Investors are confronting twin shocks as fresh inflation readings collide with a widening war in Iran, shaking confidence across global markets. In a recent appearance on “Making Money,” iCapital chief investment strategist Sonali Basak outlined how sticky prices and geopolitical risk are feeding each other and steering trading in stocks, bonds, and commodities.
The discussion centered on why inflation progress appears uneven and how conflict risk can harden price pressures. It also examined what this means for central bank policy and the path for energy, defense, and consumer-exposed shares. The key question for markets now is whether rate cuts can proceed amid higher uncertainty and possible supply shocks.
Why Inflation Remains Stubborn
Inflation has cooled from its peak but remains above comfort zones for policymakers. Basak emphasized that services costs, wage gains, and housing-related measures continue to be sticky. That stickiness keeps rate expectations in flux and nudges bond yields higher when data surprise to the upside.
Consumers still face elevated prices for essentials. That pressure slows discretionary spending and reshuffles demand across sectors. Basak said investors are weighing whether recent data show a brief setback or a more durable plateau in the disinflation trend. The answer will shape when, and how fast, policy easing can begin.
War Risk And The Energy Squeeze
The war in Iran is adding a new layer of volatility. Markets often react quickly to any hint of supply disruptions in energy. Traders typically push oil higher on fears of shipping constraints or damaged infrastructure. That can bleed into transport costs and keep headline inflation sticky even if core measures improve.
Basak noted that safer assets tend to draw bids during tense periods. Gold and the U.S. dollar often rise when geopolitical risk climbs. By contrast, cyclical stocks can struggle as earnings visibility fades. Energy producers and defense names may see short-term support, but broader risk appetite weakens.
- Oil prices tend to rise on supply threats.
- Gold and the dollar see safe-haven demand.
- Rate-cut bets shift with each data point and headline.
Rates, Policy, And A Tough Balancing Act
Central banks face a trade-off. Cutting too soon risks reigniting inflation, especially if war shocks energy supplies. Cutting too late tightens financial conditions and raises recession risk. Basak explained that policymakers will likely stay data-dependent, placing extra weight on monthly inflation prints and labor market signals.
Bond markets reflect this caution. Yields can swing sharply after each report, as traders recalibrate the odds of policy moves. For equity investors, that means valuation multiples remain sensitive. Earnings resilience, balance-sheet strength, and pricing power matter more when the rate path is uncertain.
Sector Winners And Losers
Energy stocks benefit if crude holds higher, but the boost may be uneven. Refiners and integrated producers are positioned differently than pure explorers. Defense names can gain on rising orders and budget support. Travel and leisure may lag if fuel costs rise and consumers retrench.
Basak highlighted the pressure on rate-sensitive sectors. Real estate and small caps can struggle with higher financing costs. By contrast, cash-rich technology and large consumer staples can better manage choppy funding markets. Retailers that pivot quickly on inventory and pricing may hold margins even as demand shifts.
What To Watch Next
Market direction hinges on three threads: the next inflation reports, signs of cooling or tightness in the labor market, and any changes on the ground in Iran. If energy markets stabilize and core inflation eases, rate-cut hopes can revive. If conflict broadens and oil climbs, disinflation may stall and volatility may rise.
Basak said investors are moving carefully, favoring quality balance sheets and steady cash flow. Hedging activity remains elevated. Liquidity is a focus, especially around key data releases and geopolitical headlines.
The latest crosscurrents leave little room for complacency. Inflation is no longer surging, but it is not back to target. The war in Iran adds fresh uncertainty that filters through energy, shipping, and risk appetite. For now, policy makers will likely wait for clearer evidence before shifting course. Investors, meanwhile, are preparing for wider trading ranges, paying closer attention to earnings durability and pricing power. The path ahead will be shaped by whether energy supply fears fade and whether services inflation finally cools. Until then, caution and selectivity look set to guide the tape.
