Duration and Breadth

We must first emphasize humanity and think of those caught in harm’s way, full stop. As investors, we must also evaluate the conflict’s duration, both in terms of market dynamics and the real economic implications. Energy prices play a direct part in this (more on that below), but investor psychology and sentiment can also weigh on assets.

In recognizing the “edgeless” component of geopolitical conflict — meaning no one has an informational or analytical advantage in gauging when the conflict may subside — capital market expectations and asset prices serve a useful purpose. Further, prediction markets, or exchanges where participants wager on specific outcomes or current events, also yield useful information.¹

In financial markets, futures instruments are derivatives that allow investors to buy and sell contracts on everything from stocks and bonds to currencies and commodities at pre-established future dates and prices. Looking at oil market futures, as of Friday March 13, investors anticipate that a barrel of Brent Crude (the international standard or benchmark) will fall from the current $101 spot price today to $90 by August and $80 by the end of this calendar year. One month ago, the futures market implied that Brent would be close to $65 at year-end. The equity market’s “fear gauge” (which is not an appropriate moniker but a topic for another day) or VIX index suggests that current agita will subside in the next few months.

Prediction markets are much more event-specific. Polymarket, a major prediction market, implies that, as of this morning, market participants are assigning a greater than 50% chance of a ceasefire by May 31, slipping from as high as an 88% likelihood just yesterday. Another important prediction market, Kalshi, implies that participants assign only a 38% chance of a nuclear deal between the U.S. and Iran before year-end. While futures and prediction markets are both only one headline away from abrupt change, the consistent message appears to be that the conflict will last longer than mere days or weeks.   

Intuition suggests that higher energy prices will crowd out other consumption opportunities, but the reality is far more complicated. Energy price increases have disproportionate impacts across income cohorts, and, given inflation’s cumulative effect in recent years, various consumer groups will likely respond to price increases unevenly. As we have shared in prior Weekly Five publications, viewing consumers as a monolithic group oversimplifies analysis and masks the true, divergent implications.

Using Bureau of Labor Statistics data from the Consumer Expenditure Survey, the non-partisan American Council for an Energy-Efficient Economy  notes that, on average, U.S. households spend around 5.6% of their income on energy with transportation fuel representing more than half that total spend.² However, lower-income households spend almost 18% of their total income on energy, and rural households spend about 50% more on energy than urban households.³ Further, energy price burdens also vary across ethnic and age groups.

Based on Fed data, the highest-earning 30% of the U.S. population drives over half of total consumption.⁴ This cohort has enjoyed higher portfolio values, significant real estate gains and healthy incomes. Further, as noted above, energy price expenditures remain relatively low for higher earners. Even so, various companies note that higher income consumers have become more value-oriented in their expenditures: Should the conflict endure beyond current estimates, we could see additional consumer pullbacks translate into corporate profit challenges.

The Fed will gather on Tuesday and Wednesday of next week. For “Fed watchers” like ourselves, this meeting will be particularly meaningful because the Fed will release its Summary of Economic Projections, which includes estimates for growth, inflation, employment and future interest rates. While neither we nor the markets anticipate a change to the Fed’s target interest rate this meeting, we will be keenly focused on a few key variables.

First, we want to hear more about the Fed’s views on the Iranian conflict. While we do not anticipate the Fed will deliver definitive verbiage on its length or implications, how the Fed generally characterizes the conflict and its expected duration will provide a notable market signal. Sometimes central banks signal a “hall pass” or an acknowledgment they are looking through the impact of infrequent or highly unusual events. But, given the affect that higher prices for crude and refined products could have on inflation, the Fed’s comments here will be important.

Second, we want to learn more about the Fed’s labor market views. Last month’s employment situation report was lackluster at best, and some investors have expressed concerns about overall trends in employment growth despite the impacts from seasonality and inclement weather. Further, concerns about the software sector and the impact of AI on the jobs market remain headline-grabbing and weigh on investors.

Finally — and perhaps a more nuanced point — we continue to focus on the Fed’s “steady state” or longer-term viewpoints on its baseline interest rate. The fed funds target rate sets the floor for so many benchmark borrowing rates. Since the 2008-09 crisis, consumers and businesses have been conditioned by low rates, but the Fed continues to nudge its baseline expectations higher. As such, seeing its latest projections will be key.  

One of the many great aspects of Northern Trust is its deep commitment to improving client outcomes. To that end, leaders from our Wealth Management and Alternatives Strategies teams have collaborated to bring some detailed thoughts on the state of private markets, which you can access here. 

¹ A Primer on Prediction Markets - Wharton Initiative on Financial Policy and Regulation. Accessed 13 March 2026.

² Combined Energy Burdens: Estimating Total Home and Transportation Energy Burdens | ACEEE. Accessed 13 March 2026.

³ Ibid.

⁴ Expenditures: Total Average Annual Expenditures by Deciles of Income Before Taxes: Ninth 10 Percent (81st to 90th Percentile) (CXUTOTALEXPLB1510M) | FRED | St. Louis Fed. Accessed 13 March 2026. 

⁵ Bloomberg contributor composite data, accessed on terminal 13 March 2026.