Navigating Markets Among Geopolitical Uncertainty

Market Volatility Reflects Uncertainty, Not Fundamentals

Recent market weakness has been driven less by rising uncertainty around geopolitics, fiscal policy and trade. Headlines tied to tariffs, foreign policy and election-year dynamics have increased volatility and weighed on sentiment. We believe this pullback reflects uncertainty being priced in rather than a meaningful change in the growth outlook. When viewed through the lens of economic momentum, productivity, fiscal support and earnings power, the risks appear overstated.

Greenland Causing Short-Term Tensions with the EU

Greenland has moved to the forefront of market concern largely because of the trade tensions it is creating with Europe rather than any immediate economic impact. The president’s announced plan imposes additional tariffs of 10% on eight European countries, increasing it to 25% starting June 1 until an agreement for Greenland is met. However, because the EU operates as a unified trading bloc, these measures could effectively apply across the entire region, reintroducing uncertainty for businesses that had assumed peak tariffs were already behind us. However, implementation is unlikely as the White House’s own modeling suggests tariff rates above 18% tend to generate diminishing revenue, implying that it is negotiating leverage rather than an end-state policy.¹ While this uncertainty may delay progress on a broader EU–U.S. trade agreement in the near term, our expectation is that some form of compromise is ultimately reached.

Even if the additional tariffs are implemented, the underlying driver of this tension is strategic as Greenland holds some of the world’s largest known deposits of rare earth metals. These components are critical inputs that are essential for defense systems, advanced electronics and energy infrastructure. As China dominates 70% of global production and 90% of processing capacity², securing alternative supply chains has become a national priority. From that perspective, Greenland represents a long-term strategic asset aimed at improving supply security and reducing geopolitical vulnerability. While the path to development is complex and slow, the potential benefits are meaningful. Markets are currently pricing the uncertainty created by tariff rhetoric and EU tensions but not fully appreciating that the objective is to strengthen long-term resource resilience. In our view, this makes Greenland a source of near-term noise rather than a lasting risk to growth or earnings.

Venezuela: Energy Revitalization in 2026

Like the active coverage on Greenland, the capture of Venezuelan President Nicolás Maduro raised questions around legality and the risk of regional destabilization, leading markets to price in heightened geopolitical uncertainty and potential energy disruption. After the operation, which seized Maduro over narcoterrorism charges, President Trump has stated the U.S. will be deeply involved in the Venezuelan oil industry, with the goal of bringing additional supply to global markets. While such an intervention carries real risks, including the need to secure oil fields, the costs of rebuilding degraded infrastructure and managing a complex political transition, the initial market reaction has focused far more on the shock than on the strategic implications.

Those strategic implications are meaningful. Venezuela holds the largest proven oil reserves in the world, and revitalizing its production would diversify global supply while materially reducing the pricing power of OPEC+. Chevron has indicated it could immediately raise oil liftings from joint ventures and increase production capacity by roughly 50% within 18–24 months.³ Under constructive conditions, Venezuela could reach 1.3–1.4 million barrels per day within two years, with a longer-term recovery toward 2.5 million barrels per day requiring sustained capital investment over 5–10 years.⁴ Such an increase would have a meaningful impact as a 1% increase in global oil supply lowers prices by roughly 2.5%⁵, implying that Venezuela’s reopening could drive a meaningful decline in global energy prices over time. An incremental 1–2 million barrels per day would also undermine OPEC+’s ability to manage supply, strengthening U.S. geopolitical leverage and energy security. Combined with the fit between Venezuela’s heavy crude and U.S. Gulf Coast refining capacity, this shift supports affordability, lowers inflation pressure and provides a constructive tailwind for economic growth as 2026 unfolds.

