Goldman Sachs Group Inc (NYSE:GS). has issued a warning about potential threats to the equity market rally, primarily due to escalating geopolitical uncertainties, particularly the Israel-Hamas conflict. The firm expressed concerns on Wednesday that such tensions could disrupt oil supply and diminish interest in riskier assets. The apprehension over the direction of monetary policy and rising bond yields further exacerbate these uncertainties.
Analysts from Goldman Sachs suggested that while geopolitical risks might prompt rate relief and trigger dovish central bank policies, persistent uncertainty combined with an inflationary macro environment could ignite growth anxieties. They foresee any year-end relief rally to be short-lived.
In contrast to this somewhat bleak outlook, resilient markets have been observed with the S&P 500 index maintaining an upward trend since the onset of the conflict. Additionally, US volatility has remained subdued according to the VIX Index.
Echoing Goldman Sachs' sentiments, strategists at JPMorgan Chase & Co. (NYSE:JPM), advised investors on Wednesday to pursue safety-oriented investment strategies given the escalating geopolitical tensions.
On the same day, the financial world was on high alert in anticipation of Jerome Powell's speech regarding the Federal Reserve's monetary policy. This comes amidst uncertainty over potential interest rate hikes. The central bank's recent shift to a dovish stance suggests a slower pace of rate increases, pushing dollar bulls into a defensive position.
Should further tightening occur, US bond yields could rise, strengthening the USD. Amid these policy shifts, the USD has made substantial gains against significant currencies, with the New Zealand dollar experiencing the most pronounced decline.
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