Turbulent Markets Meet Assertive Policy: Why Geopolitical Risks Now Outweigh Economic Fundamentals

As markets navigate through the turbulent conditions of early 2026, a striking pattern has emerged that challenges conventional investment wisdom. While strong corporate earnings and economic resilience typically cushion market volatility, this year’s landscape reveals a startling reality: the assertive foreign policy moves of early January have fundamentally altered how investors weigh risk against opportunity. The real question facing portfolio managers isn’t whether markets will recover, but whether the traditional relationship between earnings strength and stock performance has permanently shifted.

The Turbulent Start: When Markets React to Politics, Not Profits

The January trading environment painted a vivid picture of policy-driven turmoil. Asset prices swung sharply as international developments unfolded at a rapid pace. The U.S. dollar index (DXY) plummeted to its lowest level in four years, while safe-haven plays like gold (GC00) surged past $5,000. Commodity markets experienced parallel movements—copper (HG00) hit fresh highs, crude oil (CL00, CL.1) climbed to six-month peaks, and long-term Treasury bonds faced a significant selloff.

What made January particularly turbulent wasn’t the magnitude of these moves, but their speed and coordination. Todd Morgan, chairman of Bel Air Investment Advisors, captured the mood succinctly: the nation’s relationship with global partners has shifted noticeably compared to 2025, he noted. Uncertainty around tariff policies, diplomatic tensions, and expanded military operations worldwide are creating an environment previously unseen in recent decades. Despite the turbulent trading throughout January, equities managed to close the month in positive territory—yet this surface strength masked deeper anxieties among institutional investors.

The Assertive Policy Framework: A New Market Dynamic

President Trump’s assertive approach to international relations set the tone for 2026’s risk landscape. The military intervention in Venezuela and the capture of Nicolas Maduro demonstrated willingness to deploy assertive measures in the Western Hemisphere. Simultaneously, assertive warnings toward Iran and threats regarding new tariffs on European nations created a compounding uncertainty that traditional models struggle to price.

Even the appointment of Kevin Warsh as Federal Reserve chair nominee failed to restore investor confidence—typically a stabilizing announcement. This disconnect suggested something more fundamental had shifted: geopolitical risks were increasingly dominating valuation calculus, potentially overshadowing benefits from economic expansion and strong corporate profits.

Stephen Dover, chief market strategist at the Franklin Templeton Institute, offered a crucial observation: markets have historically performed poorly when incorporating geopolitical dynamics into pricing. Yet a noteworthy development is emerging—institutional investors, including central banks, are actively increasing gold reserves, signaling a strategic pivot toward geopolitical hedges.

Geopolitical Turbulence vs. Historical Precedent: Why This Period Differs

Historically, geopolitical turbulence rarely produces lasting market disruption unless it triggers significant U.S. economic contraction—a scenario that remains unlikely today. However, what distinguishes the current environment is the emergence of policy tensions between the U.S. and traditional allies including Europe and Canada. This dynamic has thrown into question the assumed safety of dollar-denominated assets, particularly the $30 trillion Treasury market.

Tony Rodriguez, head of fixed-income strategy at Nuveen, explained the mechanics bluntly: both domestic and international investors are fundamentally reassessing the role of dollar assets due to mounting policy uncertainty. The assertive pivot in U.S. policy during January substantially elevated volatility expectations, requiring investors to demand higher risk premiums to hold American investments.

This represents a meaningful break from prior patterns. The turbulent policy environment has forced a recalculation of what “safe” actually means in modern portfolio construction.

Strong Fundamentals Proving Insufficient Against Turbulent Policy Winds

Despite the turbulent headlines, fundamental factors like economic growth and corporate performance remain objectively strong. As of the latest reporting window, approximately one-third of S&P 500 companies had disclosed their fourth-quarter 2025 results. Of these, 75% reported earnings per share above analyst forecasts—slightly below the five-year average of 78% and ten-year average of 76%, per FactSet analyst John Butters.

Shannon Saccocia, chief investment officer of wealth at Neuberger Berman, described the current environment plainly: typically, robust earnings compensate for geopolitical or policy concerns. This protective mechanism is notably absent. Strong performance across the market’s fundamental metrics has failed to override concerns originating from the White House and international flashpoints.

Early-week equity performance showed modest gains (S&P 500 +0.5%, Dow Jones +0.7%, Nasdaq Composite +0.8%), yet investors remained cautious entering the technology earnings cycle featuring Palantir Technologies, Advanced Micro Devices, and Qualcomm. Alphabet was scheduled to report Wednesday, with Amazon.com following Thursday.

The Complication: Government Uncertainty Layered on Market Uncertainty

Adding another turbulent layer, a partial U.S. government shutdown entered its third day, threatening to delay the January employment report originally scheduled for Friday release. Unresolved funding disagreements by Tuesday’s scheduled vote could further disrupt economic data releases—the one reliable anchor investors hoped would provide clarity.

The assertive policy environment, combined with domestic political uncertainty, has created a compounded risk that traditional models underestimated. Markets appear to be pricing in not just individual policy decisions, but the fundamental unpredictability that now characterizes the operating environment for 2026.