The war in the Middle East, and the effective closure of the Strait of Hormuz, has caused oil prices to spike and volatility in the energy market. Energy, and the equity market, reacted favorably to the recent two-week ceasefire in the Iran war and the opening of the Strait, however consumers here in the U.S. are still concerned as to the potential impact this conflict could have on energy prices. Today’s weekly market commentary discusses this concern and examines just how vulnerable the U.S. economy may be to an oil shock.
The enclosed chart examines household energy spending as a percentage of after-tax income in the United States. The chart runs from January of 1970 through present day. Some notable and significant data points are shown with the first being the historic peak in May of 1980. At that point in time, a whopping 8.1% of after-tax income was spent on household energy needs. The chart shows a downward trend after this all-time high, but the next period of time the chart highlights is the high prior to the Global Financial Crisis. At that point in time, in August of 2008, U.S. households were spending 6.2% of their after-tax income on energy. Again, the chart illustrates a downward trend from this level, and then the final data point is just before the outbreak of the Iran War. At this time, in January of 2026, 3.4% of after-tax income was being spent on household energy needs – a historically low level.
The author of the piece makes the case, “U.S. households were spending a historically low 3.4% of their disposable income on energy just before the outbreak of the Iran war, lessening the threat of severe, recession-inducing financial stress from a given increase in fuel costs.” – WFII Chart of the Week 03/31/2026
In terms of what this means for investors, the piece explains in the close, “other key supports that we expect to cushion the impact of higher energy prices include the service sector’s growing importance; the U.S. shift to a net exporter of fossil fuels; well-contained inflation heading into the Iran war; unusually large tax refunds and other fiscal stimulus; and the absorption of artificial intelligence.” – WFII Chart of the Week 03/31/2026
We would ask that you review the attached piece at your convenience and please let us know if you have any questions or if you would like to discuss it further. And as we always end this correspondence, please remember that regardless of current momentum and regardless of the key takeaways in this weekly perspective, we will continue to monitor and manage with a thoughtful approach based on your specific long-term objectives. Thank you for your continued confidence and look forward to speaking soon.
