tuesday. Well, with the war dragging on, the effective closure of the Strait of Hormuz sending energy prices soaring and inflation warnings now cropping up around the world, why are U.S. equity markets off just a few percentage points since before the fighting started? A manual comb is the head of European equity strategy at Barclays, and he joins me now to discuss why that is and whether that trend will continue. A manual Wall Street's reaction as far has been much less negative compared to past conflicts in the Middle East in spite of concerns that this all could become a protracted situation. Why is that? Hey, look, I think the market is pretty comfortable with the view that President Trump cannot afford to have a long lasting shock

3:06and stark fashionary heat to the U.S. economy, right? And I think there is still a lot of trauma from investors having sold equities after Liberation a year ago, which was a big mistake. So I think investors are hopeful of a Swiss resolution to this conflict. On the view that Trump will ultimately do whatever is good for the U.S. economy. And that includes triggering a swift policy response pushing in particular the IEA to release all of this oil. I think this is part of the toolbox, but I guess what we can conclude from Trump communication in the last couple of days is that the all price as church is spent threshold. So that was already seen a year a week ago when Trump was starting to talk about this escalation after all price went above $120. Obviously, it's not just about him tweeting about the end of the conflict. We need to see the other parties, whether it's Israel or Iran, willing to support this escalation effort. So I think this is where we have a bit of question, Mark, about whether the market is too complacent

4:07about the outcome of this conflict and whether you could get the situation to worsen before it gets better. So I think what we said is that typically for a 30% move up in oil, what about 10% to 15% drop in equity market and so far the global equity market is not only 4%. So it's not the typical risk of we had in previous old super shocks. Yeah, and we've spoken on the show in recent days about some of the factors that have insulated the US economy in particular from this crisis, more so than the rest of the world. It really helps, for instance, to be a net energy exporter. What else? Look, I think the US markets, whether it's US equity market or the US dollar have behaviors as safe haven again, right? And think about this in the context of the past six months was the only gaming town was South America and rotation towards international market. What we saw in the last couple of weeks is the safety of the US market prevailing again. And yes, I think the most hit market

5:09are those which are the most energy sensitive. So we've seen Asian equities, Europe equities coming down quite a lot more than the US equity market, which is again less directly impacted by this kind of stack-facenery fields. And even if you look at the right market, we had a pretty hawkish reprising in Europe and race because now the market is looking for the ECB to high-grade as a consequence of this inflationary shock while seeing the market instead looking for one cut from the Fed this year. So the market is really seeing that this stack-facenary shock would be much more acute in Europe than it would be for the US. The consumer outlook worsening in your view. I would say today compared to two weeks ago, yes, the consumer outlook is worsening because we have lower growth and higher inflation as the consequence of this oil shock. And again, if you get gasoline prices going through the roof in the US and some other sentiment surveys are starting to be hit, right? So this is a short term, this conflict will be the smaller the impact should be on the economy and the consumer.

6:09But as of now, we're actually having a stack-facenery risk that is growing by the day without a quick destination. And man, I want to talk about central banks. The Fed is making a rate announcement today. Could central banks here inadvertently dial up stagflation fears if it looks like their focus is returning back to fighting inflation instead of supporting growth? Yeah, absolutely as things are, the key will be how central banks around the world respond to this development. And you know, we have a busy week with the Fed, we have the ECB, the Bank of England as well, meeting on Thursday ends the Bank of Japan as well. So all the main central banks around the world are going to have to tell us what they make of this oil shock and whether there's something to shift away from what has been a pretty dovish communication so far. And whether they start to embrace what the market seems to be facing, which is basically a higher rate in the case of Europe or less right cut in the case of the US. Emmanuel Coe is the head of European equity strategy at Barclays. Emmanuel, thank you so much for being with us on What's News. Thank you.

7:10Well, as we mentioned there, the Fed's latest interest rate decision is due this afternoon in announcement that journal chief economics correspondent Nick Timoros says comes as officials are contending yet again with a familiar foe inflation. It has a feeling of deja vu for the Fed. First it was the aftershocks of the pandemic. Then it was Russia's war in Ukraine. Last year you had sweeping tear of policy changes and now it's the war in the Middle East. What the war does is that it freezes up your ability to make big judgments. So if you thought the bigger problem before all of this was still in the labor market, you may look at the possible destruction of demand that comes from higher oil prices and say, well, now the labor market is going to be in an even more fragile position and we should focus on that. If on the other hand, before this conflict, you were worried that inflation wasn't getting better. You also can look at that and say, geez, inflation was not getting better.

