A $16 Trillion Rally in Stocks Has Caused Little Geopolitical Worry

One of the enduring truths about financial markets is that they demand detachment. Investors and traders may track global turmoil, but markets often seem immune to it until the shock spills over into economics or asset prices.

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Right now, stocks are sitting at all-time highs, with more than $16 trillion in market value added this year alone. Oil prices hover near four-year lows, risk appetite is thriving in everything from cryptocurrencies to meme stocks, and expected volatility in U.S. equities has drifted to one-year lows.

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All this is happening while global tensions mount. Russian drones have crossed into NATO airspace. Israel has intensified its ground offensive in Gaza. Governments in Japan and France are once again on shaky ground. Ukraine remains under constant attack. China continues pressing its claims over waters near Taiwan. Meanwhile, President Donald Trump’s unconventional trade war stretches across allies and rivals alike.

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The contradiction is striking: geopolitical risks are rising, yet investors appear unfazed. The market playbook hasn’t changed much watch the headlines, but only worry when geopolitics directly hits the economy, consumers, or assets like oil.

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“We’re closely monitoring geopolitical risks, but as investors, what matters is how they translate into earnings or currencies,” explained Helen Jewell, chief investment officer for EMEA fundamental equities at BlackRock. “Those are the factors that ultimately drive company performance, even if they’re tough to model with precision.”

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Corporate profits have held up remarkably well this year, and the U.S. economy has so far sidestepped recession. The Federal Reserve’s latest interest-rate cut further reinforced confidence that markets could keep rising into year-end.

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Still, the balance is fragile. A sudden escalation whether an oil shock, a sovereign bond selloff, or an unexpected geopolitical flare-up could puncture investor optimism quickly. That’s exactly what happened in 2022, when Russia’s full-scale invasion of Ukraine sent crude prices soaring and rattled global markets.

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Bond markets in nations like Japan and France also pose risks, given the fragility of their governments. Any major stress in those markets could spill into global equities.

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“Markets have priced in very little for geopolitical risks,” said Guillaume Jaisson, strategist at Goldman Sachs. “The U.S. is looking extremely expensive, and even Europe is far from cheap.”

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If geopolitics weren’t enough, Trump’s unpredictable policymaking has already shown how quickly sentiment can swing. Earlier this year, the S&P 500 dropped nearly 20% from its highs as he threatened the steepest tariffs in a century, sparked concerns about the dollar’s role as the world’s reserve currency, and triggered a selloff in Treasuries that fueled talk of waning U.S. dominance.

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Outside the U.S., political turbulence has also shaken markets. In France, the CAC 40 Index lost more than 3% in just two trading days last month after former Prime Minister Francois Bayrou pushed for a confidence vote amid a budget clash.

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In Indonesia, foreign investors have withdrawn nearly $500 million from local equities amid violent protests and the abrupt removal of the finance minister. Japan is also bracing for uncertainty after Prime Minister Shigeru Ishiba announced plans to resign, adding another layer of volatility for its markets.

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Despite the turbulence, market pessimism has generally been temporary. Investors continue to wager that central banks and governments will step in to prevent lasting damage to economies and stock markets. This expectation of intervention has cushioned downside risks in recent years.

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But cracks in that confidence are showing. “If uncertainty rises further, we could shift from an environment where bad news is seen as good news because it brings more stimulus to one where bad news is simply bad news,” warned Goldman’s Jaisson. “And right now, there’s very little room for disappointment.”

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Markets are soaring even as geopolitical risks multiply across the globe. Strong earnings, Fed support, and investor faith in policy backstops have carried equities higher. Yet, the disconnect between political turmoil and market calm can only stretch so far. Whether it’s oil shocks, policy missteps, or sovereign debt stress, it wouldn’t take much to challenge today’s optimism.

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