September 1, 2026 I 4 minutes read
“If you went on vacation in February and came back to review your portfolio, you would be forgiven for not realizing that we’ve witnessed another war and the largest energy supply chain stress in decades.” We wrote that in mid-May, when global equities were up 10% year-to-date. Since then, we have had another bout of re-escalation, with seemingly no end in sight to the conflict, ships being hit in both the Strait of Hormuz and now in the Red Sea, etc. And yet the message still holds: global equities are up a further 4% and sitting at 14% year-to-date, with non-U.S. markets outperforming. In short, while concerns about Iran have not disappeared entirely, they are no longer the dominant force driving asset prices. Equity markets barely fall on negative news from Iran as investor attention increasingly shifts elsewhere.
While some of our clients see this as a concern and a sign of market exuberance, we believe a different logic is at play. Markets care less about geopolitical circumstances than about their economic consequences. Earlier this year, investors feared a sustained energy shock. That scenario has not materialized. Oil prices remain well below the levels that historically caused major economic dislocations, and the global economy is far less dependent on oil than it was in previous decades. The United States is now a major energy producer, and China’s flexible grid has enabled it to switch to other energy sources seamlessly. As a result, inflation expectations remain relatively well anchored for now. Most importantly, both the U.S. and Iran want to avoid excessively high oil prices (the U.S. due to domestic inflation concerns; Iran due to pressure from its allies in Asia) and thus prefer periodic de-escalation over an uncontrolled, continuously escalating conflict. For investors, this means the situation in Iran is a source of temporary volatility rather than a risk of recession.
As the geopolitical risk premium fades, investors are returning to the dominant market theme of the past two years: artificial intelligence and its impact on economic growth. The key question is no longer whether companies are spending enough on AI infrastructure, but whether those investments are beginning to generate real returns. Recent earnings results suggest they are. Cloud revenues, data center activity, software adoption, and corporate productivity indicators all point to AI moving beyond a capital expenditure story toward an earnings story. This matters because corporate profits ultimately drive equity markets. Strong earnings growth has repeatedly outweighed concerns about war, higher interest rates, and political uncertainty.
For many of our clients, this requires a shift in focus. The geopolitical news headlines are rarely good – stories about happy endings don’t get a lot of airtime. However, the drivers of portfolio values today are not sound bites from politicians but actual oil flows, corporate earnings, AI adoption rates, productivity data, and consumer spending trends. All of these are currently trending in a positive direction. As a result, investors with well-diversified portfolios and the ability to tolerate equity market volatility are likely to fare well despite the noise.
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The information provided is for educational purposes only. The views expressed here are those of the author and may not represent the views of Leo Wealth. Neither Leo Wealth nor the author makes any warranty or representation as to this information’s accuracy, completeness, or
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This material represents an assessment of the market and economic environment at a specific point in time. It is not intended to be a forecast of future events or a guarantee of future results.
