The Fed's Crude Dilemma

U.S. equity markets finished modestly lower this week - while benchmark interest rates jumped - as the Middle East conflict broadened across both of the region’s critical energy corridors. U.S. strikes on Iran extended into a second full week, while Iran-aligned Houthi forces attacked Saudi oil tankers in the Red Sea and threatened a wider naval blockade. Brent oil prices briefly topped $100, reviving concerns that higher energy and transportation costs could prolong inflation pressures. Those risks extended the global bond selloff. Posting back-to-back weekly declines for the first time since late March, the S&P 500 declined 0.7%. Real estate equities were a notable source of relative strength despite the rate rise. REITs posted impressive results in their first full week of earnings, with improving fundamentals across data centers, industrial, apartments, office, and net lease. Digital Realty led the gains, while 12 of the 13 REITs reporting this week raised full-year FFO guidance.