CAMBRIDGE, England — Investors in United States markets over the past year have shown a remarkable ability to brush off domestic and external risks to the economy's well-being, as well as to the functioning of the global economic, financial and trading system. This decoupling of risk from market sentiment has been driven by three factors: faith in the 'sky-is-the-limit' prospects of certain technology firms, widespread confidence in American economic exceptionalism and enduring faith in the US Federal Reserve (Fed) to support financial assets. But two of these factors have lately come under pressure, leaving the durability of any positive outlook more dependent on the third.

A number of developments over the past year would normally have led to volatility and a downward overall trend in stock markets. The Israel-Hamas war — and the agonizing images of the large-scale loss of innocent civilian lives and massive destruction of livelihoods and physical infrastructure — has increased the probability of a region-wide conflict that could further disrupt shipping and trade and drive up oil prices.