​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%.

​The Middle East war remains one of the central macro risks for institutional investors, with the Strait of Hormuz acting as the key transmission channel from geopolitical escalation into global inflation, rates and risk assets. While recent reports of potential US-Iran de-escalation have helped oil prices move back below their recent highs, the situation remains fragile, particularly as shipping disruptions, insurance constraints and uncertainty around safe passage through Hormuz continue to weigh on energy markets. The strategic importance of the Strait is difficult to overstate: the World Bank estimates that it handles around 35% of global seaborne crude oil trade, while recent market commentary also highlights its importance for LNG flows. For investors, the key issue is therefore not only whether a formal escalation occurs, but whether tanker traffic, insurance availability and regional energy infrastructure can normalise quickly enough to prevent a persistent supply shock. Against this backdrop, oil has already repriced materially higher in 2026, with WTI and Brent up around 55–58% YTD as shown in Figure 1. WTI now stands at roughly $91 per barrel, while Brent trades around $94 per barrel, underscoring that even after recent de-escalation hopes, the geopolitical risk premium in energy markets remains substantial.

​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.

​Over the past two weeks, the US–Iran conflict has shifted from a tentative stabilisation phase back into renewed escalation, reinforcing the fragility of any diplomatic progress. Following initial attempts to de-escalate through a temporary ceasefire and negotiations, the situation deteriorated quickly as violations emerged and trust between both sides eroded. Diplomatic talks ultimately failed, leading to a resumption of military activity centred around the Strait of Hormuz, including targeted strikes and increased naval presence. Most notably, the conflict has moved beyond isolated engagements towards a broader strategic confrontation, with measures aimed at disrupting Iran’s economic and energy infrastructure, significantly raising the risk of prolonged instability and further escalation across the region.