In this video Sarah discusses the latest developments in the Middle East conflict and how they are beginning to show up in the data.

Middle East: Awaiting Clarity

The Iran conflict remains the primary market driver, with duration as the central uncertainty. U.S. officials initially framed this as a four-to-six-week operation, but mixed messaging continues to obscure expectations. This week, President Trump announced a five-day strike halt and presented a 15-point peace framework to Iran—signaling a potential opening for de-escalation. While rising fuel prices and limited domestic U.S. support incentivize an off-ramp, and Iran may eventually return to negotiations to preserve its regime, Iranian officials deny substantive talks are underway. Oil prices remain the key transmission channel for market impact, and greater visibility on the conflict's trajectory is needed for durable market stabilization.

Economic Impact: Moderation Underway

Prior to the conflict, global growth was improving; conditions are now shifting. U.S. growth has eased slightly, with rising cost pressures and soft services activity, though manufacturing remains resilient. Europe has weakened more notably, with sharper input cost increases reflecting heavier energy dependence. Overall activity levels still support continued—though slower—economic expansion.

Central Banks: A Cautious Approach

As markets price in energy-driven inflation, expectations for rate cuts have scaled back. Major central banks held rates steady at recent meetings, adopting a wait-and-see, data-dependent stance. In the U.S., inflation remains above target while job gains have slowed. In Canada, inflation is closer to target and slack exists, giving policymakers flexibility.

Corporate Fundamentals: Still Constructive

Despite market uncertainty, earnings estimates remain optimistic, with major equity markets expecting mid-teens profit growth this year. Analysts have adopted a cautious "wait-and-see" approach similar to central banks, yet full-year forecasts have trended higher in recent weeks, reflecting continued confidence in economic fundamentals. Strong earnings delivery will be crucial to supporting equity valuations as expectations remain elevated.

Takeaway

Market volatility is driven largely by conflict uncertainty and rising oil prices. While corporate earnings remain favorable, markets need confidence in de-escalation before sentiment improves sustainably. For investors, periods of uncertainty can present opportunities at attractive valuations. Maintaining discipline and perspective—especially during volatile markets—remains essential for long-term financial success.

Thanks for tuning in and see you in two weeks.