Markets face prolonged conflict risk as energy drives inflation fears

• The conflict in Iran is expected to be prolonged, leading to sustained energy price shocks.
• Rising energy and fertilizer costs are fueling inflation and stagflationary risks, making Fed rate cuts unlikely.
• Credit risk is increasing, with financials underperforming, raising the probability of a recession.
• The U.S. administration views AI as a key national security event, planning to support its export.
• FedEx's positive outlook is seen as overvalued, with significant downside risk in earnings.

Analysts warn of a prolonged conflict in Iran, leading to significant energy price shocks and increased inflation, particularly in food prices. This scenario raises concerns about stagflation and recession, making Fed rate cuts unlikely. While AI is seen as a national security priority, credit risks are rising, and some stocks like FedEx are considered overvalued given the broader economic uncertainties.