AOR Update (Podcast): Geopolitical conflict and the US economy

The discussion highlights a US economy that remains broadly resilient, with recession risks still viewed as relatively low despite rising geopolitical tensions in the Middle East and a modest uptick in oil-driven inflation risk. While higher energy prices may weigh on consumption and headline inflation, the US’s position as a net energy producer and the declining share of household budgets spent on energy help cushion the impact.

Markets have historically treated geopolitical shocks as buying opportunities when underlying economic conditions are solid, and current data suggests this pattern could repeat, even as non-US markets remain more vulnerable to energy disruptions and dollar strength. The Federal Reserve is still expected to cut rates later this year, though timing may be pushed back slightly as policymakers look through largely supply-driven price pressures.

At the same time, AI-related fears are creating dislocations across sectors, but these disruptions are also opening fertile ground for active managers to differentiate between durable franchises and structurally challenged business models. Finally, earnings growth is broadening beyond mega-cap tech leaders, supporting an ongoing rotation toward value, smaller caps and select non-US markets where valuations better reflect improving fundamentals.