Rising oil and gasoline prices tied to Middle East tensions are emerging as a key risk for U.S. markets, with potential ripple effects on inflation and consumer spending.
BNN Bloomberg spoke with Michael Green, chief investment strategist at Simplify Asset Management, who said sustained fuel cost increases could deepen financial strain for households and contribute to broader market volatility.
Key Takeaways
- Rising gasoline prices are putting pressure on household budgets, increasing the risk of reduced discretionary spending.
- Retail stocks have already begun underperforming the broader market as consumer strain becomes more evident.
- Oil price gains are spreading into refined products, reinforcing inflation concerns and weighing on sentiment.
- Geopolitical tensions in the Middle East remain a key driver of energy markets and near-term volatility risks.
- Proposed S&P 500 rule changes could allow unprofitable companies into the index, raising concerns for passive investors.
Read the full transcript below:
LINDSAY: Our next guest says if high oil and gas prices continue, they could strain consumer purchasing power and weigh on retail stocks. Let’s get more now from Michael Green, chief investment strategist at Simplify Asset Management. It’s great to have you with us this morning. Good morning.
MICHAEL: It’s a pleasure to be here. Thank you for having me.
LINDSAY: How do you think these high prices could influence retail stocks moving forward? How would that happen?
MICHAEL: The critical component to understand is that the bifurcated American economy — what’s referred to as the K-shaped economy — is creating conditions where a sizable fraction of the U.S. population is under growing financial stress. This is very different from the rise in gasoline prices in 2021, when they were supported by stimulus and the work-from-home environment, which alleviated many expenses. Now we’re getting reports that 59 per cent of American households can’t afford an unexpected $1,000 expense. The increase in gasoline prices we’ve seen is effectively that $1,000 expense and sets the stage for rationing in other parts of the budget, namely retail purchases, particularly discretionary.
LINDSAY: Have you started to see the effects on retail stocks, or do you think that’s still a couple of months down the road?
MICHAEL: We’ve already seen it quite clearly. The XRT ETF, which is composed of retail stocks, has begun dramatically underperforming the S&P 500. This began almost concurrently with the start of the war and, unfortunately, has preceded prior drawdowns as awareness of this strain spreads through the broader market.
LINDSAY: We’ve also seen modest market relief as trapped ships begin navigating out of the Gulf, out of the Strait of Hormuz. How meaningful is that progress?
MICHAEL: It’s meaningful on two fronts. First, former U.S. president Donald Trump has framed this as a humanitarian effort — essentially escorting hostages out of a bank robbery. Iran is understandably upset under those conditions and has threatened retaliation. If that occurs, the U.S. could claim a self-defence extension under the War Powers Act, which would change the tenor of the situation significantly. This could be quite impactful over the next 24 to 48 hours.
LINDSAY: Why specifically the next 24 to 48 hours?
MICHAEL: Because of the timeline involved. Another key issue is the implication for Iran of being blockaded from shipping its oil. Storage capacity is limited, and while there may be temporary workarounds, Iran is effectively caught in a position where it must either pursue a breakout strategy or settle before the value of its resources deteriorates further.
LINDSAY: What else will you be watching in that timeframe beyond developments in the Gulf? Oil prices, I assume — anything else?
MICHAEL: Oil remains the central driver, particularly if it pushes above the US$100 level. More importantly, we’re now seeing that pressure spread to gasoline and refined products in a more meaningful way. That’s what affects the consumer balance sheet. We won’t get immediate clarity — it will show up in earnings reports — but in the near term, I’ll be watching whether the situation de-escalates or intensifies in the Persian Gulf.
LINDSAY: Let’s switch gears to other news — the S&P 500 is considering removing its long-standing profitability requirement to accommodate new mega-cap IPOs. Can you explain what’s happening and your view on it?
MICHAEL: In short, the S&P 500 is the world’s largest market capitalization index and is widely used in pension mandates and portfolio allocations. By changing the rules to facilitate large IPOs — specifically those above roughly US$150 billion in market cap — and removing profitability requirements, it accelerates their inclusion. As I’ve described it, this lowers the standard of the index. It could impair overall profitability, which is currently near record highs. Investors who passively follow the index have little choice but to participate, which is concerning.
LINDSAY: Why is this happening now? Is it tied to potential IPOs like SpaceX or OpenAI?
MICHAEL: I don’t think it’s a coincidence. There has been a lack of IPO activity because index inclusion is key to attracting capital. Around 85 to 90 per cent of U.S. retirement flows are directed into passive vehicles like qualified default investment alternatives. That’s where the demand is. Index providers may see this as an opportunity to attract listings and fees, but the broader implications for retirement investors may not be fully considered.
LINDSAY: You’ve argued this could turn the S&P 500 into a dumping ground for private equity. What safeguards should be in place?
MICHAEL: The issue is that index providers can make arbitrary decisions that reshape capital markets without direct accountability to retirement investors. Changes of this magnitude should raise questions about the suitability of these indices as default retirement vehicles, because they introduce risks that were not fully disclosed or evaluated.
LINDSAY: We’ll have to leave it there. Michael Green, chief investment strategist at Simplify Asset Management. Thanks for your time.
MICHAEL: Thank you.
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This BNN Bloomberg summary and transcript of the May 4, 2026 interview with Michael Green are published with the assistance of AI. Original research, interview questions and added context was created by BNN Bloomberg journalists. An editor also reviewed this material before it was published to ensure its accuracy and adherence with BNN Bloomberg editorial policies and standards.
