Any potential equity market rally is at risk if geopolitical uncertainty escalates further, according to Goldman Sachs Group Inc.

Their outlook comes as an extension in the Israel-Hamas conflict threatens to hit the supply of oil and crimp appetite for risky assets. At the same time, investors remain concerned about the path of monetary policy and rising bond yields.

Read more: Wall Street Hedging Appetite Muted Even as Mideast Crisis Grows

While renewed geopolitical risk could bring “some relief” on rates and raise the possibility of more dovish central bank policies, “a prolonged period of geopolitical uncertainty, coupled with a still inflationary macro environment, is likely to eventually trigger growth concerns,” a Goldman Sachs team including Cecilia Mariotti wrote in a note on Wednesday.

Against this backdrop, the strategists expect that any relief rally into the year-end will be short-lived. So far, however, markets have stayed remarkably calm and the S&P 500 index has actually risen since the conflict began. The VIX Index of expected US volatility remains subdued, trading below the 20-points level for more than 100 days now, the longest run in five years.

Goldman strategists aren’t alone in warning geopolitics could be a threat for markets. JPMorgan Chase & Co. strategist Marko Kolanovic this week said investors should seek safety as the flare up of geopolitical tensions stoked by conflict in the Middle East is another headwind for risk assets and economic activity.

--With assistance from Jan-Patrick Barnert.