Markets Face High Uncertainty Amid Geopolitical Tensions and Fed Doubts, Bank Recommends Seven Inflation-Hedging Strategies
Global and Israeli markets enter another week marked by significant geopolitical uncertainty, following President Trump's last-minute cancellation of a broad strike against Iran. Trump cited an agreement to reopen the Strait of Hormuz, which Iran denied, fueling market volatility. US Treasury yields surged sharply after Federal Reserve Chair Kevin Warsh's hawkish tone failed to convince investors of effective inflation control measures. This uncertainty impacted stock markets, with mixed monthly results: the Tel Aviv 35 index rose about 2% in July, led by a 10% jump in banks and a 9% increase in oil and gas stocks, while construction stocks fell 5%. Dual-listed chip stocks weakened, remaining in bear market territory despite a late-week rally.
In the US, tech giants showed divergent earnings reactions: Microsoft surged 17% after strong results, Amazon jumped 15%, while Meta and Apple declined due to missed forecasts and cautious guidance. The semiconductor sector remains under pressure despite ongoing strong demand for AI-related components, with Defiance's chief investment officer emphasizing that recent declines reflect valuation corrections rather than weakening fundamentals.
Currency markets saw the Israeli shekel weaken 2.6% against the dollar in July amid Middle East tensions, even as the US dollar weakened globally. The US Treasury intervened to support the Japanese yen, marking its first such action in over a decade. Oil prices rose above $90 per barrel for Brent crude due to Iranian attacks on tankers, with Chevron's CEO warning of expanding supply risks beyond the Strait of Hormuz and dwindling global inventories.
The Fed's credibility took a hit as bond yields reached multi-year highs, with some Fed officials advocating for rate hikes despite Warsh's pause. The upcoming US July employment report is highly anticipated, with economists forecasting moderate job growth but concerns about labor market stability.
Against this backdrop, French investment bank Société Générale recommended seven investment avenues to hedge against persistent US inflation. These include US and European inflation-protected bonds, copper and gold commodities, commodity-linked equities, European banks and infrastructure stocks benefiting from fiscal improvements, and private credit sectors offering higher coupon income amid rising rates.