Ongoing Conflicts in Ukraine and the Middle East

Developments in Ukraine and the Middle East continue to generate uncertainty, but market spillovers remain contained. Negotiations around security guarantees and reconstruction in Ukraine continue alongside ongoing hostilities, while the Israel–Gaza ceasefire framework has reduced immediate escalation risks despite slow progress toward a durable settlement. Markets have largely adapted to these conflicts as ongoing but bounded risks, rather than open-ended threats to global growth. While these situations warrant monitoring, they have not meaningfully altered financial conditions or the broader economic trajectory.

Supreme Court Decision on Tariffs

Trade policy uncertainty remains a primary driver of recent market volatility, specifically as investors weigh a 60% probability that the Supreme Court will rule the administration’s reciprocal tariffs unlawful, agreeing with lower courts.⁶ While the legal range is broad, the economic implications are more contained than current market pricing suggests; a ruling against the administration would likely necessitate the return of over $150 billion in collected duties, interest and fees to U.S. importers by early 2026. Global markets have responded with cautious optimism to the prospect of this capital injection, though businesses face lingering uncertainty regarding the exact timing of refunds and potential policy shifts.

Even in scenarios where the administration pivots to alternative statutory authorities, they require additional legal steps and are often more targeted in scope. Much like last year’s experience, we expect that as immediate tariff pressures transition into manageable legal and fiscal frameworks, confidence will be restored. We view the current setup as one where headline uncertainty may dominate the short term, but the macro consequences are likely to fade rather than compound as structural stabilizers take effect.

Fiscal Policy Is Cushioning Uncertainty, Not Creating It

Fiscal policy is emerging as a meaningful offset to today’s policy-related uncertainty. The One Big Beautiful Bill Act is expected to lift after-tax income across income brackets, with gains of roughly 3% for households earning over $100,000 and about 1% for households earning under $50,000. Approximately $160 billion in tax cuts are expected in 2026, with an unusually immediate impact due to retroactive tax credits.⁷ April tax refunds could be as much as $20 billion higher than normal, injecting liquidity directly into household balance sheets. This temporary influx of cash should support both consumption and debt repayment, contributing an estimated +80 basis points to GDP in the first half of 2026.⁸ Importantly, this fiscal impulse arrives at a time when the consumer is already resilient, helping buffer the economy against geopolitical and policy noise rather than masking weakness.

Uncertainty Is Being Priced, Fundamentals Are Not

Stripping away the noise, the underlying macro data remain robust. Real GDP growth is tracking above 5% in late 2025, supported by strong personal consumption, solid export growth and healthy real final sales.⁹ The savings rate remains above long-term norms, and with unemployment in the mid-4% range, productivity appears to be improving faster than expected, an important positive for both margins and inflation.¹⁰ Earnings are ultimately what matters most for markets, and current trends point toward low-teens EPS growth in 2026. While parts of technology remain expensive, valuations across much of the market are far more reasonable, and leadership continues to broaden.

Nearly $1 trillion in fiscal, monetary and deregulatory stimulus is approaching or already in place, providing a substantial cushion against policy uncertainty. History shows that midterm election years often bring volatility, but they also coincide with strong growth. We believe markets are once again pricing uncertainty while underestimating the resilience of the U.S. economy. As policy questions become clearer, we expect attention to return to fundamentals where the case for sustained growth and a constructive outlook for 2026 remains firmly intact.

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Sources:

1. Bloomberg intelligence, as of March 2025 ↩︎
2. Bloomberg Intelligence, as of March 2025 ↩︎
3. Bloomberg Intelligence, as of March 2025 ↩︎
4. EMFI Securities, as of January 2026 ↩︎
5. Bloomberg, as of January 2026 ↩︎
6. Bloomberg Intelligence, as of January 2026 ↩︎
7. Tax Policy center, as of October 2025 ↩︎
8. CMB International 2026 Strategic Outlook, as of December 2025 ↩︎
9. Federal reserve Bank of Atlanta, as of January 2026 ↩︎
10. Bloomberg, as of December 2025 ↩︎

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