You had a miserable 2025 because of tariff inflation. The Iran war will be even worse, top economist says

The article warns that the Iran war and energy shock could intensify U.S. stagflation risks, with higher fuel costs feeding into delivery, airfare, and food prices. Moody’s Mark Zandi said growth is likely to fall well short of potential, jobs may remain largely flat, and unemployment could drift higher, even as inflation trends upward. The piece also notes tariff-related damage, including a 10% loss of market wealth during the April 2 selloff and Tax Foundation estimates that Section 232 tariffs could cut long-run GDP by 0.2% and eliminate 154,000 jobs.

Analysis

The market is being pushed into a classic late-cycle margin squeeze: energy is acting like a tax on consumers while tariffs keep import-sensitive prices sticky, which means nominal GDP can look fine even as real activity decelerates. That combination is especially damaging for rate-sensitive and cyclical exposures because earnings revisions typically lag the macro slowdown by one to two quarters, while inflation expectations reprice immediately. The next leg of underperformance is likely not in obvious energy losers, but in industries with thin operating margins and weak pricing power that now face both higher input costs and softer demand.

The more interesting second-order effect is that this is not a uniform “risk-off” shock. Higher fuel and logistics costs should widen dispersion across transport, consumer discretionary, and industrials: firms with long-duration procurement contracts or domestic sourcing will outperform peers still exposed to spot energy and cross-border freight. Banks such as GS are a modest relative beneficiary only if volatility drives issuance, hedging, and trading activity; but in a slow-growth, stagflationary tape, that offset is usually overwhelmed by weaker underwriting, lower M&A, and rising credit stress in cyclical borrowers.

Time horizon matters: over the next 2-6 weeks, the cleanest expression is via downside in consumer-facing and transport names as analysts cut second-half estimates. Over 3-6 months, the bigger risk is policy response — if energy scarcity becomes visible in jet fuel, shipping, or food, the market will start pricing forced diplomatic de-escalation or emergency supply measures, which would unwind the inflation leg quickly but leave growth damage intact. That asymmetry argues for owning inflation beneficiaries only tactically, not structurally, because the political reaction function can reverse the trade faster than the fundamental damage heals.

Consensus may still be underestimating how quickly “sticky inflation + flat jobs” compresses multiples: the market usually pays for disinflation, not for a regime where nominal revenues rise but real demand and hiring stall. If that thesis is right, the pain trades are not just oil-sensitive shares, but broad beta and small caps with refinancing needs. The best setup is to fade any relief rally into macro data if inflation prints stay hot while labor softens, because that is the combination that most reliably forces earnings estimate cuts without immediately triggering aggressive easing.

Key Decisions for Investors

• Initiate a 4-8 week short basket of transport and travel-sensitive names vs XLE: short UAL/DAL and FDX/UPS, long XLE or XOP. Thesis: higher jet fuel and freight costs hit margins faster than energy profits re-rate; target 8-12% relative downside with defined stop if energy reverts.
• Buy put spreads on XLY or discretionary retailers with import exposure for the next two earnings cycles. Use 5-10% OTM spreads to capture estimate cuts from tariff pass-through and softer real demand; risk/reward favors limited-premium structures in a stagflation tape.
• Long GS only as a volatility expression, not as a directional macro bet: sell downside risk via a bearish collar or pair GS against a regional bank ETF. Upside is limited to elevated trading/market-activity revenue; downside comes from underwriting and credit deterioration if growth stalls.
• Short IWM / long quality large-cap pair for 3-6 months. Small caps are more vulnerable to higher financing costs and slower end-demand; use the spread to isolate macro fragility while reducing market beta.
• If crude and jet fuel remain elevated for another 2-3 weeks, add call spreads on domestic refining/logistics beneficiaries, but trim quickly on any supply-diplomacy headlines. This is a tactical trade only; headline risk is high and policy reversal can unwind it in days.