One big thing – Markets don’t like uncertainty, but it may be here to stay in 2026

In recent months major geopolitical events have occurred with what feels like increasing frequency. While their impact politically and in a humanitarian sense are, of course, primary, investors and market analysts must also grapple with their potential short- and long-term impact on investing. According to a November 2025 Natixis Center for Investor Insight report, institutional investors are already on high alert with 49% listing geopolitics as a key economic threat in 2026.

The takeaways:

• Politically, support/opposition for the Trump Administration’s approach to foreign policy largely breaks along party lines.
• Tariffs have become a part of the Trump Administration’s foreign policy negotiations, even with an impending Supreme Court decision, this is unlikely to change.
• Market volatility typically increases after geopolitical tensions escalate but the broader impact is dependent on many different variables and every situation is different.

The politics of the ‘Don-roe’ doctrine and the tariff outlook

The Trump Administration released their approach to foreign policy in an updated US national security strategy last November. The document, which was pored over by market and political analysts alike, explains that the Administration will enforce a ‘Trump Corollary’ to the ‘Monroe Doctrine,’ in short, focusing the bulk of the US government’s international efforts on the Western Hemisphere.

In DC reactions to the strategy and to the recent removal of President Maduro in Venezuela have been mixed but largely break along party lines. A resolution to invoke the War Powers Act and to limit the Administration’s action in Venezuela initially received support from 5 Senate Republicans, but ultimately failed. For now, the White House has managed to reassure enough Republican members of the Senate and House on their approach in the region so as to ensure there will be no further votes on such measures.

The Administration has also used tariffs for foreign policy objectives: in the case of Brazil to send a signal to the country’s President, regarding Iran such that any country doing business with them faces a levy, in Mexico and Canada to push for immigration reform and in Mexico, Canada and China related to drug enforcement. The Supreme Court may rule that the Administration cannot use the authority called upon for these tariffs, but the White House does have other options to put in place substantially similar tariffs. It thus seems unlikely that tariffs fall out of the Administration’s foreign policy toolkit.

Reviewing recent events and a scan of global hotspots

In recent years geopolitical events have had varying impacts on markets. The Israel/Hamas conflict for example spared oil markets as it never resulted in blockades in the strait of Hormuz. Moreover, it did not impact broader positive signals for markets, as US indices notched significant returns during the years of the conflict from 2023–2025. Contrast this with Russia’s war in Ukraine which in 2022 resulted in a surge in oil prices and added to inflationary pressures in Europe where the Russia was a major supplier of oil. In that same year, global indices performed poorly with negative returns.

More recently the picture in Venezuela is nuanced. After the US operation on January 2, oil companies, service firms and gulf coast refiners saw their stocks rise compared to the indices. Crude oil rose briefly, then fell, before rising again in response to escalating tensions in Iran. This event illustrates several points.

1. Broadly, there was little reaction across equities, and this is due to the relatively small size of Venezuela’s economy.
2. Yet there were some immediate sectoral impacts, generally benefitting US firms well positioned to access the country’s potentially rich oil market.
3. Finally, events do not happen in a vacuum, Iran’s political instability also plays a role in oil markets.

Turning to Iran, amidst escalating protests, President Trump has sent some indefinite signals regarding his intention to intervene. This unpredictability may be a tactic, but it also reflects the challenge of understanding foreign policy which is conducted with the domestic and psychological considerations of both countries in mind and in the context of wider geopolitics, all of which evolve daily. Therefore, it is impossible to predict what may happen next in the country. But in terms of markets, Iran like Venezuela, has a relatively small economy, and it is unlikely that changes in Iran will roil markets broadly. Nevertheless, we may continue to see volatility in the price of crude.

 Zooming out, the situation in Iran may be more importantly politically than it is directly to the global economy. If the US does intervene, they may face escalatory statements from the regime’s allies in Russia and China, and this could lead to more uncertainty and near-term volatility. However, with challenges for both countries closer to home, it appears unlikely that there would be a wider escalation.  

In terms of US–China relations, tensions remain high, but there are many variables that could alter the current stalemate. One factor that underscores the status quo is Trump’s planned visit in April which signals both Capital’s continued interest in preventing escalation. However, while unlikely in the near term, should China take further actions to raise pressure on Taipei, the stalemate could falter. Likewise, a pending trade deal between the US and Taiwan may inflame Beijing. Given the strategic role all three countries play in technology, supply chains and economic heft, an escalation in this region represents the biggest potential economic threat globally.

Market participants and political analysts looking for a clear answer on whether or not geopolitics will be a drag on markets in 2026 will find none. However, recent conflicts give analysts plenty to reflect upon to gauge the impact of unknown future events.

In other news

• Congress returned to Washington with a long to do list after the holidays. Progress is being made to pass funding bills for several agencies and a government shutdown appears unlikely. However, temporary funding measures may be necessary for agencies where there is not bipartisan consensus, in particular it may not be possible to reach agreement for budgeting the Department of Homeland Security. On healthcare, while the House has passed a three-year extension of Obamacare subsidies, the Senate is not closer to their own deal leaving uncertainty and higher premiums for up to 20 million Americans to start 2026. A recently released Republican Study Committee framework suggests that healthcare reform may be a part of Republicans reconciliation 2.0 bill.
• The Supreme Court is expected to rule on some of the Administration’s tariffs soon, though it has until summer to do so. The case only involves some newly implemented tariffs and leaves sectoral tariffs in place (e.g., those on autos, steel, lumber, etc.,). The Administration may choose to reimplement the tariffs with different authorities and has signaled it will continue to do so. The Supreme Court is also expected to hear the case against removing Board Governor Lisa Cook in January.
• The Department of Justice has launched a criminal investigation into Chair of the Federal Reserve Jerome Powell, prompting political pushback. The investigation is said to center on Powell’s June testimony before Congress about the Fed’s renovation of its headquarters in Washington, DC. Pushback from lawmakers on both sides of the aisle followed the news of the investigation. Retiring North Carolina Republican Senator Thom Tillis has said he will use his spot on the Banking Committee to block any future Fed nominees for the Administration until the investigation is concluded.