Ongoing geopolitical tensions in the Middle East were overshadowed by a sweeping rally in artificial intelligence (AI) related companies and strategic partnerships in the field, adding around $4.1 trillion to global markets in the 100 days of the US-Iran-Israel war.
Following the outbreak of hostilities between the US, Israel and Iran on Feb. 28, investors focused on AI-related growth stories and sector partnerships, pushing the total value of global markets to a record $161.1 trillion.
Current valuations show investors are prioritizing long-term tech growth estimates over the short-term volatility stemming from geopolitical risks.
The tech-driven optimism in global markets was mostly driven by corporate earnings, especially with chipmaker Nvidia reporting revenue of $81.6 billion for the first quarter of the company's 2027 fiscal year, up 85% year over year.
Nvidia founder and CEO Jensen Huang said the construction of AI factories has been the largest infrastructure expansion in history while announcing that the firm’s Blackwell and Rubin chips will generate at least $1 trillion in revenue by 2027, further fueling the market rally.
The broader geopolitical landscape remained gloomy while tech stocks surged.
Risk perception was partially balanced by the temporary ceasefire between the US and Iran on April 8 and advancing diplomatic talks, but before the ceasefire, the conflict threatened energy flows through the Strait of Hormuz, causing Brent crude to spike sharply to $114 per barrel on March 9.
The limited resumption of traffic through the strait and coordinated efforts to boost oil supply brought Brent crude oil eventually back down to the $90 per barrel level, while energy prices remain high versus pre-war levels, fueling global inflation concerns.
Major central banks were prompted to rethink their monetary policy amid these persistent inflation concerns, further exacerbated by macroeconomic indicators pointing to price rigidity.
Rising expectations that high energy prices could complicate the global fight against inflation led the Fed to postpone rate cuts, among other banks, replacing earlier dovish expectations with hawkish moves instead.
The stock indexes of the US, Europe and Asia saw a mixed trend during the 100 days of the war, while the highest increase was seen in South Korea’s Kospi Index, with a 22.7% surge.
The New York Stock Exchange saw some buying activity as well, with the Nasdaq gaining 13.4%, the S&P 500 7.3% and the Dow Jones Industrial Average 3.9% over the same period.
Japan’s Nikkei 225 rose 8.5% and Italy’s FTSE MIB climbed 5.7% at the same time.
During the same period in Europe, Germany’s DAX 40 fell 2.1%, France’s CAC 40 4.2%, Spain’s IBEX 35 0.8% and the UK’s FTSE 100 4.9%, while in Asia, China’s Shanghai Composite Index declined 4.5% and Hong Kong’s Hang Seng Index decreased 7.4%.
The fear index VIX, reflecting volatility in the S&P 500, surged 8.3% to 19.8 during these developments.
Government bonds in the US, Europe and Asia also came under selling pressure as conflicting messages from the American and Iranian sides over the course of the war fueled concerns that tensions in the region could escalate again.
The US 10-Year Treasury yield rose to 4.69% on May 19, testing its highest intraday level since January 2025.
In Europe, concerns that rising energy costs would intensify inflationary pressures led markets to continue pricing in three interest rate hikes by the European Central Bank (ECB) by the end of the year.
Germany’s 10-year bond reached 3.19%, marking its highest since May 2011, while France’s 10-year bond hit 3.88%, its highest since June 2009. The UK’s 10-year bond surged to 5.19%, the highest level since August 2007.
Meanwhile, markets expect the Bank of Japan (BoJ) to hike rates twice this year due to inflationary pressures.
Over the 100-day period of the war, Japan’s 10-year bond yield reached its highest since 1997 at 2.76%, while China’s 10-year bond fell to 1.72%, falling around 7 basis points since the start of the war.
Chinese bonds reportedly diverged from the overall trend among bonds due to estimates that the People’s Bank of China (PboC) may not tighten policy amid deflationary risks.
*Writing by Emir Yildirim
