Wall Street recently extended its rally in the latest session, with the S&P 500 climbing around 1% to a fresh all-time high and the Nasdaq gaining roughly 1.6% to set another record. The Dow Jones Industrial Average added more than 300 points, reflecting broad-based confidence across sectors.

The momentum is not confined to the US. Europe’s STOXX 600 has also recently reached its highest level in months. Meanwhile, Japan’s Nikkei 225 remains near multi-decade highs, while India’s benchmark indices are maintaining a steady upward trajectory.

These gains come as the US and Iran remain locked in a struggle over control of the Strait of Hormuz, one of the most critical routes for global oil supply.

Although an extended ceasefire has reduced the immediate risk of escalation, the situation continues to cast uncertainty over energy markets, with potential consequences for inflation and global growth.

Jake McLaughlin, Executive Director of deVere Portugal, part of one of the world’s largest independent financial advisory organisations with $14bn under advisement, says the apparent disconnect between markets and geopolitics reflects a shift in how investors are assessing risk.

“Markets are not ignoring what’s happening in the Middle East, but they are recalibrating the probability of extreme outcomes,” he explains.

“The threat to energy flows through the Strait of Hormuz remains serious, yet investors are increasingly pricing in a scenario where disruption is limited rather than prolonged.”

He adds that markets have consistently shown a tendency to move ahead of events, rather than react to them in real time.

“Equities are forward-looking. They tend to recover before economic conditions improve and often fall before the data weakens. It’s a pattern that has played out repeatedly over the past two decades, and we’re seeing it again now.”

Corporate earnings are playing a central role in supporting the current rally. Several major companies have delivered stronger-than-expected results, with Tesla’s latest quarterly figures standing out.

The electric vehicle manufacturer reported profits above forecasts while continuing to expand investment in artificial intelligence, battery materials, and autonomous systems, including robotaxi development.

“The strength of earnings, particularly in sectors tied to AI and advanced computing, is a major driver of market performance,” McLaughlin says.

“Investors are focusing on where future growth is coming from, and right now that is heavily concentrated in AI and tech.”

This concentration is becoming increasingly visible in global market dynamics. Taiwan’s stock market has recently overtaken the UK in total market capitalisation, reaching around $4.1 trillion.

The surge has been largely underpinned by demand for semiconductors, which are essential for the development and deployment of AI systems. Taiwan Semiconductor Manufacturing Company (TSMC) remains a key player in this ecosystem, supplying advanced chips to many of the world’s leading tech firms.

“Capital is flowing toward the parts of the market that are building the infrastructure behind AI.

“This includes semiconductors, cloud computing, and digital platforms. These sectors are attracting sustained investment because they are central to future productivity gains and revenue growth.”

The divergence between markets is also becoming more pronounced.

While economies and indices with strong exposure to AI and tech continue to attract inflows, more traditional markets have struggled to match the pace of gains. The UK market, for example, continues to trade around levels seen more than a decade ago, reflecting its relatively limited exposure to high-growth sectors.

This shift is reshaping how investors interpret market performance. A relatively small group of companies linked to AI and tech is now driving a disproportionate share of returns, meaning that broader economic conditions do not always align with index movements.

“Equity markets are not a direct reflection of the real economy,” McLaughlin says.

“They represent listed companies, many of which operate globally and are exposed to very different growth drivers than domestic economies. This is why you can have strong markets even when parts of the global economy are under pressure.”

Despite the resilience of equities, risks tied to the Middle East remain significant.

Any sustained disruption to oil flows through the Strait of Hormuz would likely push energy prices higher and could feed into inflation, with implications for monetary policy and economic stability worldwide. Supply chains would also face renewed strain if shipping routes were restricted.

“Geopolitical risk hasn’t gone away, and it shouldn’t be dismissed,” cautions the deVere Portugal Executive Director.

“Energy markets remain sensitive, and any escalation could have a broad impact across economies and financial markets.”

However, he argues that focusing exclusively on these risks can lead to a distorted view of the broader investment landscape.

“The bigger story is the strength of the global earnings cycle and the scale of investment flowing into AI and tech,” he says. “These are powerful forces that are reshaping the global economy and driving market performance.”

The current environment highlights for investors the importance of understanding what markets are actually signalling.

“Markets are effectively saying that the global economy remains resilient, that earnings growth is strong, and that the most dynamic areas of expansion are in AI and tech,” McLaughlin concludes.

“Investors who recognise that and position accordingly are likely to be better placed to benefit over the long term.”

You can contact Jake here: Jake.mclaughlin@devere-portugal.pt or contact deVere Portugal at info@devere-portugal.pt / +351 939530560

By Staff Reporter