I was on a call a few days ago with a colleague based just outside Manchester. They described that day’s weather: sunshine, rain, sleet, hail… and with thunderstorms on the way.

Four seasons in one day.

And in many ways, that’s exactly how markets feel right now.

Because when it comes to the US administration and geopolitics, anticipating what comes next is proving just as tricky as predicting the weather in the UK.

We’ve had a lot of questions from clients recently about the oil price and what it means for growth and inflation.

In very brief terms:

• Higher oil prices act like a tax on consumers.

• Every extra pound spent at the petrol pump is a pound not spent elsewhere.

• And with consumer spending making up a big portion of economic growth, this matters.

But context is everything. It’s easy to jump to comparisons with past oil shocks, but the world has changed.

• Energy is now only around 2% of consumer spending, compared with around 6% in the 1970s.

• The US is now a net exporter of oil.

• The global economy has become far more services-driven and energy efficient.

In short: oil still matters… just less than it used to.

Our chart this week shows three potential oil price scenarios, our estimate of their probability and the potential implications for the US economy, interest rates and investment markets, including stocks and bond yields*.

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Key takeaway

Markets feel uncertain right now. It’s a bit like venturing out in the UK and wondering whether to grab sunglasses or an umbrella.

But if we take a step back, the global economy is likely to be more resilient than during past oil shocks. Inflation is expected to rise, but by how much is unclear, and the global economy won’t necessarily slip into a recession.

Most importantly, the duration of the shock matters more than the spike in the oil price itself. As ever, periods like this aren’t a signal to panic, they’re a reminder to stay disciplined, diversified and focused on the long term.

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*Yield is the income paid by bonds or other investments. It is usually stated as a percentage of the value of the investment

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This article is provided for general information purposes only and should not be construed as personal financial advice to invest in any fund or product. These are the investment manager’s views at the time of writing and should not be construed as investment advice. The opinions expressed are correct at time of writing and may be subject to change. Capital is at risk. The value and income from investments can go down as well as up and are not guaranteed. An investor may get back significantly less than they invest. Past performance is not a reliable indicator of current or future performance and should not be the sole factor considered when selecting funds.