Dow futures reflected the rising uncertainties on Tuesday with a 250-point plunge as investors grew anxious around the persisting Israel-Iran conflict.
S&P 500 and Nasdaq futures also traded lower, underscoring a broad risk-off sentiment across global markets.
The drop in the futures indicates that Wall Street might shed some gains on Tuesday after showcasing a rebound on Monday, with the Dow Jones Industrial Average closing 317 points up at 42,515.09.
The reversal seems close enough as Asian markets ended mixed on Tuesday, while the European markets continue to slide amid anxieties around sentiments.
Geopolitical flashpoint: Israel-Iran conflict
The hopes of the resolution of the Israel-Iran conflict turned into confusion on Tuesday as US President Donald Trump made an early departure from the G7 summit.
While world leaders wondered if it was about brokering a ‘ceasefire’ between Israel and Iran, Donald Trump rejected any such plans and even slammed French President Emmanuel Macron for making remarks about the issue.
Moreover, the US President indicated that America may consider getting involved in the Israel-Iran conflict.
The events raised apprehensions among investors and triggered a sell-off in various markets of the world.
Dow futures were trading high on Monday as investors looked optimistic about the resolution of the Israel-Iran conflict. The reversal seems to reflect the broader confusion in the market over the possibility of a prolonged conflict.
US Federal Reserve’s crucial June policy meeting
Dow futures slide is also seen in the context of the upcoming meeting of the US Federal Reserve, where the central bank is expected to keep the benchmark rates unchanged.
While investors are not expecting any major policy changes, what everyone’s watching is the central bank’s updated economic forecasts and any hints about where interest rates might go for the rest of 2025.
Traders are eager to see if the Fed signals cutting rates later this year or if it plans to hold them higher for longer.
The significance of the analysis arises from all the uncertainty around tariffs, inflation, and global growth.
Analysts say uncertainty to remain
Multinational finance corporation JPMorgan Chase expects that the uncertainty is here to stay in the short-run and investors should have faith in the strong fundamentals of the US economy.
Global geopolitical tensions may rattle markets in the short term, but history suggests they rarely leave a lasting mark on globally diversified equity portfolios, according to the company’s latest market outlook.
However, the firm noted that local markets are often more vulnerable to shocks from such events.
In a release, the firm said the US economy continues to display strength, with the labour market holding up and inflation gradually heading toward the Federal Reserve’s 2% target.
“All signs point to a resilient economy that wants to keep expanding despite geopolitical risk,” it said.
The company recommended maintaining a standard level of risk in multi-asset portfolios, pointing to select opportunities in areas like financials and software.
At the same time, it flagged the value of diversification as a buffer against volatility.
“Recent events underscore the importance of building resilience in portfolios through diversification, particularly with uncorrelated assets like gold, infrastructure, and hedge funds,” it added.
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