Assertive Policies Create Turbulent Markets: Why Geopolitical Risk Now Dominates Investment Decisions

As markets navigate 2026’s opening months, a critical shift has emerged in how investors weigh risk. While strong corporate earnings and stable economic growth traditionally provide market support, a new challenge has surfaced: geopolitical uncertainty is now outweighing these fundamental strengths. The year began with a wave of international events that triggered turbulent trading across virtually every asset class, leaving investors to grapple with an unfamiliar reality where policy risk rivals—and potentially surpasses—economic fundamentals in shaping portfolio performance.

The change became apparent as early January’s turbulent trading session unfolded, with significant volatility rippling across multiple markets. The U.S. dollar (DXY) tumbled to its lowest level in four years, while gold (GC00) surged above $5,000, copper (HG00) hit fresh records, and oil prices (CL00, CL.1) reached six-month highs. Long-term U.S. Treasury bonds faced a sell-off, signaling a sharp reassessment of what many had considered safe-harbor investments. Despite these turbulent movements, equity indices managed to end that period in positive territory overall.

Turbulent Trading Masks a Deeper Concern

The surface-level strength of stock markets belies growing nervousness beneath the surface. Todd Morgan, chairman at Bel Air Investment Advisors, captured the sentiment bluntly: “There’s a noticeable shift in how people view the U.S. compared to last year. Concerns are growing over the president’s actions, uncertainty about future tariffs, diplomatic relations, and the deployment of major naval forces worldwide. I can’t recall anything like this in decades, and it’s unfolding in real time.”

These assertions about assertive foreign policy moves are not speculative. President Trump initiated the year with military intervention in Venezuela, resulting in the capture of Nicolas Maduro. He subsequently threatened new tariffs on European allies opposing his Greenland initiatives and heightened tensions with Iran through strategic warnings. Even the nomination of Kevin Warsh as Federal Reserve chair failed to calm turbulent market sentiment—suggesting that monetary policy changes now take a back seat to geopolitical considerations in investor decision-making.

Stephen Dover, chief market strategist at the Franklin Templeton Institute, acknowledged the challenge: “Markets have a poor track record when it comes to factoring in geopolitical risks.” However, Dover noted that some investors are actively developing geopolitical-based trading strategies. Notably, central banks worldwide have been increasing gold reserves, reflecting institutional recognition that traditional safe-haven assets require reassessment.

When Assertive Diplomacy Challenges the Dollar’s Safe-Haven Status

What distinguishes this geopolitical period from historical precedents is the emergence of tensions between the U.S. and its traditional allies—Europe and Canada foremost among them. This development directly undermines the assumed security of dollar-denominated assets, particularly the $30 trillion market for long-term U.S. Treasury bonds.

Tony Rodriguez, head of fixed-income strategy at Nuveen, explained the revaluation underway: “Both domestic and international investors are reassessing the role of dollar assets in their portfolios due to elevated policy uncertainty. Policy volatility has spiked notably, necessitating a higher risk premium attached to U.S.-denominated investments.”

This represents a structural shift. Geopolitical flare-ups have historically caused temporary market disruptions but rarely sustained instability—unless accompanied by an economic downturn, which appears unlikely currently. The unprecedented element is the questioning of U.S. currency and asset stability itself, driven by assertive policy shifts that create diplomatic friction rather than cooperation.

Strong Earnings Face Headwinds from Policy Risk

As of recent trading data, approximately one-third of S&P 500 companies had reported fourth-quarter results, with 75% exceeding analyst earnings expectations according to FactSet. While this beat rate slightly trails five-year and ten-year averages (78% and 76% respectively), earnings have remained generally solid.

Yet this resilience has failed to anchor markets, as Shannon Saccocia, chief investment officer at Neuberger Berman, observed: “This has been a challenging environment. Historically, strong earnings can offset geopolitical or policy concerns. That dynamic isn’t working now.”

U.S. equities posted modest gains in early trading, with the S&P 500 advancing 0.5%, the Dow Jones Industrial Average rising 0.7%, and the Nasdaq Composite gaining approximately 0.8%, per FactSet data. This week brought technology earnings into focus, with Palantir Technologies, Advanced Micro Devices, and Qualcomm scheduled to report quarterly results. Alphabet (Google’s parent) announced results midweek, with Amazon.com following on Thursday.

The Complication: Government Funding Uncertainty

An additional layer of turbulent uncertainty emerged as a partial U.S. government shutdown extended into its third day early in the week, with Congress negotiating a Senate funding proposal. Should the funding gap persist beyond Tuesday’s vote, the economic calendar faces disruption—most critically, the January employment report originally slated for Friday release could be delayed or affected.

This confluence of assertive foreign policy moves, geopolitical tension, and domestic political uncertainty has created an environment where investors must simultaneously evaluate economic fundamentals, corporate performance, policy risk, and diplomatic developments. The turbulent conditions that began 2026 may well define investment strategy throughout the year, as geopolitical considerations increasingly compete with—and in many cases overshadow—traditional financial metrics.