US stock futures edged higher on Friday, building on Thursday's gains, after President Donald Trump said he is not considering sending ground troops into Iran. The comments helped calm some geopolitical nerves, even as investors juggled hot inflation data and elevated oil prices.
Equities were modestly higher before the opening bell, as markets tried to separate the geopolitical headlines from the economic backdrop. Reports have said the US military has drawn up options that could target Iranian energy infrastructure, but Trump told Newsmax that any strike wouldn't involve ground forces and suggested that talks with Tehran are ongoing.
Oil eases on supply signals
Crude prices slipped despite the tensions. US benchmark West Texas Intermediate (WTI) fell 0.6% to $97.39 a barrel, while Brent crude dipped 0.2% to $105.73. The move came after the International Energy Agency (IEA) said it could release more than 20 million barrels of diesel “as soon as possible,” on top of the record 400 million-barrel oil release already agreed in March.
Emergency releases don't solve the longer-term supply picture, but they can change the near-term inflation story quickly. Fuel prices reset fast and flow straight into everyday costs, so extra supply can help cap spot energy prices and cool short-term inflation expectations—even when the latest inflation reports look ugly.
Inflation stays hot, but rate expectations shift
Inflation data remained uncomfortable. September producer prices rose at the fastest pace in more than four years, a day after consumer inflation also accelerated. That would normally push the Federal Reserve toward more aggressive rate hikes, but markets are now leaning toward patience.
According to CME FedWatch, traders see an 85% chance the Fed holds rates steady at its meeting later this month, up from 72% on Thursday. Two-year Treasury yields were near 4.75%, while 10-year yields hovered around 5.1%. The shift suggests investors believe the energy-driven inflation spike may not spill into broader price pressures, reducing the urgency for the Fed to keep hiking.
What it means for investors
For everyday investors, the key takeaway is that markets are finding a delicate balance. On one hand, geopolitical risk in the Middle East could disrupt oil supplies and push prices higher. On the other, the IEA's willingness to release more diesel—and the Fed's apparent patience—are helping to steady nerves.
When energy prices seem less likely to feed into broader inflation, markets often see less need for the Fed to tighten. That typically steadies shorter-term yields, like the two-year, more than longer-term ones, like the 10-year, which also reflect growth uncertainty. A steadier expected policy path can support stock valuations by keeping near-term discount rates from climbing further.
Investors will likely keep watching oil prices, any new headlines from the Middle East, and the Fed's next move. As Fed officials signal no rush to hike rates, the market's focus may shift to how long inflation stays elevated and whether the economy can absorb higher energy costs without tipping into recession.
For now, the mood is cautiously optimistic. Stocks are ticking up, oil is easing, and the Fed is seen as likely to hold steady. But the situation remains fluid, and any escalation in the Iran conflict—or a surprise in the inflation data—could quickly change the picture.
