Rising Geopolitical Risks and Evolving Economic Signals
Market attention is expected to intensify over the weekend as geopolitical tensions rise between Israel and Iran. Equities dropped on Friday following reports of Israeli strikes on key nuclear and strategic sites. Oil prices and bond yields increased, while U.S. Treasuries—typically considered a safe haven—also rallied. Despite yields soaring elsewhere, the rally in Treasuries indicates ongoing market concerns about inflation, the growing U.S. debt burden, and a weakening dollar.
Markets have been relatively calm over the past 45 days, having digested tariff developments, but this new escalation could trigger renewed volatility. Any sustained disruption to oil markets could make energy prices more costly, exacerbating upward pressure on bond yields.
On the inflation front, both CPI and PPI came in lower than expected. However, some analysts suggest the soft prints may reflect pre-buying of goods ahead of tariff implementation. June’s data will provide more clarity. With inflation readings cooling and jobs data remaining stable—but not overly strong—there’s a growing case for the Fed to begin seriously discussing rate cuts. The upcoming Fed meeting will be closely watched, particularly as the White House continues to push for lower rates. The potential conflict in the Middle East only adds complexity to the Fed’s decision-making.
Higher interest rates are progressively weighing on real estate investors, business owners, and private equity. Many investment deals no longer pencil out once adjusted for today’s cost of capital. This is evident across housing, multifamily, and construction financing. Home prices begin to soften as inventory lingers, with lenders tightening guidelines. While prime borrowers still secure approvals, others are being pushed into the non-QM or private credit markets.
Watch for rising auto loan and credit card delinquencies as early signs of consumer strain. Despite strong public market performance, the combined effects of inflation, elevated rates, and a gradually slowing economy take its toll on everyday Americans.
These are the opinions of the author. For financial advice, please talk to your CPA or financial professional.
