Investors Seen Looking Past Geopolitics, Focused on US Economy and Oil Supply
Financial markets appear to be building a thick skin against geopolitical turmoil, according to economic advisor Andrew Freris. His analysis suggests that investors are now likely to overlook regional conflicts unless they directly threaten global economic growth or trigger a sustained surge in inflation. This marks a significant shift in market psychology, where the immediate fear premium from geopolitical events is fading.
This resilience stems from a market that has endured multiple shocks in recent years, from a global pandemic to a major European war. Traders and asset managers are increasingly conditioned to view new conflicts through a specific lens: the impact on hard economic data and central bank policy.
Oil Prices Remain the Critical Transmission Channel
The primary channel through which geopolitics can still rattle markets is the price of crude oil. A major disruption to supply from key producing regions could swiftly translate into higher fuel and energy costs worldwide. This would pressure consumers, boost inflation, and force central banks to maintain tighter monetary policy for longer.
However, Freris notes that current risks to oil supply appear contained. Two major factors are providing a buffer. First, robust oil production from the United States is acting as a stabilizing force, helping to meet global demand. Second, strategic decisions by the OPEC+ alliance regarding its own production levels are actively managing the supply side of the equation. This balance is preventing oil prices from spiking on geopolitical news alone.
Central Bank Policy and Data Take Center Stage
With the immediate threat from geopolitics perceived as lower, investor attention has firmly returned to traditional fundamentals. The dominant focus is now on the strength of the US economy and the delayed timeline for interest rate cuts from the Federal Reserve.
Strong economic data, particularly regarding employment and consumer spending, has forced the market to repeatedly push back expectations for when the Fed will begin lowering borrowing costs. Investors are scrutinizing every new inflation report and jobs figure for clues on the central bank’s next move. The “higher for longer” interest rate narrative is currently driving valuations across asset classes, from bonds to stocks and the US dollar.
In this environment, a geopolitical event would need to be severe enough to either cripple economic activity or cause a runaway spike in oil prices to fundamentally alter the market’s primary narrative. Short of that, reactions are likely to be short-lived. The market’s compass is set not on conflict zones, but on economic indicators and the conference room of the Federal Reserve.