8:11It was actually getting a little bit worse and now we're going to have a new round of potential supply problems. Well, the war is likely to reinforce the consensus around holding rates steady. Nick says there's less clarity about where policy makers should head after that. Policy makers around the table this week face a question that would have seemed unlikely a few months ago when they were cutting interest rates. And that question is no longer, when will they next cut interest rates? But rather, can they credibly suggest that the next move in interest rates is still more likely to be a move down than a move up? And there were some officials even before this who wanted to get rid of that guidance that suggested that the next move was more likely to be a cut. They wanted to go to a more neutral bias and so that debate I think will continue. Today's rate announcement is due at 2 p.m. Eastern followed by a press conference by Chair Jerome Powell. Coming up, the U.S. Postal Service risks losing business from its largest customer, Amazon

9:12and Illinois governor, J.B. Pritzker, dodges political embarrassment in a Senate primary, those stories, and more after the break. Voices are powerful things. At Vanguard, investors are also owners and their voices are heard. And now with investor choice, they have an even greater voice when investing. It's just another reason millions of investors have turned to Vanguard for 50 years, 50 million investors, 50 million voices, Vanguard. Vanguard is owned by its funds, but are owned by Vanguard's fund shareholder clients to learn more visit Vanguard.com. All investing is subject to risk Vanguard Market Incorporation Distributor figure as of January, 2025. Illinois's lieutenant governor, Juliana Stratton, has won the state's Democratic Senate primary, putting her in pole position to replace retiring Senator Dick Durbin, who's held a seat since 1997. Tonight, we showed what's possible when you listen to the people and give the people what they want.

10:14You got it. General National Political Reporter, John McCormick, says the win is a boost to the economy and John McCormick says the win is a boost for Stratton's boss, Governor JD Pritzker, as he eyes a potential White House run in 2028. The primary race tested Pritzker's political cloud in a state where he has leveraged his wealth to dominate the Democratic Party. Stratton's victory comes as he's working to raise his national profile with the party's base nationally, helping elect Stratton could prove useful to Pritzker, should he run for the party's nomination after a likely securing a third gubernatorial term for himself in November's election. The victory by Stratton could also help soothe some of the bad feelings about Pritzker among members of the Congressional Black Caucus, which had backed another candidate in the race and was critical of the governor's financial involvement backing Stratton. If elected Stratton would become only the sixth Black woman to serve in the US Senate. Voice of America could soon be back on the air. A federal judge yesterday ordered that the Trump administration

11:14restart the government run outlet after effectively shutting it down last year, putting hundreds of employees back to work. The ruling comes after the same judge last week, ruled that Trump's pick to lead the US agency for global media, Carrie Lake, lacked the authority to slim down V.O.A.'s operations. We are exclusively reporting that Amazon plans to slash the number of packages it sends through the U.S. Postal Service by at least two thirds as early as this fall. That's after Postmaster General David Steiner solicited bids from Amazon and others for its last mile delivery service for the first time. But with Amazon's existing contract ending in October and the results of the bidding not released until the second quarter, we report that Amazon grew concerned it would have little time to adjust operations if its bid wasn't accepted. And Amazon spokesman said that the e-commerce retailer initially wanted to increase volumes with the Postal Service, where it's long been the largest customer

12:14and was surprised by the new bidding process. The USPS delivered more than a billion Amazon packages last year and the pullback comes as its finances are in dire straits. Here was Steiner testifying yesterday on Capitol Hill. At our current rate, we'll be out of cash in less than 12 months. So in about a year from now, the Postal Service would be unable to deliver the mail. If we continue the status quo, Steiner is asking Congress to raise the Postal Service's debt limit and lift regulations on its ability to raise prices for stamps and other services. And finally, celebrations in Caracas. Venezuela, last night, beat out the heavily favored US in the World Baseball Classic in Miami, sparking celebrations in cities with large Venezuelan populations from Santiago to Madrid. Following the win, Venezuela's interim president, Delcy Rodriguez, declared today a national holiday,

13:15while Donald Trump took to truth social to suggest making the oil rich nation the 51st state. And that's it for what's news for this Wednesday morning. Today's show was produced by Hadi Moyer, our supervising producer, his Daniel Bach, and I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. And until then, thanks for listening. And I'm Luke Vargas for the Wall Street Journal. I'm Luke Vargas for the Wall Street Journal. And I'm Luke Vargas for the Wall Street Journal. And I'm Luke Vargas for the Wall Street Journal. Voices are powerful things. At Vanguard, investors are also owners, and their voices are heard. And now with investor choice, they have an even greater voice when investing. It's just another reason millions of investors have turned Vanguard for 50 years. 50 million investors, 50 million voices. Vanguard. Vanguard is owned by its funds, but are owned by Vanguard's fund shareholder clients to learn more, visit vanguard.com. All investing is subject to risk, Vanguard Market Incorporation Distributor, figure as of January 2025.