The year 2026 has been all about heightened geopolitical tensions due to the U.S.-Iran war and the AI boom, as well as risks associated with its investments and evolution. The year began with strong optimism. The sentiment has shifted sharply due to the Iran war in Q1. Multiple efforts for long-standing diplomacy have offered little support so far.

Geopolitical Shock Ruled Q1: The Iran Conflict

The biggest market-moving catalyst this year has been the war involving Iran. The United States and Israel launched coordinated strikes on Iran on Feb. 28, 2026, with President Donald Trump saying that the operation was aimed at destroying Iran's nuclear program and weakening its current regime.

What was initially expected to be a short conflict has turned into a prolonged disruption, particularly hitting crucial global energy supply routes like the Strait of Hormuz. The resulting oil shock has rattled markets, fueled inflation concerns and stoked fears of stagflation.

Fed Rate Hike in September

At the start of the year, the Federal Reserve paused rate cuts due to resilient consumer spending and a stable labor market. However, renewed inflationary fears amid geopolitical shocks have complicated the outlook.

After several months of seesawing treasury yields, the Fed increased its benchmark interest rate by 25 basis points last week, marking its first rate hike in three years.

The unanimous decision lifted the target range to 3.75-4% from 3.5-3.75%, as policymakers sought to contain persistent inflation. The Fed’s updated Summary of Economic Projections points to an additional rate hike in 2026 (read: 4 Bond ETFs to Gain from Fed Rate Hike).

AI Trade: Ups and Downs

The once-dominant AI-driven rally cooled significantly in Q1. Rising bond yields pressured high valuations, while profit-taking and downbeat sentiment toward growth sectors like technology reduced its role as a safe haven.

Uncertainty around AI payoffs, combined with concerns about heavy capital spending rising from global competition, has weighed on the "Magnificent Seven" stocks too.

Apart from payoff concerns and rising treasury yields, in early 2026, software stocks sold off sharply on fears that AI agents would cannibalize traditional seat-based licenses. The core concern: if AI agents do the work, fewer human users need logins— eroding the per-seat subscription revenue that underpins much of the SaaS sector.

The Dow Jones U.S. Software Index, a benchmark for the U.S. software sector fell about 36% from record high on Oct. 28, 2025 to Apr, 10, 2026. However, most concerns subsided as the year progressed, as evident from 56% returns in Roundhill Generative AI & Technology ETF (CHAT Quick QuoteCHAT - Free Report) .

Strong earnings from Amazon (AMZN) and Microsoft (MSFT) reassured investors that AI investment remains robust. Hyperscalers now expect to spend $720-$745 billion on capital projects in 2026.

Winning ETF Areas

Breakwave Tanker Shipping ETF (BWET Quick QuoteBWET - Free Report) – Up 3541.3% (as of Sept. 22, 2026).

Disruptions across key maritime lanes have supported shipping stocks this year. Elevated shipping rates position the fund as a clear beneficiary. The closure of the Strait of Hormuz, along with ongoing disruptions in the Red Sea, has disrupted key shipping routes, driving a sharp surge in freight rates. This has strengthened the investment case for BWET.

United States Brent Oil Fund LP (BNO Quick QuoteBNO - Free Report) – Up 105%

The Iran war, now in its seventh month, has had an enormous impact on oil prices. Oil prices surged again last week after Saudi Arabia shut down its East-West crude oil pipeline following drone strikes. According to Capital Economics, oil prices could remain above $100 a barrel well into next year if the conflict in the Middle East drags on.

However, oil and liquefied natural gas shipments through the Strait of Hormuz reached their highest level in six months over the past two weeks, indicating that energy flows through the key waterway are recovering, per a regional U.S. commander, as quoted on Bloomberg and published on Yahoo Finance.

To offset the impact of the pipeline closure, Saudi Arabia has arranged ship-to-ship crude transfers off Oman’s Sohar port. This set of news pulled down BNO price by about 8% over the past week (read: Hormuz Oil Shipments Hit Six-Month High? ETFs to Win/Lose).

VistaShares Artificial Intelligence Supercycle ETF (AIS Quick QuoteAIS - Free Report) – Up 94%

It is a pure-play AI ETF. The VistaShares Artificial Intelligence Supercycle ETF offers investors a strategic avenue to participate in the artificial intelligence Supercycle reshaping industries worldwide. It charges 75 bps in fees.

iShares MSCI South Korea ETF (EWY Quick QuoteEWY - Free Report) – Up 88%

The fund is heavy on semiconductor companies. South Korea's semiconductor exports soared 209% in August, highlighting strong AI-driven chip demand.South Korea's record 2027 budget signals an aggressive push into AI and semiconductors.Investors used South Korea ETFs as a strategic allocation for AI exposure (read: South Korea ETFs: A Short-Term Pullback, a Long-Term Opportunity).

First Trust Nasdaq Semiconductor ETF (FTXL Quick QuoteFTXL - Free Report) – Up 86.7%

Semiconductor stocks have risen sharply in 2026 as AI-driven demand for GPUs, advanced chips and high-bandwidth memory (HBM) continues to fuel massive data-center spending. Strong earnings and guidance from major chipmakers have reinforced confidence in the AI investment cycle, while tight memory supply and rising chip prices have boosted pricing power and profit expectations.