Federated Hermes: Weekly markets wrap up 13 August 2026
In this week’s markets wrap up, our investment experts discuss why markets remain surprisingly calm despite ongoing geopolitical uncertainty, and if today’s calm could give way to heightened volatility in the months ahead.
Steve Chiavarogne, Deputy CIO for Global Equities at Federated Hermes
Inflation Pressures Ease
While the Iran conflict certainly retains the ability to impact the spot oil market, the medium-term trend of disinflation remains very much intact. US shelter prices continue to ease, as the housing market remains under pressure from high rates and high prices. The labor market, which is the primary driver of a durable inflation impulse, also looks benign.
While US unemployment remains low and job growth, on average, has been elevated this year compared to last, we simply do not have the same wage pressures that we did during the peak Covid inflation. The labor market is in much better balance, as we no longer have more job openings than unemployed workers.
Even in energy markets, while spot prices have been volatile, the futures market remains much calmer, with the December futures contract never trading above $85 this year.
From a sentiment perspective, the market moved on from Iran as a primary concern in June, with the focus having shifted to the generational AI infrastructure build out and impressive earnings growth.
John Sidawi, Senior Portfolio Manager for Fixed Income at Federated Hermes
Market Calm Persists
A puzzling feature of markets in recent months has been the growing disconnect between geopolitical uncertainty and asset price volatility. Why aren’t markets responding to headline risk?
Event risk has remained notably elevated since late February, driven largely by the conflict in the Middle East and an increasingly unpredictable policy backdrop from the US. However, this does not appear to be reflected in either implied or realised volatility. Markets continue to exhibit a remarkable degree of calm, whether measured through volatility indices, total returns, or credit spreads.
The most compelling explanation for the current volatility puzzle is not that investors have become complacent, but that they have become exhausted. Constant shifts in geopolitical narratives and policy messaging have made conviction exceptionally difficult to maintain. As a result, investors have largely retreated to neutral positions, choosing to stay close to benchmarks rather than repeatedly chase changing headlines.
For now, markets appear willing to tolerate a significant amount of uncertainty without demanding higher risk premiums. However, this equilibrium is unlikely to be permanent. A meaningful escalation in conflict or a clear path toward resolution could finally force investors off the sidelines, potentially triggering a much larger volatility response than current market pricing implies.
