Oil and Stock Market Commentary

The shutdown of the Saudi Yanbu pipeline will drive oil toward $120 per barrel, push the 10-year Treasury yield toward 5%, and weaken growth while equities remain supported.

• The pipeline outage removes up to 7MM barrels of capacity, and InfraCap estimates a 12MM-barrel supply-demand imbalance; starting from a prewar equilibrium near $60, it applies a $5 oil-price increase for each 1MM-barrel shortfall.
• The firm expects the 10-year Treasury yield to stabilize around 5%, based on two additional Federal Reserve rate increases and the historical relationship of the 10-year yield trading 100 basis points above the terminal Fed Funds rate.
• Two further rate hikes would trigger the Hatfield Recession Rule, defined here as housing starts falling below 1.1MM units per year.
• The resulting housing recession would push GDP growth below 2% despite the AI boom, forcing the Federal Reserve to pause further rate increases.

Takeaway: InfraCap sees a sharp oil-price shock and weaker housing-driven growth coexisting with stock-market support, with the S&P 500 expected to find support near 7,300 and reach 8,300 by year-end as 27 earnings estimates have risen 18% since the start of the year.