Wall Street has gained over $16 trillion in market value this year, even as the rest of the world looks like a war room. That rally has come while expected volatility in US stocks is sitting near one-year lows, and people keep throwing money at crypto, meme stocks, and anything that looks like it might pump.
Oil prices are hovering near the cheapest levels seen in four years, and nobody seems to care that multiple wars are boiling around the globe.
According to Bloomberg, Russia has flown drones into NATO airspace, Israel is deep into its assault on Gaza, and China keeps circling Taiwan’s coastline.
Ukraine is still under siege, Japan’s government is barely standing, and France is dealing with yet another crisis. Donald Trump, back in the White House, is already swinging tariffs at everyone.
He’s leading a messy trade war against allies and rivals with zero concern for who’s next. But none of that has broken the mood on Wall Street. Investors are still pouring in, eyes locked on profits instead of politics.
Markets ride on earnings while ignoring bombs
The general investor rule right now is this: if the geopolitical chaos doesn’t hit numbers, it doesn’t exist. That’s how Helen Jewell, chief investment officer of EMEA fundamental equities at BlackRock, framed it.
“We’re very focused on geopolitical risks,” she said, “but as an investor you’ve got to look at how you can quantify that. It is the implication on consumers and currency because they are the things that impact company earnings.”
So far, the impact hasn’t come. US corporate earnings are still solid. There’s no recession, and the Fed’s latest interest-rate cut has only boosted the mood. But it wouldn’t take much for that to flip.
If oil prices suddenly spike, or if a major nation’s bonds collapse, the whole rally could fall apart. That’s what happened in 2022, when Russia invaded Ukraine and crude prices exploded. Wall Street dropped fast.
France and Japan are also looking shaky. Their governments are weak, and their bond markets are vulnerable. That could hurt broader equity indexes if something breaks. But for now, investors are pretending those problems are far away.
Guillaume Jaisson, strategist at Goldman Sachs, said flat out: “Little has been priced into stocks on geopolitical risks.” He warned that US stocks are very expensive, and Europe’s not cheap either.
Political chaos already hits global stocks
Trump’s policy moves are already leaving bruises. In April, he floated the highest tariffs in a century, questioned the dollar’s role as the world’s reserve currency, and triggered a selloff in Treasuries. The S&P 500 dropped nearly 20% from its high. It wasn’t just talk — investors ran for cover, and fast.
Other countries haven’t been spared. The CAC 40 in France dropped over 3% in just two days after Francois Bayrou called for a vote of confidence over a budget fight.
Foreign investors pulled $473 million from Indonesia’s stock market this month after violent protests and a surprise replacement of the finance minister. In Japan, investors got spooked again after Prime Minister Shigeru Ishiba announced he’d step down.
These dips haven’t lasted long, though. Traders keep betting that central banks and governments will step in to stop serious damage.
But Jaisson warned that if there’s a rise in uncertainty, markets could flip from treating bad news as good news to just bad news being bad. With valuations already stretched, there’s almost no room to mess up.
Viktor Shvets, global strategist at Macquarie, said investors still don’t know how to react to global conflict. “Equity investors are hopeless about geopolitics; since the Vietnam War, it hasn’t had an impact,” he said. Instead of worrying about wars, they focus on things they can measure: profits, household spending, and currency movements.
Still, the fallout is real. Since French President Emmanuel Macron called a snap election in June 2024, the CAC 40 has lagged behind global peers, missing out on gains fueled by AI hype and economic growth elsewhere. The FTSE 100 in the UK has also underperformed in dollar terms ever since the Brexit referendum in 2016.
Now, more investors are getting nervous. A Bank of America survey showed that geopolitical risk is now rated the highest since last December in fund managers’ risk rankings.
That fear is showing up in the market. A UBS basket of defense-linked stocks is up over 100% this year, and gold is hitting record highs, though that’s also because the dollar is slipping.
But the real risk is still out there. Tim Murray, capital markets strategist at T. Rowe Price, warned that if these conflicts actually hit the real economy, stocks could crash hard. “A big negative economic surprise, be it politically driven or not, could mean a much bigger selloff than normal given the current valuations,” he said.
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