Global Stocks Near Record Highs Despite Geopolitical Tensions

Global stocks continue to hover near record highs, despite faltering talks to end the war in the Middle East and rising oil prices.

The MSCI All-World index is up for a third straight week and has reached just below its previous record highs. In Europe, the STOXX 600 was slightly lower on the day, as losses in the tech sector were offset by gains in capital-intensive shares such as defence and carmakers.

Despite geopolitical uncertainty remaining the only major macro roadblock to a market experiencing strong tailwinds from earnings and monetary policy outlook, investors are showing no signs of alarm. Short-dated bond yields have risen modestly this week, while several market-based measures of inflation expectations have continued to trend lower.

Oil prices rose 1.7% to $88.5 a barrel, heading for a 6% weekly gain, while European natural gas futures were set for a 10% gain and US gas futures for a 3.5% rise. The VIX volatility index, which many view as the market's 'fear index', was set for a fourth weekly fall.

John Sidawi, senior portfolio manager for fixed income at Federated Hermes, noted that markets appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. However, he warned that this equilibrium is unlikely to be permanent and a meaningful escalation in conflict or a clear path toward resolution could trigger a much larger volatility response.