Global financial markets have spent the past year adjusting to a new policy regime under President Donald Trump, delivering sharply divergent outcomes across asset classes as investors price in tariffs, trade measures and shifts in geopolitical risk. The S&P 500 has climbed roughly 17% since last November, a gain market participants largely attribute to an AI-driven rerating of technology and related sectors even as other parts of the global economy grapple with heightened policy uncertainty.

That bifurcation is evident in Europe, where defense stocks have been at the heart of the rally. Investors have reallocated capital toward firms perceived as beneficiaries of increased military spending after pressure from Washington prompted regional governments to boost their own security budgets, even as the war in Ukraine continues to inject geopolitical risk into markets. The retrenchment of collective security expectations has amplified demand for defense contractors and related suppliers, tightening valuations in a concentrated pocket of the equity market.

At the same time, safe-haven and speculative assets have registered fresh highs. Stocks broadly, along with gold and major cryptocurrencies, reached record levels over the past year as liquidity conditions, investor search for yield and periods of heightened volatility pushed flows into both traditional and non-traditional stores of value. Those rivaling trends complicate policymaking: persistent asset-price strength can mask underlying economic strains while central banks weigh inflation risks that may be amplified by trade restrictions.

Tariffs remain a central mechanism reshaping supply chains and price-setting. By increasing the cost of imported goods, tariffs act as a tax on consumption and a potential source of upward pressure on consumer prices, with knock-on effects for corporate margins and monetary policy. Traders and policymakers are also talking about "TACOs" alongside tariffs and dollars — a shorthand reflecting a mix of trade-adjustment effects and market responses — underscoring how novel policy instruments and market jargon shape investment decisions in real time.

Currency dynamics have further complicated the picture. A stronger dollar tends to tighten financial conditions for dollar-denominated borrowers and compress returns for non-U.S. investors, amplifying volatility in emerging markets and for globally exposed companies. Dollar strength also offsets some inflationary impact of tariffs for importers who hedge currency exposure, while exacerbating it for countries with limited hedging capacity.

Looking beyond the immediate market moves, the past year has crystallized longer-term trends: technological concentration in U.S. equity performance, the re-prioritization of national security in fiscal policy, and a partial reorientation of global trade architecture away from deeply integrated supply chains. For investors and policymakers, the challenge is to discern which changes are cyclical responses to uncertainty and which signal durable shifts that will reshape investment allocation, inflation dynamics and growth prospects over the coming decade.