As February begins, investors are facing a shift in what truly drives markets. The biggest risk to stocks may no longer be the economy or corporate earnings, but geopolitics.
January was marked by a wave of political shocks tied to President Donald Trump, sending ripples across global markets. The US dollar slid to a four-year low, gold surged past $5,000 an ounce, copper hit record highs, oil climbed to a six-month peak, and long-term US Treasurys sold off. Despite this volatility, stocks still managed to end the month higher.
Market participants say the scale and frequency of geopolitical events are changing how risk is priced.
Trump began 2026 with a US military operation in Venezuela that led to the capture of Nicolás Maduro, fresh tariff threats against European allies linked to Greenland, and renewed warnings toward Iran that rattled oil markets. Even his nomination of Kevin Warsh as Federal Reserve chair failed to calm markets, signalling that political risk is starting to outweigh traditional economic signals.
Strategists warn markets are poorly equipped to handle this kind of uncertainty.
Stephen Dover of Franklin Templeton noted that markets have a “very bad history” of pricing geopolitical risk correctly. Todd Morgan of Bel Air Investment Advisors added that investor anxiety around US leadership, trade policy, and military actions is unlike anything seen in decades.
Dollar confidence under review
What makes this period different from past geopolitical flare-ups is that tensions now involve US allies, including Europe and Canada. That has prompted investors to reassess the safe-haven status of dollar-denominated assets.
Tony Rodriguez of Nuveen said both US and non-US investors are rethinking the role of dollar assets in portfolios, arguing that rising policy volatility now demands a higher risk premium for US securities, including Treasurys.
Gold’s rally reflects this shift. Individual investors are joining central banks in buying the metal as protection against policy-driven uncertainty and doubts about the dollar’s long-term stability.
Earnings still matter, but less than usual
Economic fundamentals have not disappeared. The US economy remains resilient, and fourth-quarter earnings have been broadly solid. About 75% of S&P 500 companies reporting so far have beaten earnings expectations, slightly below long-term averages but still healthy.
Yet that strength has not provided the usual buffer for markets.
Shannon Saccocia of Neuberger Berman said strong earnings are failing to offset geopolitical stress in this cycle, leaving stocks more vulnerable to policy shocks.
Looking ahead, earnings from major tech and AI-linked firms including Alphabet, Amazon, AMD, Qualcomm, and Palantir remain key near-term catalysts.
Adding to uncertainty, a partial US government shutdown has disrupted the economic calendar. The January jobs report will be delayed until funding is restored, removing a crucial data point for markets this week.
Markets are entering 2026 with solid economic footing, but investors are increasingly focused on political decisions rather than balance sheets or growth forecasts. As geopolitical risks intensify and alliances strain, policy uncertainty may continue to overshadow earnings and macro data, forcing markets to navigate a far more unpredictable landscape.
Disclosure: This article does not represent investment advice. The content and materials featured on this page are for educational purposes only.
