​Equity markets have continued to grind higher through the second quarter, with all three major US benchmarks closing at record levels at the end of May despite an unresolved geopolitical backdrop and a meaningful repricing of interest rate expectations. The S&P 500 finished the month at a new high, up around 11% YTD, while the Nasdaq Composite has gained roughly 16% and the Dow Jones Industrial Average around 7%. The dispersion across these indices is itself instructive. The market’s leadership remains heavily concentrated in large-cap technology, where enthusiasm around artificial intelligence and a resilient earnings season have offset the drag from higher energy costs and a more cautious rates outlook. As shown in Figure 1, the gap between the technology-heavy Nasdaq and the broader Dow underscores how narrow the rally has been, with a small cohort of mega-cap names accounting for a disproportionate share of index-level gains. It is worth mentioning a notable statistic at this juncture. Nvidia now has the biggest individual weight in S&P 500 ever, at 8%.

​Since the beginning of 2026, geopolitics has increasingly moved back to the centre of financial-market risk, led by the escalation between the US and Iran. The conflict has shifted from a regional military confrontation into a broader threat to global trade infrastructure, with Iran using asymmetric naval tactics, including fast boats, vessel seizures and threats around the Strait of Hormuz, while the US has responded with a naval blockade and efforts to secure maritime corridors. Shipping traffic through the strait has fallen sharply, with reports indicating that only a few ships passed through the waterway in a recent 24-hour periods compared with a pre-war average of around 140, leaving hundreds of ships and thousands of seafarers stranded in the Gulf. This has reinforced the importance of strategic chokepoints as a macro-financial risk, as disruptions now feed directly into global shipping, insurance costs, supply-chain reliability and inflation expectations.
At the same time, US political risk has remained elevated, with trade policy again becoming a key source of uncertainty. The continuation of Trump’s tariff agenda has complicated corporate planning, strained relations with allies and reinforced concerns around policy unpredictability, while the unresolved legal and political disputes around tariff refunds have added another layer of uncertainty for large importers. From there, the trade-policy debate naturally extends to the broader US-China conflict, where tariffs, export controls, critical minerals, manufacturing reshoring and technology restrictions remain central points of tension. Trump’s China tariffs helped reduce the US goods trade deficit with China in 2025, but did not materially change China’s industrial policy, while renewed disputes in 2026 have kept the relationship fragile ahead of further negotiations.

​Throughout 2025, the US macroeconomic environment was characterised by a gradual normalisation following the post-inflation shock period of prior years. Inflation was largely brought under control, consistently hovering in a narrow 2-3% range - still above the Federal Reserve’s formal 2% target, but sufficiently contained to reduce its dominance in policy deliberations. As price pressures stabilised, the Fed progressively shifted its focus towards labour-market dynamics, with unemployment emerging as the marginal variable guiding monetary policy decisions. During the first half of the year, policymakers remained deliberately cautious, refraining from early rate cuts amid concerns that premature easing could reignite inflation, particularly given still-historically strong employment conditions, even as unemployment began to trend higher. This stance changed in the autumn and winter months, when a clearer softening in labour markets, combined with inflation remaining at tolerable levels, provided the Fed with sufficient confidence to pivot. Over this period, the central bank implemented three 25 basis-point rate cuts, signalling a controlled transition towards a more accommodative stance while maintaining credibility on inflation containment.