Investors struggle to price geopolitical upheaval under Trump
Trump’s 2026 foreign policy moves are roiling markets, but strong growth and earnings make it hard to know if the jitters will last or fade.
Copy link
By Torontoer Staff
U.S. President Donald Trump’s recent foreign policy and trade actions have unsettled global markets, but the larger question for investors is whether the turmoil will intensify or dissipate. The answer matters because market prices depend on how participants value long-term shifts in geopolitical power.
So far in 2026 the world has seen rapid changes: the U.S. helped remove Venezuela’s leader and is effectively shaping that country’s future, a violent crackdown in Iran has left thousands dead and raised the prospect of U.S. involvement, and Mr. Trump has publicly pursued control of Greenland from Denmark. Those developments, along with a string of domestic interventions, are testing the post‑World War Two rules-based order and alliance structures between the U.S. and Europe.
Market reaction and the limits of panic
The immediate market response has been clear: broad selloffs in stocks, bonds and the dollar, while safe-haven gold climbed to around US$4,700 per ounce. Some investors call this a return of the so-called "Sell America" trade, reflecting a repricing of geopolitical risk. Yet last year showed similar episodes can be short-lived, with markets resuming upward moves after brief jolts.
Part of the explanation is that consensus expectations for U.S. growth and corporate profits remain firm. The International Monetary Fund recently raised its 2026 U.S. growth forecast to 2.4 per cent from 2.1 per cent in October, citing heavy investment in artificial intelligence infrastructure. Early fourth-quarter corporate results have also surprised on the upside, with 84.8 per cent of 33 reporting S&P 500 companies posting earnings beats so far.
Structural forces keeping markets calm
Beyond fundamentals, structural market dynamics can mute volatility. Passive investment funds continue to channel steady flows into equities and credit, supporting prices even amid geopolitical shocks. That creates a virtuous cycle for asset prices, and in some cases an illusion of stability, because capital keeps moving in as long as the trend persists.
High uncertainty also does not automatically spell recession or profit declines. Investment associated with rearmament, energy security and AI independence could raise demand and corporate spending, offsetting some negative shock effects. In short, heightened political risk can be inflationary for certain sectors and supportive for others.
Why pricing regime change is uniquely hard
Assigning value to a fundamental reordering of global alliances is not a standard exercise in financial modelling. Analysts build forecasts around growth, margins and capital spending, but they rarely have firm inputs for the collapse of an alliance system or the emergence of a three‑bloc world led by the U.S., China and Russia.
For investors, regime change is hard to navigate. It’s like you are either at war or you aren’t at war. There’s no limbo.
Matt King, founder of Satori Insights
That binary nature makes pricing difficult. Markets can display odd behaviour, with risk-on and risk-off assets rallying at the same time, because different investors are reacting to different possible futures rather than a single shared outlook. Analysts’ earnings models may not incorporate risks such as excess AI capacity from global competition, or regulatory pressure from large trading blocs.
Practical signals investors can watch
- Geopolitical escalations, measured by official sanctions, troop movements or formal alliance shifts
- Monetary and fiscal policy reactions, including central bank guidance and government spending on defence or energy
- Corporate guidance and capex plans, particularly in AI, semiconductors and energy sectors
- Flows into passive funds and ETFs, which can sustain asset prices independently of fundamentals
- Commodity prices such as oil and gold, which reflect risk and supply expectations
Any sustained deterioration in these indicators could force a broader revaluation. Conversely, signs that policymakers and markets are compartmentalising events, keeping trade and investment channels open, would support current price levels.
What this means for investors
Investors face a choice between treating recent shocks as transient interruptions to an ongoing growth cycle, or as the start of a protracted period of geopolitical realignment. Both scenarios are plausible, and portfolio positioning should reflect that uncertainty. Diversification, active monitoring of the signals listed above, and scenario planning for supply disruptions or regulatory shifts will have practical value.
The market could continue to shrug off geopolitical shocks if growth and earnings remain resilient. It could also correct sharply if regime changes accelerate and policy responses tighten. For now the challenge is straightforward, even if the stakes are large: markets must price risks that are hard to quantify, and investors have to decide how much weight to assign to each possible future.
marketsgeopoliticsinvestingTrumpglobal-economy
