Recent geopolitical developments involving Iran have heightened market sensitivity to oil prices, inflation, and interest rate expectations, according to Lale Akoner, Global Market Analyst. While the escalation has introduced new risks, the broader investment case for equities in 2026 remains intact—though the path forward has become more dependent on macroeconomic factors.
Commenting on the evolving market dynamics, Akoner noted that higher energy prices could keep inflation elevated for longer than previously expected, potentially reshaping expectations around monetary policy.
“The recent Iran escalation has not overturned the broader 2026 case for equities, but it has made that outlook much more dependent on oil, inflation and interest rates,” said Akoner.
“If higher energy prices keep inflation stickier for longer, the main risk is likely to come through valuations rather than earnings, as markets scale back expectations for rate cuts and multiples come under pressure. That is why the focus has shifted from the geopolitical headlines themselves to whether they result in tighter financial conditions.”
Despite rising geopolitical tensions, US markets have demonstrated relative resilience—an outcome that aligns with typical investor behavior during periods of uncertainty. In such environments, investors often gravitate toward markets with greater liquidity and depth.
“At the same time, US markets have shown relative resilience, which is consistent with how investors typically behave in periods of uncertainty,” Akoner added.
“In more volatile conditions, capital often moves toward the depth and liquidity of US assets, and that is also supporting the dollar. For now, the dollar move still looks like a classic safety bid, but if investors continue to favour cash and Treasuries, it could become a more durable upswing rather than a short-term spike.”
A stronger US dollar combined with volatility in oil markets could also create a more challenging environment for emerging markets, particularly those that benefited from expectations of a softer dollar and looser monetary policy.
“That matters because a firmer dollar and higher oil volatility create a more difficult backdrop for the parts of the market that had been benefiting from softer-dollar and easier-policy assumptions, particularly emerging markets,” Akoner explained. “It also means the Fed may need to remain more cautious, even if the broader direction of policy still points to eventual easing.”
While the longer-term outlook for equities remains positive, Akoner emphasized that markets are now far more sensitive to movements in oil prices, interest rates, and the strength of the US dollar.
“So the long-equities thesis is still intact, but it is now far more sensitive to oil, rates and the dollar than it was just a few weeks ago,” she concluded.