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US equity futures pared losses early on Friday after President Donald Trump said he would take more time to decide on the country’s involvement in the Israel-Iran conflict that is entering its second week. S&P 500 futures are down 0.2% at the time of writing, compared with a 0.9% drop on Thursday when US markets were closed for the Juneteenth holiday. Brent crude oil reversed earlier gains and is trading 2.2% lower, just under USD 77 a barrel at the time of writing.

A White House spokesperson said Trump will make his decision within the next two weeks “based on the fact that there’s a substantial chance of negotiations that may or may not take place with Iran in the near future.” Bloomberg reported earlier in the week that senior US officials were preparing for the possibility of a strike on Iran “in the coming days.”

But market sentiment could remain fragile in the days to come as investors continue to monitor the latest developments in geopolitics, trade negotiations, and fiscal debates.

Israel-Iran conflict is likely to dominate headlines. The situation in the Middle East is fluid, as Western efforts to draw Iran back to the negotiating table continue. Oil remains the key transmission mechanism from the conflict into global markets, and investors will be watching for any damage to energy infrastructure and disruption to oil exports. Iran is the world’s seventh-largest oil producer, with crude exports estimated at around 1.5-1.9mn barrels per day (bpd) and refined exports around 0.5mn bpd. We think the risk premium in oil will likely stay elevated until markets have further clarity on how the conflict may evolve. Historically, in the event of sustained and significant disruptions, OPEC+ has increased production by reducing its spare capacity to keep the market in balance. The bigger concern, however, is whether supply disruption may extend to Iran’s neighboring states if the conflict escalates further. So far, oil exports have not been disrupted, and there is no shortage of supply in the market.

Ongoing trade negotiations may increase volatility. The early departure of Trump from the G7 meeting in Canada earlier this week may help explain why trade breakthroughs that some market participants had hoped for did not materialize. But negotiations have continued, as the pause on “reciprocal” tariffs is approaching the 9 July deadline. Media reports suggest that European officials are pushing for a deal modeled on the US-UK agreement, with a 10% baseline tariff, while Trump said Japan was being “tough” in talks. Signs of progress—or a lack thereof—in negotiations may trigger bouts of market volatility in the near term, but Treasury Secretary Scott Bessent has suggested a further extension in the pause for some countries is likely. We expect the US effective tariff rate to settle at roughly the current level (15%) by year-end, with further twists and turns along the way.

US fiscal concerns remain as the Senate works to pass Trump’s tax-cut bill. The "One Big Beautiful Bill Act" is making its way through the Senate, with Republicans eager to get it over the line onto Trump’s desk ahead of 4 July. While we expect some modifications to the version passed by the House, any meaningful cut to the US’s large fiscal deficit is unlikely. However, the US’s structural advantages including deep capital markets and significant household wealth, should still keep the debt burden manageable. With the Trump administration sensitive to Treasury volatility and the Federal Reserve on track to cut interest rates later this year, we expect Treasury yields to fall for the remainder of the year.

So, we expect near-term volatility to continue, and suggest investors phase into markets to navigate uncertainty. Investors can also consider structured strategies for more defensive equity positioning, and ensure sufficient exposure to quality bonds, gold, and alternatives for better diversification.