2024 is less than a month old and markets have already soared to new heights.

The S&P 500 hit its first record high in more than two years last week and the Dow Jones Industrial Average crossed the 38,000 level for the first time ever on Monday.

Main Street is thriving, too. US economic data remains strong and inflation is trending down. It now seems possible that the Federal Reserve will begin cutting interest rates within the next few months and that a recession may be avoided.

But geopolitical tensions are growing and Wall Street appears to be underestimating their potential impact on the global economy and markets.

What’s happening: Russia invaded Ukraine almost two years ago. Israel’s war with Hamas threatens to spark a wider conflict in the Middle East. The United States and China are squabbling about trade, particularly high-powered AI chips that both believe carry consequences for national security. And China continues to menace Taiwan.

Now, shipping is avoiding both the Red Sea and the Suez Canal, as Iranian-backed Houthi fighters attack vessels and Pakistan and Iran have both conducted strikes on each others territories in an unprecedented escalation of hostilities between the neighbors.

Together, these troubles could create what BlackRock analysts call a mega force, or a structural shift in the economy.

“These developments have accelerated global fragmentation and the emergence of competing geopolitical and economic blocs,” analysts at the world’s largest asset manager wrote in a note to clients on Monday.

The openness of countries to trade with each other has stalled, they said, as countries retrench from the global marketplace, citing national security concerns. Less trade could mean lower supplies to meet demand — and that could be bad news for inflation around the world.

“Geopolitical fragmentation is one of the reasons we see persistent inflation pressures — and policy rates staying above pre-pandemic levels,” wrote the BlackRock analysts.

The World Container Index, which tracks freight rates on eight major routes to and from the United States, Europe, and Asia, increased by 23% last week, according to Drewry, a maritime research and consulting firm. It’s more than doubled since December. Shipping insurance costs are also rising.

BlackRock analysts say that they believe the risk of escalation in the Red Sea and Suez Canal is high — the US and UK attacked Houthi targets in Yemen on Monday in their second joint operation this month. As is the risk of rising tensions between the US and China as Taiwan remains a significant flashpoint.

Stocks and other assets have so far been fairly unmoved by geopolitical events, but “we worry they may not be appreciating that we have entered a new geopolitical regime. The old playbook no longer applies, in our view,” wrote the analysts.

“We expect deeper fragmentation, heightened competition and less cooperation between major nations in 2024.”