As February 2026 begins, investors face a shifting landscape where geopolitical risks, fueled by President Trump’s assertive foreign policy, may overshadow traditional market drivers like economic performance and corporate earnings. January saw a surge in geopolitical events that triggered volatility across financial markets, raising concerns about the stability of the investment environment.
The U.S. dollar experienced a significant dip, reaching a four-year low, while gold prices soared above $5,000. Copper hit record highs, and oil prices climbed to a six-month peak. Despite this turbulence, stocks managed to close the month positively, although they were subject to choppy trading. This resilience, however, may not last if geopolitical tensions continue to escalate.
Todd Morgan, chairman at Bel Air Investment Advisors, noted the change in global perception of the U.S., stating that there is increased nervousness regarding the President’s actions, particularly concerning tariffs, international relations, and military deployments. This heightened uncertainty is something he hasn’t witnessed in decades, highlighting the gravity of the current situation.
Trump’s Actions Shake Markets
President Trump’s recent actions, including a military operation in Venezuela and threats of new tariffs against European allies, have contributed to market unease. Even the nomination of Kevin Warsh as Federal Reserve chair failed to stabilize the markets, suggesting that geopolitical risks are now a dominant factor influencing asset prices.
Stephen Dover, chief market strategist at the Franklin Templeton Institute, emphasized the market’s struggle to price in geopolitical risks effectively. He noted that while some investors are attempting to incorporate geopolitics into their investment decisions, the historical record shows a poor track record of accurately predicting market outcomes based on such events. Gold, however, has seen increased interest, aligning individual investors with central banks that have been accumulating the precious metal as a safe haven.
“The market does not know how to price in geopolitical risks. It has a very bad history of that.”
The key difference this time around is that tensions have arisen between the U.S. and its long-standing allies in Europe and Canada. This has raised questions about the safe-haven status of dollar-denominated assets, including U.S. Treasury securities.
Policy Uncertainty and Risk Premiums
Tony Rodriguez, head of fixed-income strategy at Nuveen, pointed out that both U.S. and non-U.S. investors are reassessing their expectations for dollar assets due to increased policy uncertainty. The surge in U.S.-driven policy volatility in January necessitates a larger risk premium on U.S. assets, reflecting the heightened level of perceived risk.
Earnings Season and Economic Fundamentals
While policy uncertainty is now a significant factor, macroeconomic fundamentals remain crucial. However, the strength of the fourth-quarter earnings season and the resilience of the U.S. economy may be overshadowed by actions from the White House.
Shannon Saccocia, chief investment officer of wealth at Neuberger Berman, acknowledged the challenging environment. Typically, strong earnings could cushion against geopolitical tensions, but this is not the case currently. The market’s focus has shifted to the potential impact of political events, diminishing the positive effects of strong corporate performance.
“Normally, when you’re in the midst of an earnings season and earnings are delivering, that could provide some cushion against geopolitical tensions or policy questions, but you’re not getting that this period.”
Approximately 33% of S&P 500 companies have reported earnings, with 75% exceeding analysts’ estimates, slightly below the five and ten-year averages. U.S. stocks finished the week mostly lower, influenced by mixed earnings from major technology companies. Looking ahead, tech earnings, especially from AI-related firms like Palantir, AMD, and Qualcomm, will be closely watched.
The market awaits reports from Alphabet and Amazon, anticipating insights into the performance of these tech giants amidst the prevailing geopolitical uncertainty. Whether these earnings can provide a counterweight to the anxieties remains to be seen.
Source: MarketWatch
