With escalating conflict in the Middle East and surging oil prices, the market is bracing for a near-term shock, warned Professor Jeremy Siegel, Senior Economist to WisdomTree and Emeritus Professor of Finance at The Wharton School of the University of Pennsylvania.

Siegel observed a change in market sentiment due to the increasing oil prices and the expanding Middle East conflict. He suggested that the markets could see a 10% correction from recent highs, although a major decline for the S&P 500 is not expected.

“The mood has clearly changed,” said Siegel.

The economist emphasized that the primary concern is not just the crude oil price, but the effect of rising gasoline prices on consumer psychology. Despite the broader economic effect being more balanced, the immediate impact on consumer sentiment is significant.

At 7:27 AM ET, WTI crude oil was trading 0.55% lower at $95.68 per barrel. Meanwhile, the national gas prices stood at $3.79 per gallon while diesel prices crossed $5 per gallon, as per the Energy Information Administration (EIA).

While higher oil prices are enhancing profits in the energy sector and a stronger dollar is reducing import costs, Siegel voiced concern over the build-up of “friction” across the system. Disruptions such as rerouted travel, shipping risks, and geopolitical uncertainty are “putting sand in the gears of the global economy.”

Despite the near-term shock, Siegel remains positive about the larger outlook. He believes that the “economy is still growing, labor has not cracked, inflation was better than feared, and the secular AI story remains intact.”

Analysts Divided Over Long-Term Impact

The rising oil prices and Middle East conflict have been a cause for concern for several economists. Moody's Analytics Chief Economist Mark Zandi warned that surging oil prices could push recession probabilities over 49%. Similarly, Fidelity Investments stated that oil prices breaking above $135 a barrel could trigger a full-blown recession.

On the other hand, Tom Lee, head of research at Fundstrat Global Advisors, suggested that investor anxiety is being driven more by uncertainty around AI and war than by weakening fundamentals. 

Lee characterized the recent geopolitical volatility as a normal “risk-premium expansion” rather than a structural crisis, anticipating that markets will recover by late March and possibly gain momentum into April.

Price Action: On a year-to-date basis, Vanguard S&P 500 ETF (NYSE:VOO) and the Invesco QQQ Trust, Series 1 (NASDAQ:QQQ) fell fell 1.82% and 1.60%, respectively.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by a Benzinga editor.

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