Much has been written about the danger outbreaks that threaten the explosive rally fueled by the mania for Artificial Intelligence. More has been said about the effects of the war on Iran and its wider geopolitical and economic implications.
However, despite warnings about high debts, fragile international balances, energy crisis, inflation, ratings of big tech and the threat of financial correction, investors seem not to be intimidated, discounting a particularly favourable scenario for the economy and markets.
S&P 500 has lost just 2.3% after the new escalation of the war, while Nasdaq of the big tech has corrected 4.4% at the same time, as technological megatheria are once again at the centre. Meanwhile, Barclays warns that the global monetary relaxation cycle has come to an end and the risk assets should adapt to the new reality of higher interest rates, which is rarely done without increased volatility.
Today we will focus on certain signs that show that investors underestimate risks. Signs which should not go unnoticed, especially from those looking for early indications to avoid subsequent turbulence in the markets.
Let's start with oil. The world market experiences the greatest energy turmoil in the chronicles, with the Straits of Hormuz being closed for months and the Huthi threatening to block and the critical shipping route of Bab el Madeb. But oil prices have not yet been ejected to $130 or $150, a level that experts say would lead to a global recession. Brent closed the week at $96.78 which seemingly constitutes a manageable level.
The problem is, according to JPMorgan, Brent's fair price is being set for July at $87, which means that the market invoices a very small geopolitical premium. So while global oil reserves shrink, investors underestimate the risk of a new energy shock, perhaps because they believe Trump will back off at the last minute and seek a solution, avoiding the dead end. But maybe it's already too late.
Next sign are the evaluations of technological giants which already incorporate very high profitability, continuous growth and huge odds from AI. Which means the margin of disappointment is small. In other words, expectations are so great that even theoretically «Good.» financial results may not be sufficient in some cases.
Let us not forget that in an environment of increasing the cost of money, the cloud giants are planning investments of over $1 trillion, with the markets today taking almost for granted that all of this will pay off.
Another characteristic sign indicating that investors underestimate the risk comes from the bond market. The yields of high risk bonds, the so-called junk bonds, have been moving at the lowest levels since the 2008 global financial crisis, but also since the years preceding the 2008 financial crisis. «bubble» of dot.com. Is that a coincidence? Maybe. Maybe not. In any case, markets always leave signs before changing course.
However, as MSCI points out, 15.7% of private credit fund loans are valued below 80% of their nominal value, an informal threshold of economic hardship, while more than 10% are valued below 50% of nominal value. This means that many businesses find it difficult to increase credit risk, which is not reflected in spreads. Indeed, the MSCI report captures the image at the end of 2025, while conditions have since deteriorated. Nevertheless. The spread of high risk bonds instead of increasing declined from 2.80 to 2.68 percentage points.
All of the above suggests that investors underestimate the risks accumulated and that they constitute a risk transmission mechanism, which is in full operation despite the fact that there is no clear evidence of crisis in the markets. Or to be more precise, there is no focus that can convince investors that the rally is really in danger.
So, against the great investment account of Artificial Intelligence we could say that there is a chain of developments in which each link strengthens the next and thus creates an explosive cocktail, especially in the event that they are all activated together.
The first link to the chain, the first, if you like, component of «explosive cocktail», is the geopolitical tension and enormous uncertainty caused by the war in the Middle East. Following is the rise of oil, the new wave of inflation, high interest rates, the rise of bond yields, the most expensive money, the pressure on the valuations of big tech and the difficulties for the historical investments required by the AI revolution, while the latter component is the greater volatility in markets and the slowing down of the economy.
No one can predict whether to confirm the adverse scenario of financial correction, a major crisis or a global recession. What we know, however, is that when the risks accumulate the markets become much more vulnerable to... unpleasant surprises.
