Explaining the disconnect between geopolitics and markets

In this episode of J.P. Morgan's Making Sense, Chair of Global Research Joyce Chang and Derek Cholet, Head of the J.P. Morgan Chase Center for Geopolitics, explore the growing disconnect between escalating global geopolitical tensions and surprisingly resilient financial markets. The discussion centers on the Iran crisis, where both sides are engaged in a high-stakes game of brinkmanship in the Strait of Hormuz, with the U.S. seeking to pressure Iran through economic blockade and Iran countering by threatening to close the strait. Despite the risks, markets remain stable due to strong global growth, AI-driven earnings momentum, and a resilient U.S. equity market—particularly the S&P 500, now projected to reach 7,600. Meanwhile, Europe is navigating a complex transatlantic dynamic, with rising defense spending but persistent uncertainty about U.S. commitment to NATO. The U.S.-China summit in May is expected to yield a modest trade truce rather than a major breakthrough, with Taiwan and AI governance emerging as critical flashpoints. Despite growing fiscal deficits and inflationary pressures, the U.S. dollar remains the dominant global safe haven, though demand for international diversification is rising, especially in emerging markets and Europe. The episode concludes with a forward-looking analysis of the 2026 midterm elections, where affordability, inflation, and fiscal sustainability are poised to become central political issues.