AI and Geopolitics to Drive Volatility

- The global market for AI in trading is projected to grow from $24.53 billion in 2025 to $27.85 billion in 2026, reflecting a compound annual growth rate (CAGR) of 13.6%. Similarly, the market for AI agents in financial services is expected to increase from $2.04 billion in 2026 to an estimated $6.54 billion by 2035. - Geopolitical flashpoints create tangible economic fallout; for instance, a potential war over Taiwan could halt its semiconductor production, cutting global supplies of advanced chips by 62% and wiping out an estimated $10.6 trillion, or 9.6%, of global GDP in the first year. - The U.S.-China tech rivalry directly impacts the semiconductor industry, a critical component of the AI ecosystem. In response to U.S. export controls, China has been pushing for self-sufficiency and is expected to focus on mature chip nodes (28nm and above) in 2026, potentially leading the world in their production. - Regulatory bodies are increasing their focus on AI governance. The U.S. Securities and Exchange Commission (SEC) now requires public companies to disclose AI systems that materially affect their operations or risk profile, while the European Securities and Markets Authority (ESMA) has issued guidance for firms to ensure AI use complies with MiFID II requirements, focusing on risk management and transparency. - Recent geopolitical events have demonstrated direct impacts on market volatility and trade. Houthi attacks in the Red Sea and the Russia-Ukraine conflict have led to severe fluctuations in international oil prices and shipping routes, disrupting global trade for commodities like grain and oil. - Financial institutions are moving from pilot AI programs to enterprise-wide adoption. In 2026, the U.S. financial services sector is projected to spend nearly half a trillion dollars on technology, with a significant portion allocated to software to operationalize AI for efficiency at scale. - Investment in AI is a significant driver of corporate earnings and capital spending. Since November 2022, AI-related stocks in the U.S. have accounted for nearly 80% of the country's earnings growth and 90% of its capital expenditure growth. - The use of AI in financial crime detection is a key area of investment, with AI-driven fraud detection systems having prevented an estimated $1.5 billion in losses with 98% accuracy. A 2025 survey showed that 45% of midsize companies were utilizing AI for fraud detection, including for cybersecurity and real-time transaction monitoring.