Financial markets across the globe are experiencing dramatic swings as investors navigate between two powerful forces: the promise of artificial intelligence growth and concerns about oil supply disruptions from ongoing U.S.-Iran tensions.
Recent market activity demonstrates just how precarious the economic situation has become. International stock markets reached record highs on June 3, only to experience their steepest decline since October just two days afterward. Since then, trading has been marked by constant reversals tied to the U.S. President Donald Trump’s changing statements regarding Iran and speculation about when the Strait of Hormuz shipping lane might reopen.
“Most investors have been running with the assumption that within less than three months we reach a reopening of the strait,” said Florian Ielpo, head of macro and multi-asset portfolio manager at Lombard Odier Investment Managers.
“If we move to expecting oil prices of $95 or more for many more months, that would be a complete change of view and a stagflation outlook,” he continued. “The market is walking a narrow line.”
The interconnected nature of today’s markets means that seemingly unrelated investments are moving together. Artificial intelligence enthusiasm has boosted Wall Street performance and American household wealth, improved official economic projections for coming years, sparked rapid expansion among Asian export companies, and lifted confidence in various assets from international banking stocks to Greek government debt.
Taiwan anticipates its strongest economic performance in 16 years for 2026, driven by exceptional semiconductor sales, while worldwide technology investment has caused import and export activity to surge in China, the planet’s largest commodity consumer.
This dynamic explains why Britain’s FTSE 100 index, heavily weighted with energy and mining companies, has abandoned its typical pattern of moving opposite to technology growth stocks and instead begun climbing alongside them.
However, these technology-influenced connections will make it much more difficult to find safe investments if concerns about inflation and interest rate increases begin to harm AI spending and drive global markets downward, investment professionals warn.
When markets shifted to pricing a 70% probability of a U.S. rate increase on Friday, South Korea’s currency fell to 17-year lows and the country’s technology-focused Kospi stock index plummeted nearly 9% within hours.
Alessia Berardi, global head of macro-economics and emerging markets at Amundi’s research division, said she continues to favor stock investments and believes markets are not anticipating a prolonged Hormuz closure.
“But a repricing of (interest rate) policy along with higher oil prices and shortages will mean stagflationary risks, and some countries are already getting into a recessionary outlook,” she warned.
Energy supply concerns are already impacting economies not closely tied to technology sectors, such as Germany and India.
Professional investment managers have grown accustomed to brief geopolitical disruptions causing rapid market sentiment changes since Trump’s tariff actions in April 2025 initially hurt U.S. stocks before individual investors drove a remarkable recovery.
“If you think that the Strait stays closed for a long period of time and that we will get demand destruction and inflation, that’s the time for stagflation positioning in your portfolio,” said Ben Jones, global head of research at Invesco.
“History has taught us that these geopolitical risks shall pass and when they do, you tend to get markets rallying very quickly,” he noted.
Following Trump’s tariff announcements that sent shockwaves through international markets, Wall Street’s S&P 500 index fell sharply before mounting a swift and powerful comeback. Stock and bond values also fluctuated by amounts not seen since the COVID-19 pandemic.
Michael Nizard, head of multi-asset at Edmond de Rothschild Asset Management, reported increasing his holdings of financial instruments that benefit from stock market volatility.
Other investment managers widely indicated they are now purchasing more protective products rather than additional stocks.
Kevin Thozet, a member of Carmignac’s investment committee, said he is expanding holdings of U.S. inflation-protected bonds because market predictions for American consumer prices appear overly optimistic. He noted that data center construction will require significant capital investment and push energy costs higher.
Lombard Odier’s Ielpo explained he is protecting market positions by maintaining stock holdings while reducing government debt investments, which can serve as safe havens but also fluctuate with inflation expectations.
German government bond yields are approaching 15-year peaks as debt prices have declined during the Iran conflict, while 10-year Japanese yields are reaching three-decade highs.
A gauge of bond market volatility stands approximately 5% above its pre-war level. Stock market volatility remains near its historical average but is 35% higher compared to the start of the year.
