New year, same story: Geopolitics, tariffs, and resilience

“Nothing changes on New Year’s Day.” This famous line from a 1983 U2 song captures a truth often overlooked in financial markets — while the calendar may flip, the underlying macro and market trends rarely undergo dramatic shifts overnight. 2026 has begun much like 2025 ended: Broadening of markets continued, as global stock markets continued their upward trajectory,¹ supported by expected strong earnings growth,² anchored inflation expectations,³ and optimism around potential central bank policy easing.⁴

Yet, as was the case last year, investors face a proverbial “wall of worry,” none of which we believe is likely to derail the market advance. These include, but aren’t limited to: Persistent geopolitical tensions and new flashpoints such as the developments in Venezuela, Greenland, and Iran, questions surrounding the independence of the Federal Reserve (Fed), and the legality of the Trump administration’s tariffs. 

Meanwhile, the US economy enters the year on a sound footing, resilient, and with important signs that productivity has improved.⁵

Concerns over Fed independence return 

The Trump administration’s Department of Justice is opening an investigation into the US Fed and raised the possibility of a criminal indictment connected to Fed Chair Jerome Powell’s testimony regarding cost overruns associated with the Fed’s building renovation. Powell pushed back publicly and strongly, releasing a video in which he argued that the building costs are merely a pretext.

The independence of the central bank is critical. That should not be a bold or controversial statement. It is a foundational principle of modern macroeconomic management and a cornerstone of financial market confidence. The market reaction to this news has been muted. Stocks were generally stable,⁶ and the US dollar surprisingly advanced in the week.⁷ We believe that the muted reaction is justified for now as the market appears to have grown accustomed to the jawboning from the administration. It also raises the probability that Chair Powell will remain on the Federal Open Market Committee (FOMC) even after his term as Chair ends. He would be the third Chairman to break convention and do that. Ironically, the upshot could be a Fed that is more hawkish than was previously expected. This is an important and changing story. We’ll be watching inflation expectations closely. They remain within the Fed’s perceived “comfort zone,” despite a sizeable increase early in the week.⁸

Energy markets remain stable despite Venezuela conflict

Recent events in Venezuela and Iran have made big headlines. Questions about potential global impacts are being raised. Typically, geopolitical developments have only disrupted markets when they either damage global economic activity — via a growth or supply shock — or provoke a shift in policy by the world’s major central banks. In Venezuela’s case, neither outcome seems likely. The same is true in the Middle East, provided the Strait of Hormuz remains open.

Venezuela’s diminished oil production capacity⁹ and the overall robustness of world oil supply¹⁰ have kept energy markets stable. While Venezuela reportedly has more oil reserves than Saudi Arabia, there’s little likelihood that Venezuelan production rises meaningfully for years at best. Thus, the muted reaction in oil makes sense to us.

Unsurprisingly, precious metals, including gold and silver, have advanced¹¹ as investors sought potential safe havens. We think both have the potential to move higher if geopolitical concerns, including those in Iran and Greenland, persist.

Supreme Court delays tariff ruling

The US Supreme Court delayed its ruling on the legality of the tariffs that President Trump issued last year under the International Emergency Economic Powers Act (IEEPA). A ruling is expected in the coming weeks. Regardless, overall US tariff levels are unlikely to decline substantially even if the IEEPA tariffs are struck down. Other statutes grant the president broad authority to impose tariffs, meaning those previously enacted under the IEEPA could be reimposed under different legal frameworks.

Tariff pressure on Europe over Greenland

Over the weekend, President Trump announced that several European countries would face additional tariffs if they didn’t support the full sale of Greenland to the US. President Trump’s rhetoric around a sale then grew with a letter sent to the Norwegian Prime Minister on Monday. He threatened to apply a 10% tariffs on all goods exported from Denmark, Norway, Sweden, France, Germany, the UK, the Netherlands, and Finland to the US starting February 1 until a deal is reached for the “Complete and Total Purchase of Greenland.” Also, the tariff will be increased to 25% on June 1, 2026, if a deal hasn’t been reached. This is on top of existing tariffs. European Union (EU) leaders are debating their response, but one option could include invoking the Anti-Coercion Instrument (ACI), which would allow the EU to close off US access to the European single market.

Markets have reacted in a relatively sanguine fashion, and for now, we think that’s probably the right and expected reaction. We knew the US administration wanted to acquire Greenland, and President Trump has a clear history of threatening high tariffs and then walking them back. These moves support our core views: A weaker US dollar, higher precious metals prices, and potential outperformance by non-US stocks.

US banks deliver, but fall on credit card risks

US banks were the worst-performing group in the US last week despite delivering strong earnings results that painted a picture of a resilient US consumer and strong trading revenue.¹² Downward pressure came as a result of President Trump calling for a 10% cap on credit card rates — average credit card rates have never been at 10%.¹³ It remains to be seen whether the US administration could deliver this change and how bank credit would respond. But the idea sends a message. The US administration wants a very strong economy this year and will try unconventional measures to get it.

Data illustrate the US economy’s resilience

Recent data releases served as a reminder that the US economy has entered 2026 much as it ended 2025 — on a sound footing with resilient, indeed, improving growth. 

• Manufacturing survey data held steady but remains in contraction territory,¹⁴ while services pointed to expansion, albeit at a moderate pace.¹⁵
• Businesses continued to show caution, reluctant to hire aggressively¹⁶ yet unwilling to cut staff, as jobless claims stay near historic lows.¹⁷
• Credit card spending data¹⁸ underscored that consumers are still spending, supporting overall stability.
• Inflation is elevated but relatively stable.¹⁹
• Importantly, third-quarter productivity came in at 4.9%,²⁰ perhaps a sign that the benefits of new technologies such as artificial intelligence (AI) are beginning to accrue. We view this as bullish for stocks, as rising productivity is supportive for corporate earnings and allows the central bankers to run the economy hot without inflation.
• The latest Atlanta Fed GDP Nowcast figure is pointing to real US GDP growth of near 5.5%.²¹

Our outlook remains the same

The restful holiday period seems a long time ago now, and while it might feel like a lot is changing, we are content that our core views haven’t changed. If anything, they are strengthened. We still believe growth will improve globally and stocks have the potential to rise, led by non-US markets and cyclical sectors.