Beneath the calm surface of the US stock market lies a crisis! Geopolitical conflicts raise the probability of the Federal Reserve raising interest rates. Analysts sound the alarm for an economic recession.

Seeking Alpha analyst Daniel Jones warns that a possible economic recession may be on the horizon in the United States and urges investors to remain cautious amidst escalating conflicts in GEO Group Inc and rising crude oil prices. While the overall stock market in the US remains relatively stable, Jones evaluates Wednesday's market performance as having underlying mysteries, with economic pressures continuously intensifying beneath the calm surface. Jones notes that in the final 30 minutes of trading, the three major US indices experienced minimal fluctuations: the Dow Jones Industrial Average remained mostly flat, the S&P 500 index slightly declined by 0.1%, and the Nasdaq Composite index dropped by 0.6%. "The market seems to be on edge, as significant earnings reports are about to be released," explained Jones, stating that the current peak earnings season will help investors understand the state of the economy. He specifically mentioned that the post-market release of Tesla, Inc.'s second-quarter earnings is a closely watched indicator by investors. Reportedly, Tesla, Inc. exceeded market expectations in revenue for the second quarter, but fell short in terms of net profit, earnings per share, and gross margin compared to Wall Street expectations. The company's negative free cash flow reflects the profit pressure from continued investments in artificial intelligence (AI) and other areas like Siasun Robot&Automation. The stock dropped over 4% after hours. The escalating conflicts in GEO Group Inc are a significant bearish factor suppressing the market. Previously, investors had expected the easing of tensions between the US and Iran, but the situation has instead continued to worsen. With missile and drone attacks by Houthi rebels in the Red Sea region and increased attacks between the US and Iran, WTI crude oil prices rose by 3% in a single day. "Regardless of your views on the reasons behind this conflict, it is undeniable that in the short term, this is a net negative for the economy." The ongoing conflicts in GEO Group Inc continue to drive up international oil prices, exacerbating inflationary pressures. Coupled with the weakening fundamentals of the US domestic economy, a dilemma of stagflation becomes more apparent, with Jones warning, "the likelihood of the Federal Reserve restarting rate hikes within the year is increasing." Jones stated, "I believe that the US economy may soon fall into a recession, and therefore, I urge investors to proceed with caution." Uneven US economic climate shrouded in rate hike uncertainties Data shows that the annualized real GDP growth rate in the first quarter of 2026 in the US was 2.1%, a slight increase from the 0.5% at the end of 2025, while the unemployment rate remains low. Even though traditional macroeconomic indicators show some resilience, there is a significant temperature difference between the corporate sector and households. In the first quarter, personal consumption expenditure, which accounts for about 70% of the US economy, grew by 0.5%, lower than the 1.9% growth rate in the fourth quarter of last year; whereas, driven by the AI boom, corporate investment surged by 10.6%, higher than the 2.4% growth rate in the fourth quarter of last year. Although the Middle East situation remains volatile, the prediction platform Polymarket shows that traders currently perceive a low probability of the US falling into a "technical recession" by the end of 2026, at only 12%, far lower than earlier in the year. However, as tensions escalate between the US and Iran once again, international oil prices surge, reigniting concerns about rising inflation pressures. The shadow of a Fed rate hike looms over the market. The Federal Reserve will hold its next monetary policy meeting on July 28th to 29th. As the meeting approaches, there is a significant divergence in market expectations regarding the Fed's policy direction, mainly due to the new Fed Chair Kevin Wash abandoning the traditional "forward guidance" strategy, increasing policy uncertainty. Traders currently estimate a 30% probability of a 25 basis point rate hike by the Fed on July 29th, while the probability of keeping rates unchanged is around 70%. This significant disparity in expectations on the eve of the meeting is seen as the new normal in Fed policy during the Wash era. Currently, the interest rate derivatives market has fully priced in a 25 basis point hike by the Fed in September and expects cumulative rate hikes exceeding 50 basis points by March next year, indicating that the market anticipates at least two more rate hikes in the future. Keith Lerner, Chief Investment Officer at Truist Advisory Services, warns that "oil is pulling rates higher," complicating the Fed's decision-making process. He believes that while a rate hike is not a sure thing at the moment, any changes in related risks are clearly unfavorable for the market.