Hatem Dhiab - Why Markets Keep Climbing Despite Geopolitical Uncertainty | Gerber Kawasaki

Why Markets Keep Climbing Despite Geopolitical Uncertainty 

By: Hatem Dhiab

If you watched the headlines this past week, you saw three stories: oil hovering above $100, the S&P 500 grinding to fresh highs, and a Trump-Xi summit landing in Beijing on Thursday. They look like three different stories. They are not. Every one of them runs throug

h the same pipe, and that pipe is artificial intelligence.

That framing matters because it changes how we should listen to the noise. The market's recent strength is not a mystery you have to solve. It is a recognition that the AI buildout (now a $725 billion hyperscaler capital cycle for 2026 alone) is large enough to absorb a lot of bad news. The summit in Beijing, billed across the press as a trade meeting, is in substance the same story by a different name.

The Summit That Isn’t About Trade

This week, Trump sits down with Xi Jinping in Beijing with what officials are calling the most loaded bilateral agenda in a generation. The meeting will discuss pressing matters such as: Iran and the Strait of Hormuz, Taiwan and US arms sales, critical minerals, a possible nuclear arms control track, the new “Board of Trade” framework that USTR Jamieson Greer has been promoting, and a formal AI dialogue that Treasury Secretary Scott Bessent is leading on the American side. The headline going in is that AI is looming large on the agenda. 

Rare earths follow the same pattern. Beijing’s April and October 2025 export restrictions on heavy rare earths and permanent magnets were the most explicit use of leverage we have seen in years. Those minerals are direct inputs to semiconductor manufacturing, data center cooling, and the propulsion stacks for electric vehicles and autonomous systems. When Xi reaches for the rare earths tool, the leverage point is the AI infrastructure stack.

Taiwan, stripped of diplomatic packaging, is the fab geography conversation. TSMC’s cluster produces the most advanced AI accelerators in the world. The line item labeled AI will produce a communique, perhaps a hotline structure. The other five lines, each in its own register, are AI competition data points.

Why Markets Keep Climbing

Stocks had a strong April, and earnings are doing the heavy lifting. With 89% of S&P 500 companies reported, Q1 earnings are tracking near 20% growth, the sixth straight quarter of double-digit expansion. The forward P/E sits at 20.9, full but not stretched given that growth backdrop.

Underneath that, the hyperscaler capex cycle is unprecedented. Microsoft, Alphabet, Amazon, and Meta have collectively raised 2026 capital expenditure plans to $725 billion, up 77% from $410 billion in 2025. That spending flows to semiconductors, power generation, networking, cooling, and real estate. It is the demand-side story holding the tape up against $100 oil.

On the economy, Q1 GDP came in at 2.0%, mechanically supported by the reversal of the late-2025 shutdown drag and Iran-related defense outlays rather than fresh private demand. Business investment, government spending, and AI capex are doing the work that consumption is not.

The Federal Reserve has every reason to stay patient. Inflation will take its cues from the oil market, and the oil market will take its cues from the Strait of Hormuz. Until that geopolitical risk clears, rate cuts are unlikely.

Four Takeaways:

1. The agenda is AI, even when the label says something else. Whether it's the Beijing summit, the rare earths file, the Taiwan posture, or the chip controls regime, all of it is impacted by the AI narrative. We treat US-China policy news through that lens. Tariff levels move. The export control architecture does not.

2. Earnings, not headlines, are doing the work. Q1 growth tracking near 20%, six straight quarters of double-digit earnings expansion, a forward P/E that is full but not stretched. This is what is holding the tape up against $100 oil, and it is fundamentally a story about productivity gains from AI and disciplined capital allocation by the largest companies in the index.

3. Oil is the swing variable, not the regime change. A resolution in the Strait of Hormuz is a meaningful catalyst, both for inflation and for Fed policy. We do not know when it comes. We know it eventually does, and we want clients positioned before it arrives, not after.

4. Bonds are back as ballast. Starting yields remain attractive. As cash returns fade with eventual rate cuts, high-quality intermediate-maturity bonds become more compelling, both as portfolio ballast and as income generators through the volatility ahead.

Our View

This is a moment when the news cycle is loud and the underlying setup is constructive. Oil at $100 is real. The Beijing summit is consequential. Geopolitical risk is not background music. But the bull market is being carried by something larger than the day’s headlines: a multi-year capital cycle in AI infrastructure that is reshaping earnings power across the index, and a corporate sector that keeps delivering through the noise.

The mistake to avoid is the one that gets made in every cycle when geopolitics gets loud: selling the discomfort and then waiting for the all-clear that never quite arrives. Discipline is the unglamorous work, staying allocated, staying diversified, using pullbacks as opportunities, and trusting that the fundamentals we can see and measure are larger than the risks we cannot.

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Hatem Dhiab is a Financial Advisor of Santa Monica, California-based Gerber Kawasaki Inc., an SEC-registered investment firm with approximately ~$4.02B billion in assets under management and assets under advisement as of 12/31/25. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which course of action may be appropriate for you, consult your financial advisor. No strategy assures success or protects against loss. Readers shouldn't buy any investment without doing their research to determine if the investments are suitable for their situation. “All investments involve risk and one should consult a financial advisor before making any investments. Past performance is not indicative of future results."