The Federal Reserve appears “well positioned” to engineer a soft landing for the U.S. economy following the latest robust jobs report, which has all but eliminated the prospect of a 50-basis-point rate cut in November. The labor market’s strength has sparked renewed discussions that the Fed may even keep rates unchanged if incoming economic data continues to exceed expectations. However, the recent surge in geopolitical tensions serves as a stark reminder that external risks cannot be ignored.
The escalating conflict in the Middle East continues to rattle markets. On Monday, hostilities intensified on multiple fronts, with the Israel Defense Forces intercepting a barrage of rockets aimed at Tel Aviv by Hamas and other Iranian-backed groups. The geopolitical uncertainty has fueled a rally in crude prices, with Brent crude soaring to its highest levels since August on fears that Israel may target Iran’s oil infrastructure. West Texas Intermediate also saw early gains on Tuesday as traders priced in the potential for further supply disruptions.
Further escalation in the region could have significant implications for market sentiment, likely driving a “risk-off” trade. In such a scenario, growth stocks would likely underperform relative to value shares, as investors seek safer havens amid heightened uncertainty. While the Fed’s path to a soft landing remains intact for now, the geopolitical backdrop will continue to be a key variable in shaping market dynamics in the weeks ahead.