As the U.S.-Iran war heats up again, these parts of the stock market and economy could be affected

A ramp-up in fighting between the U.S. and Iran over the weekend has left Wall Street reconsidering its expectations for the war's economic impact.

The U.S. completed its 10th straight night of strikes against Iran on Monday, after the Houthis in Yemen declared a maritime embargo against Saudi Arabia. This comes after a third service member died amid recent fighting that could mean the war is entering a longer-term and deadlier era. President Donald Trump vowed the U.S. would retaliate, saying in a Truth Social post " they will pay ."

Investors appear to keep brushing off the latest flareup in tensions, with the S&P 500 only fell marginally in Monday's session after a losing week. It also remains just 2% below its all-time high set in June. Still, economists are worried that energy prices once again ascending could weigh on consumers and the broader economy.

As far as the stock market goes, the war in the Middle East has had little impact. Since sagging to a closing low of 6,343.72 in late March, the S&P 500 has bounced to all-time highs. That's in large part due to the assumption that neither the U.S. nor Iran will want a return to outright war — an undesirable outcome, as both stand to lose if the global economy tips into a recession.

Investors have instead shifted their focus to fundamentals, given that the strength of corporate earnings has picked up speed since the start of the second-quarter reporting season. Last week's softer-than-expected inflation data also added to investor optimism.

But investors can't ignore the recent spike in oil prices, nor the rise in bond yields, for long. Brent crude briefly topped $90 a barrel on Monday and hovered just below that level on Tuesday. The U.S. 10-year Treasury yield traded above 4.6% on Monday— a key level watched by traders. It remained near that mark on Tuesday.

If crude and the 10-year Treasury yield continue to rise — or stay elevated for longer than investors were hoping for — Wall Street might have to start pricing in changes to inflation expectations and monetary policy that will eventually hit a company's bottom line.

"It's about duration," said Art Hogan, chief market strategist at B. Riley Wealth. "If we're above $85 or $90 into the end of the year, I suspect that the earnings estimates for this year would have to be trimmed."

Hogan said the S&P 500 could fall into a correction in a worst-case scenario. But he also specified that the broader index will be helped in part by tech — its largest sector which is also relatively insulated from higher energy prices. Tech has a 38% weighting in the S&P 500, while energy accounts for just 3%, according to S&P Global.

Financials and healthcare are other two sectors that could continue to benefit from secular tailwinds, regardless of higher oil prices. The energy sector and logistics companies that rely on fuel are likely to be the biggest laggards. Ryanair , for example, said on Monday that its weak first-quarter profits reflected delayed bookings because of the Middle East crisis.

The region will be carefully watched for any escalation that deters passage through the Strait of Hormuz.

Marko Papic, macro and geopolitical strategist at BCA Research, said he's keeping an eye on whether Iran's hardliners gain more power, or if the U.S. increases the number of troops sent to the Middle East.

Others, however, remain confident in the market, expecting the geopolitical outlook will only improve in the second half of the year. JPMorgan's Mislav Matejka said he's sticking to the playbook he's had since the latter half of March — one in which he uses the rising conflict to continue adding to the dips.

"We continue to believe that investors should use the dips driven by geopolitical head-lines to add exposure," Matejka wrote earlier this month. "We believe the market has become increasingly adept at pricing geopolitical risk as transitory."

Economists are concerned about what a potential rebound in fuel prices as a result of the ramp-up in fighting will mean for U.S. consumers and the businesses that serve them.

"There's nothing but downside here for the U.S. and global economies," said Mark Zandi, chief economist at Moody's Analytics. "Obviously, a lot depends on exactly how this all plays out and what it means for oil and other commodity prices. But it's all downside."

The average American household has lost around $1,100 so far from the war, a figure that includes increasing energy costs and higher military expenses, according to Zandi. That's resulted in real disposable income coming in either negative or near flat on an annual basis over recent months, which Zandi said is typically seen during recessionary periods.