Markets Grow Numb to Geopolitical Noise: What Investors Require to Know
Global markets are increasingly demonstrating a resilience to geopolitical tensions, reacting less dramatically to conflicts than in the past. This shift in investor psychology, as highlighted by Andrew Freris, CEO of Ecognosis Advisory, suggests a growing acceptance of ongoing global instability as a new normal. However, this doesn’t indicate geopolitical events are irrelevant; rather, their impact is now largely filtered through the lens of potential disruptions to economic growth and inflation.
The “War Weariness” of Investors
Freris argues that investors have become “accustomed to wars” over the last three years, leading to a tendency to “simply ignore” them unless they pose a significant threat to the global economy. This isn’t to say that events like rising tensions between the US and Iran are inconsequential, but their impact on markets is likely to be tempered. The key variable remains crude oil, as geopolitical instability can quickly translate into supply shocks and price volatility.
US Economic Data and the Federal Reserve’s Stance
Currently, the focus is shifting towards US economic data and the Federal Reserve’s monetary policy. Investors are closely watching indicators like GDP, inflation, and employment figures to gauge the future trajectory of interest rates. Freris anticipates limited clarity from the Personal Consumer Expenditure Index, suggesting the Fed is unlikely to cut rates “for several more months.”
This cautious approach from the Fed is further reinforced by observations that inflation, while above target levels, isn’t currently alarming in a global context. The interplay between inflation and labor conditions is expected to create a balancing effect, potentially delaying any significant policy shifts.
Oil Dynamics: A Balancing Act
Despite geopolitical risks, crude oil prices remain relatively contained due to a dynamic interplay between US production and OPEC supply decisions. The United States is now a major oil producer, rivaling OPEC’s influence. This increased supply helps to offset potential disruptions caused by geopolitical events, keeping a lid on prices and mitigating inflationary pressures.
US Equities: A Cautionary Tale
While the broader market may be exhibiting resilience, some experts are advising caution regarding US equities. Andrew Freris of Ecognosis Advisory recommends reducing exposure to US stocks, citing inflated valuations driven by hype surrounding artificial intelligence. He also views US-China trade talks as largely “meaningless” given the ongoing tariff disputes.
This perspective aligns with a growing sentiment that US equities may be overvalued compared to markets in Europe and Asia, which are demonstrating stronger performance.
FAQ
Q: Will geopolitical events never impact markets?
A: No, significant disruptions to global supply chains or a major escalation of conflict could still trigger market volatility. However, the threshold for a lasting impact appears to be rising.
Q: What should investors focus on right now?
A: Inflation, economic growth, and central bank policy are the key drivers of market sentiment. Pay close attention to US economic data and the Fed’s communications.
Q: Is it safe to ignore geopolitical news altogether?
A: No, stay informed, but avoid knee-jerk reactions. Focus on the potential economic consequences rather than the headlines themselves.
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