Investors have endured a tumultuous first half of the year as the market impact of the Iran war collided with an extraordinary surge in AI-related assets. Despite a severe disruption in March that erased about $9 trillion in market value and pushed oil to $120 a barrel, global equities finished the period about $7 trillion higher than they were at the end of 2025.
The MSCI All-Country World index rose nearly 10% in the first half of the year - translating to roughly $7 trillion in additional market capitalisation - and posted its strongest second quarter since 2020. Yet those headline gains mask extreme divergence beneath the surface.
Some markets have seen eye-popping advances. South Korea's stock market has doubled, with a roughly 100% surge reported. Japan's benchmark has also rallied strongly, with the Nikkei jumping almost 40% year-to-date. In the United States, the S&P 500 rose 14% and the Nasdaq climbed about 20% following the inclusion of a $2 trillion SpaceX listing to its ranks.
At the same time, several traditional safe havens and long-favored mega-cap tech names have not participated uniformly. The so-called "Magnificent Seven" tech giants have collectively lagged the MSCI world index, and gold has retreated sharply after a strong prior run. Gold prices fell more than 12% in June, on track for their worst month since October 2008 and marking the largest quarterly decline since 2013, although the metal had doubled in value since the start of last year.
Markets were also rocked in March when the war-related shock drove a roughly $9 trillion drop in global market capitalisation and led to an oil spike to $120 a barrel. Those events undermined earlier hopes for lower interest rates and produced marked volatility across bond markets.
Currency and fixed income stress
Currency markets have been especially unsettled by the fate of the Japanese yen, which is trading near a 40-year low despite intervention efforts. Tokyo has spent 11.7 trillion yen, equivalent to roughly $72.25 billion, attempting to support the yen. State Street's head of global macro strategy, Michael Metcalfe, warned that the yen's trajectory is now a significant global risk factor. He highlighted the danger that a crisis in the yen could push Japanese interest rates higher, pull capital back into Japan and trigger selloffs in other markets.
Broader dollar strength is also notable. The dollar is up roughly 3% on trade-weighted measures, suggesting that recent talk of the dollar's decline was premature. Still, Bank of America analysts characterize the dollar more as something to "rent, not own" for now, reflecting uncertainty about the currency's longer-term path.
Major bond markets ended the first half with more modest net moves despite bouts of volatility. U.S. and UK 10-year Treasury yields rose by roughly 24 basis points, Germany's 10-year yields were essentially flat over the period, and Japan's 10-year yields increased by about 50 basis points. In intraday and short-term moves, however, borrowing costs climbed sharply. Britain's borrowing costs hit their highest levels in decades amid renewed fiscal concerns, U.S. 30-year yields rose to their highest levels since 2007, and Japan's 10-year yields reached record peaks during periods of stress.
Drivers of the equity surge
Much of the second-quarter stock market advances were driven by a fervent rally in AI-related equities, with particularly strong demand across Asian markets. The flow into AI computing and associated businesses has powered many of the recent gains, lifting indices even as some legacy technology giants underperformed.
At the same time, disruptive political events contributed to market swings. The United States' capture of Venezuela's president preceded a dramatic rebound in Venezuelan sovereign bonds, which are reported to have surged about 55% since that event, making them among the best-performing assets globally in the period cited. The year also featured abrupt geopolitical and policy headlines, including U.S. political actions and tariff threats, and domestic political developments abroad that have kept investors on edge.
Market commentators and warnings
Market strategists point to the peculiar resilience of global markets given the scale of recent shocks. Charlie Robertson, chief economic adviser at Equity Bank, said the situation is remarkable not because of the shocks themselves but because markets have withstood them. "We have had one of the greatest geopolitical shocks that it has been possible to imagine and it has still not undermined global markets," he said.
Nevertheless, concerns endure. The Bank for International Settlements has cautioned that disappointing returns from AI-related investments could provoke significant stress in global markets. Equity Bank's Robertson also flagged the possibility that a wave of initial public offerings could represent "peak AI" before year-end. Patrick Dupont-Liot, managing director of debt capital markets at Standard Chartered, described an "undertone of risk," noting continued uncertainty around political developments and market reactions.
Looking ahead, observers expect the second half of the year to remain active. Political transitions in Britain and fragile yen dynamics are singled out as potential catalysts for renewed volatility. Meanwhile, the incoming Federal Reserve chief, Kevin Warsh, is being described as sounding hawkish, and U.S. political campaigning ahead of the November midterms was noted as another potential influence on markets.
Where markets stand
- Equities: MSCI All-Country World index up nearly 10% in H1, S&P 500 up 14%, Nasdaq up about 20%.
- Regional winners: South Korea up roughly 100%, Nikkei up almost 40%.
- Commodities: Oil spiked to $120 per barrel during March turmoil; gold down more than 12% in June after a prior doubling since the start of last year.
- Fixed income and currencies: U.S. and UK 10-year yields up ~24 bps, Germany flat, Japan up ~50 bps; yen at a 40-year low despite 11.7 trillion yen of intervention.
- Special situations: Venezuelan bonds soared about 55% following the reported capture of President Nicolas Maduro.
Investors face an environment where the interplay between geopolitical shocks and technology-driven rallies continues to generate large cross-asset moves. Strategy and risk management will likely remain central as market participants weigh the durability of AI-driven gains against persistent political and currency vulnerabilities.