As 2025 came to a close, the economic picture looked largely familiar. Unemployment remained low, consumer spending held up, and inflation continued to ease gradually, even if it stayed well above long-term targets. Policy uncertainty never fully faded, but it also failed to disrupt growth in a meaningful way.
Markets reflected that ambiguity. Some investors positioned for a resurgence in inflation, others for a sharper slowdown. Neither scenario fully played out. Instead, markets moved unevenly through the year and still produced solid results. U.S. equities finished 2025 up roughly 17%. Markets outside the U.S. were stronger, with both international and emerging market equities posting gains north of 30%. Fixed income also contributed, with bonds benefiting from higher starting yields and a more stable rate environment.
And then the calendar turned.
How Geopolitical Uncertainty Filters Into Markets
January opened with a sense of disruption. Markets were confronted with renewed geopolitical tension, trade uncertainty, and sharp day-to-day swings across stocks, bonds, and currencies. For investors, the question is: How do events like these actually affect markets, and what do they mean for portfolio decisions?
The answer is rarely found in a single headline. Recent weeks have brought a steady stream of market-moving news: “Stocks tumble as markets shift back to trade-war mode,” “Global bond markets calm after sharp selloff,” “Oil prices rise as tensions flare,” and “Investors reassess the path of rates.”
Markets react quickly to headlines, but their lasting impact is felt more slowly, through changes in confidence, capital allocation, and how investors price risk.
Venezuela and the Role of Assumptions
Recent developments involving Venezuela help illustrate this process. The country’s oil reserves did not suddenly increase or disappear, and global demand did not materially change. What shifted were assumptions around governance, enforcement, and access to markets.
Energy markets are built not just on supply and demand, but on confidence — confidence that production, financing, and transport will function as expected. When that confidence is questioned, prices adjust to reflect uncertainty about reliability rather than changes in volume. Over time, uncertainty changes behavior: companies delay investment, lenders grow more selective, and supply chains adjust more cautiously. The result is often higher friction across the system.
At the same time, the events in Venezuela have not meaningfully altered expectations for U.S. growth. Again, where events like this matter more is in how they affect confidence and assumptions. They reinforce an environment where policy outcomes feel less predictable and where capital becomes more cautious. Investment decisions slow at the margin. Projects require higher returns to justify risk.
These are gradual effects, not shocks. Not every geopolitical event changes the economic outlook, but many contribute to an environment where markets demand greater compensation for uncertainty. Developments like Venezuela matter in that context — not as isolated triggers, but as part of a broader backdrop of friction that shapes how capital is priced and deployed.
Greenland, Alliances, and Market Confidence
Early January also brought unexpected attention to Greenland, following renewed public discussion around access, control, and leverage among allies. Markets reacted quickly, with volatility rising and safe-haven assets seeing increased demand. As rhetoric softened, some of those moves reversed.
From a market perspective, the significance was less about Greenland itself and more about what the episode signaled. Investors pay close attention to how alliances function, how rules are enforced, and how predictable the global framework remains.
Here also, confidence plays a quiet but important role in financial markets. As established arrangements become less certain, investors begin to re-evaluate where capital belongs and how risk should be priced. This process does not require dramatic shifts or sudden exits. It usually shows up at the margin.
Over time, as holdings mature, allocations are reviewed. Some capital is reinvested as expected, and some is redirected elsewhere. Over time, those incremental decisions influence borrowing costs, currency dynamics, and market behavior more broadly.
The U.S. remains central to global finance, and Treasury markets remain among the deepest and most liquid in the world. Financing large deficits works smoothly when confidence in institutions and alliances remains strong. If those assumptions are questioned, markets adjust through pricing rather than panic.
Why Volatility Feels Persistent
For many years, geopolitical shocks reinforced a familiar pattern: Investors moved toward U.S. assets during periods of stress. Recently, that response has been less automatic.
When uncertainty is tied to trade rules, alliances, or institutional credibility, markets tend to pause and reassess. That reassessment shows up as volatility, uneven price action, and short-term reversals.
This environment also complicates the task facing central banks. Inflation influenced by supply constraints and energy costs does not respond cleanly to interest-rate adjustments. As a result, policy decisions carry more uncertainty, and markets remain sensitive to new information.
None of this implies an abrupt shift in the global system. It only suggests that markets are operating with less margin for error and greater sensitivity to policy and enforcement.
When uncertainty is driven less by economic deterioration and more by questions of access, enforcement, and credibility, its effects show up unevenly. Markets reprice risk before fundamentals change. Liquidity takes on greater importance. Time horizons shorten at the margin. Assets that must be sold on demand behave differently than assets that can mature or compound through uncertainty.
In that environment, outcomes are shaped less by any single forecast and more by how capital is structured to absorb friction as assumptions evolve.
How We Position Portfolios in Environments Like This
Periods like this tend to reveal how markets and portfolios actually behave, not how they are described. When uncertainty is driven less by economic deterioration and more by questions of enforcement, access, and institutional credibility, its effects are uneven. Prices often move before fundamentals change. Liquidity becomes relevant sooner. Time horizons shorten at the margin.
In those conditions, portfolio structure becomes more important. Capital that may need to be accessed on demand behaves differently from capital that can remain invested and roll forward through uncertainty. The timing of cash needs, maturities, and reinvestment decisions begins to influence outcomes alongside market returns.
Seen this way, volatility is more than day-to-day price movement. It reflects how comfortably capital can function when assumptions shift and when the rules governing markets feel less settled. Some portfolios adjust gradually as conditions evolve. Others experience stress more quickly as flexibility narrows and timing becomes more consequential.
Markets will continue to respond to new information, and periods of calm will alternate with periods of reassessment. Economic data will still matter, but it will not always be the dominant driver. Governance, credibility, and the stability of the rules increasingly shape how risk is priced and how capital moves.
In that environment, we don’t try to forecast every disruption. We position capital so portfolios can absorb friction, fund near-term needs, and stay invested through periods of uncertainty.
If any of this raises questions about your own allocation, I’m happy to talk. Please reach out.
Regards,
John Gorlow
President
Cardiff Park Advisors
888.332.2238 Toll Free
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