Good morning. Markets opened the week in risk-on mode as investors focus on trade deals to be made at the G7 rather than conflict in the Middle East. Israel and Iran continue to trade barrages, with Israel now controlling the skies of Western Iran. The S&P 500 dropped 1.1% on Friday, while the Dow fell 1.8%. Energy was the lone sector in the green, as safe-haven demand lifted the dollar and gold, though Treasuries sold off slightly on inflation fears.The major indices are all up well over 100 bps ahead of Monday’s open.

The backdrop remains complex. While headline risk from Israel-Iran conflict weighs on sentiment, markets continue to show resilience. Equities have historically recovered quickly from geopolitical shocks, and the U.S. remains structurally less vulnerable to oil-driven slowdowns than in past decades. With the Fed set to meet later this week, rate expectations remain steady. Investors will be watching for revised projections and forward guidance amid elevated fiscal strain and maturing debt.

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Trump Confronts Three Risky Iran Scenarios
The Economist outlines President Trump’s dilemma after Israel’s unsanctioned attack on Iran, balancing diplomacy, deterrence, and disengagement. Domestic political risk and international uncertainty hang in the balance.
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G7 Faces Global Trade and Security Pressures
The WSJ reports that leaders at the G7 summit are under pressure to address escalating global conflicts, including the Middle East and tariff-driven trade uncertainty. U.S. allies are calling for coordinated responses to protect supply chains and global growth.
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Wall Street's Political Allocation Risk
A WSJ deep dive into how politically charged environments are influencing portfolio allocation decisions and risk management. Funds are increasingly modeling headline-driven volatility.
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U.S. Households Revive TINA (There Is No Alternative)
MarketWatch notes a revival in U.S. household equity flows, as bond yields fluctuate and stocks remain the preferred vehicle for returns. Despite geopolitical turmoil, inflows remain strong.
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Stocks declined sharply Friday afternoon following Iran's retaliation against Israeli airstrikes. Explosions were reported over Tel Aviv and Jerusalem, and Iran claimed to have launched hundreds of ballistic missiles in response to Israel’s strikes on its Natanz nuclear site. The White House denied involvement, but President Trump’s post on Truth Social warning that Iran must “make a deal before there is nothing left” added to tensions. Airlines, travel, and dividend-paying sectors sold off, while defense, energy, and shipping stocks gained.

Oil prices surged on supply disruption fears. WTI crude jumped 7.26% to $72.98 and Brent rose 7.02% to $74.23. Gold climbed 1.5% to $3,452.80, and platinum hit levels not seen since early 2021. The 10-year Treasury yield rose to 4.45% as bonds sold off. U.S. fiscal dynamics also gained attention, with $8.3 trillion in marketable debt maturing this year and refinancing costs expected to rise due to elevated yields.

Geopolitical risk is back in focus, but history suggests market impacts from such events tend to be sharp but short-lived. With oil still below last year’s levels and inflation decelerating prior to this spike, fundamentals remain intact. Fed guidance this week will be critical. We expect a hawkish hold with gradual cuts penciled in for late 2025. Market volatility may persist, but underlying economic strength and fiscal clarity should provide support into summer.