Geopolitics and Market Volatility
Matt Loadwick
Feb 2025 • 3 min read
Geopolitics and Market Volatility
The stability, or otherwise, and volatility of global stock markets can be affected by a number of factors, which can be both economic and political in nature. In terms of economic factors, both UK and US economies are currently experiencing well-documented inflation, the result of rising costs of goods and services. This leads to increased borrowing costs, and to market uncertainty, as investors get spooked by high costs, and have a tendency to wait for prices to drop before investing.
In the UK, a glimmer of light appeared when the rate of inflation dropped by 0.1% in December compared to November, easing the pressure on Chancellor Rachel Reeves, and going some way to improve market confidence as the odds increase of the Bank of England reducing interest rates early this year. That said, it does feel like the current news cycle in the UK will provide reasons to be cheerful one day, followed by reasons to despair on the following, fuelling further volatility as markets react.
Global stock markets are also influenced by geopolitical events, where often the unpredictability surrounding such events can lead to increased volatility. As an example, the Russian invasion of Ukraine resulted in firms that had strong ties to Russia experiencing a significant fall in share prices.
It is also worth pointing out that politics and economics clearly do not exist in a vacuum, with both influencing each other symbiotically – as politicians drive their economic agenda, markets respond accordingly depending on the success (or otherwise) of their policies …
As the 47th President of the United States was sworn in for the second time earlier in January, the world is braced for increasing geopolitical uncertainty with a Trump administration once again at the helm. Indeed, they have taken little time to give us a taste of what is to come over the next four years, creating headlines through divisive policies, such as the proposed mass deportations of illegal immigrants, withdrawal from the Paris climate agreement (compounded by plans to increase drilling for oil to promote as a key US export), pardoning the circa 1,500 Trump supporters who were charged over the 2021 US Capitol riots, and far-fetched rumours (we hope) of an interest in invading Greenland.
Such examples certainly give the impression that this administration may cause something of ‘a bumpy ride’ for markets in the coming years, particularly in the context of ongoing conflicts in the Middle-East and Ukraine. This is reflected in research undertaken by Scottish Widows, which suggests that geopolitics and volatility are likely to be among the top concerns for advisers in 2025.
If at some point you were to watch the value of your investments take a temporary drop, it is only human nature to feel a sense of nervousness. In the face of this expected volatility, we at Solomon’s are here as ever to encourage calm, and to ensure that our clients do not lose sight of the importance of planning for the long term.
