How OPEC, Tariffs, and New Market Highs Shape the Case for Long-Term Investing
For most of the stock market's history, investing centered on selecting individual stocks and bonds.
Over recent decades, however, macroeconomic developments have come to play an increasingly significant role in shaping markets. Major events, whether tied to central bank decisions, geopolitical tensions, or shifts in global trade, now affect virtually all stocks regardless of company-specific fundamentals.
For investors, this shift means that constructing a modern portfolio is less about identifying attractive individual securities and more about making asset allocation decisions that align with long-term financial goals.
This dynamic has been especially evident over the past year and a half, during which two major macroeconomic forces have dominated: the war in Iran and U.S. tariff policy.
Although these are distinct developments, both influence consumer prices and business demand, whether directly through elevated energy costs or indirectly through the price of imported goods.
Importantly, the effects of macro-driven events like these tend to diminish over time. For this reason, investors are well served by keeping their focus on longer-term trends rather than reacting to any single event with portfolio changes.
The conflict in the Middle East, gasoline prices, and the shifting role of OPEC
The most tangible way the conflict in Iran has reached American households is through rising fuel costs. The national average for regular unleaded gasoline has climbed to approximately $4.50 per gallon, well above the long-term average and a notable increase from levels seen just a few months prior. In certain regions of the country, prices have already surpassed $6 per gallon. (1) Because energy costs feed directly into the Consumer Price Index, headline inflation has moved higher, adding complexity to an economic environment that had been on an improving trajectory.
Some observers may find this environment reminiscent of the 1970s Arab Oil Embargo, when supply shocks drove inflation sharply higher and led to gasoline rationing. The world, however, has changed considerably since that era.
The United States is now the world's largest energy producer, outputting more than 13 million barrels of oil per day, which has significantly reduced the sensitivity of the U.S. economy to global oil disruptions.
Adding to this shift, the recent decision by the United Arab Emirates (UAE) to exit OPEC underscores how much the global energy landscape has evolved.
For decades, OPEC members played a central role in determining global oil prices by agreeing on production levels, a coordination challenge across roughly a dozen nations that has historically proved difficult to enforce. Preventing member countries from exceeding their agreed-upon production limits has been an ongoing source of friction within the group.
The UAE's departure reflects the diminishing cohesion of the cartel, as member nations increasingly pursue independent national strategies. At its peak during the 1970s, OPEC accounted for at least half of the world's oil supply.
Today, that share stands closer to one-third.(2) In response, the broader OPEC+ coalition, which includes Russia and other producers, was established, though the same coordination difficulties persist within that group as well.
The declining relevance of OPEC does not eliminate the risk of oil price spikes during periods of geopolitical stress, but it does mean that prices are less sensitive to OPEC's decisions than they once were.
While this offers little immediate relief to households managing higher fuel costs, it helps explain why the broader market impact of recent energy disruptions has been relatively contained.
Tariff policy faces ongoing legal challenges
The second major macroeconomic force shaping markets has been tariff policy, which continues to face significant legal scrutiny.
In February, the Supreme Court ruled that tariffs implemented last April under the International Emergency Economic Powers Act (IEEPA) are illegal. (3)
In response, the administration shifted to using Section 122 of the Trade Act of 1974 as the legal basis for these measures. More recently, the U.S. Court of International Trade ruled that these Section 122 tariffs are also unlawful. (4)
Despite these rulings, the administration has signaled its intent to continue pursuing tariffs as a central element of its geopolitical strategy.
Other legal authorities remain available, including Section 301 of the Trade Act of 1974, which permits tariffs following formal investigations into specific countries' trade practices. Investigations of this kind have already been launched against dozens of countries, suggesting that tariffs will likely persist in some form, with country-specific rates becoming more prominent.
At the same time, the refund process for previously collected tariffs is now underway. Customs and Border Protection has begun processing refund claims, and some importers have already started receiving payments. (5) Estimates suggest that total refunds could reach between $160 and $170 billion.
The full scope and timeline of these refunds remains uncertain, but any amounts returned could provide a meaningful boost to earnings and cash flow for the importers that originally paid them.
From a purely economic standpoint, this represents a return of funds that were previously collected rather than a net new benefit. Even so, the refunds are a positive development for businesses and consumers alike.
Markets have pushed to new all-time highs even amid persistent uncertainty
For investors, the prevalence of global macro events means that broad market indices and individual stocks can move significantly based on factors unrelated to any specific company's operations or financial performance.
At the same time, one consistent characteristic of these events is that their market impact tends to diminish over time. Headlines surrounding wars, oil prices, tariffs, and similar issues can generate short-term volatility, but they rarely determine long-term investment outcomes.
This is evident in the fact that, despite the considerable uncertainty of the past year and a half, the S&P 500 has still recorded more than a dozen new all-time highs this year.
As the accompanying chart illustrates, new all-time highs are a normal feature of bull markets, even as investor concerns remain a constant backdrop. What ultimately drives sustained market performance is the broader foundation of corporate earnings and economic growth, both of which have remained healthy throughout this period.
The bottom line? Today's market environment is shaped by global forces that tend to come and go. Staying invested with a well-constructed portfolio remains the best way to navigate uncertainty and achieve long-term financial goals.
Questions? We offer a complimentary 15-minute call to discuss your concerns and explore how we can assist you.
References
3. https://www.congress.gov/crs-product/LSB11398
4. https://www.cit.uscourts.gov/sites/cit/files/26-47.pdf
5. https://www.cbp.gov/trade/programs-administration/trade-remedies/ieepa-duty-refunds
Index Description
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
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