Market Rally Deceptive? Analysts Flag 3 Major Headwinds Investors Must Watch Now: 'Plenty Of Risk...'

As markets hold steady despite rising geopolitical tensions, top strategists are urging caution that ignoring key risks may expose investors to short-term shocks and a potentially deeper market correction.

What Happened: Lori Calvasina, head of U.S. equity strategy at RBC Capital Markets, identified three major risks that could influence the future of stocks. These encompass potential valuation compression due to escalating national security concerns, a potential derailment of sentiment recovery following April’s brief bear market, and the possible impact of fluctuating oil prices on U.S. equities.

Despite these looming risks, stocks experienced a rally on Monday, following Iran’s performative retaliation, which led to a 7% drop in oil prices, thereby boosting investor optimism. However, David Bahnsen, chief investment officer with The Bahnsen Group, warns that with markets already priced for “multiple best-case scenarios,” there remains “plenty of risk for short-term volatility.”

Meanwhile, JPMorgan strategist David Kelly advises investors to focus on known risks, such as tariffs potentially fueling inflation and keeping interest rates high, even as the threat of war remains uncertain.

Overall, economists encourage investors to concentrate on the “known” unknowns—like the possibility of tariffs pushing inflation higher and sustaining elevated interest rates. Ignoring geopolitical risks may not signal optimism but could instead point to a more significant downturn ahead.

Why It Matters: The recent Israel-Iran airstrikes are not expected to significantly impact the U.S. economy, according to leading economists who stated that the U.S. economy’s outlook appears relatively stable despite potential risks.

However, the U.S.’s aggressive actions against Iran, a significant oil producer, have heightened regional tensions. This conflict, initially sparked by Israel’s extensive airstrikes, has thrust the global energy trade into the limelight. Energy markets braced for potential disruptions and a further surge in oil prices.

The stock market rallied on Monday following a performative retaliation by Iran, despite warnings of potential risks. The retaliation led to a 7% drop in oil prices and a ceasefire announced by President Donald Trump. However, Israel has accused Iran of violating the ceasefire, raising concerns about the future.

S&P 500 SPY rose 0.96% while NASDAQ composite QQQ climbed 0.94% on Monday, according to data from Benzinga Pro.