Markets Are Learning to Keep Calm and Carry On

The first half of the year has been a geopolitical hot mess. President Donald Trump’s chaotic approach to tariffs, escalating military conflict in the Middle East, the continuing war in Ukraine and the existential threat posed to the North Atlantic Treaty Organization have left financial markets...largely unscathed? Global equities are in rude health, government bond yields are becalmed and oil is trading in line with its five-year average. The dollar is the only casualty, losing ground against all of its peers in the past six months.

So the remainder of 2025 will follow the same pattern, right? Well. The TACO trade in equities — “Trump Always Chickens Out” — will be reexamined early this month when the tariff pauses end. The independence of the Federal Reserve looks set to be sorely tested. The fiscal implications of NATO’s 32 members belatedly agreeing to increase defense spending to 5% of gross domestic product will reverberate around bond markets, particularly in Europe.