Markets Hold Near Record Highs Amid Geopolitical Tensions

Global stock markets traded near record highs on Friday, marking their third consecutive weekly gain. The MSCI All-World index was up, while the STOXX 600 gauge in Europe dipped slightly due to losses in the tech sector.

The benign inflation data released earlier this week dented expectations for a U.S. rate hike next month, which contributed to the market's optimism. Oil prices, however, surged due to faltering talks to end the Iran war and the U.S.'s threat to ramp up economic pressure on Iran.

Short-dated bond yields rose modestly this week, but several market-based measures of inflation expectations continued to trend lower. Gold touched two-month highs as investors poured cash into the metal in response to fading expectations for aggressive rate hikes by the Federal Reserve.

John Sidawi, senior portfolio manager for fixed income at Federated Hermes, noted that markets appear willing to tolerate significant uncertainty without demanding higher risk premiums. However, this equilibrium is unlikely to be permanent, and a meaningful escalation in conflict or resolution could trigger a larger volatility response than current market pricing implies.