Geopolitical risks are repricing global stock market risks. Senior U.S. market strategist Ed Yardeni has stated that due to the escalating conflict in the Middle East, he has increased the probability of a U.S. stock market crash for the remainder of the year from 2% to 35%.
Yardeni points out that conflicts related to Iran pose a potential shock to global markets. Rising oil prices could increase inflationary pressures, thereby squeezing household purchasing power and corporate profit margins, while also complicating the path of monetary policy.
Meanwhile, institutional funds are increasing their defensive bets on U.S. stocks. According to Goldman Sachs data, hedge funds increased their short positions in exchange-traded funds by about 8.3% in the week ending March 6, representing an unusual increase over the past five years.
The report states that as tensions in the Middle East remain high, short-term trading funds are increasing their short positions on the U.S. stock market, and market volatility is expected to continue rising.
