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The first few weeks of the year have been marked by rapid shifts in geopolitical relations, which has driven some major moves in markets.
At the very start of January, the US captured Venezuelan leader Nicolás Maduro, after president Donald Trump ordered the military to carry out strikes on the country.
Trump then turned his attention to Greenland, ramping up his push for the US to take over the semi-autonomous Danish territory. Stock markets sold off after Trump threatened to impose new tariffs on Denmark and seven other European countries over opposition to his plans to acquire Greenland.
However, markets then rebounded on Wednesday after Trump ruled out using force to acquire Greenland, in a speech at the World Economic Forum.
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Later in the day, Trump then dropped his threat to impose new tariffs, saying in a social media post that a “framework of a future deal” in regards to Greenland had been formed based on a meeting with Nato secretary general Mark Rutte.
“Further information will be made available as discussions progress,” Trump said, but did not offer further details.
Stocks extended gains on Thursday, following this de-escalation in geopolitical tensions. The UK’s FTSE 100 (^FTSE) is currently trading 2.4% in the green year-to-date, while the pan-European STOXX 600 (^STOXX) is up 2.8% and the US S&P 500 (GSPC) has advanced 1%.
Neil Wilson, investor strategist at Saxo UK, said: “It looks like a classic TACO [Trump Always Chickens Out] trade as far as the market is concerned but it’s also classic Trumpian politics and he’s got things moving in the direction he wants, even if he had to whip up the threats to a pretty absurd level.”
“It’s a pivot but not really – classic Trump basically – by using threats he’s got what he wants at likely far less cost and far quicker than doing so the normal diplomatic way (in days not years) – this is the incredible speed at which he is charging to remake the world order.”
Wilson said that more market swings are to be expected, as “nothing is going away now the genie is out the bottle”.
“More specifically, we are yet to see exactly how the EU-US trade relationship evolves in the wake of the last few days, which I feel has created a new rift in relations,” he said.
With that in mind, experts share some tips on how investors can navigate bouts of market volatility.
Andrew Prosser, head of investments at InvestEngine, said that short-term volatility becomes less significant over long timeframes of five, 10 or 20 years.
“History shows that markets are more likely to rise over the long term, and some of the strongest days often follow the sharpest declines,” he said.
For example, Prosser said that while markets initially dropped on the back of Trump’s unveiling of sweeping tariffs on “Liberation Day” on 2 April, US stocks then recorded their biggest one-day gain since the 2008 financial crisis.
He added that they then went onto deliver their strongest May in more than 30 years, with other global markets following suit.
“While it can be tempting to react, blocking out short-term noise and focusing on long-term goals is often what separates successful investors from those who miss out on recoveries,” he said. “Sometimes it’s best to just sit on your hands, as hard as it might be, and think about your time horizon – after all, time in the market is much more important than trying to time it.”
In moments of uncertainty, Laith Khalaf, head of investment analysis at AJ Bell (AJB.L), said that it’s “important to keep a cool head when it comes to your investments”.
He said that investors should focus on ensuring that their portfolios are diversified and reflect the level of risk that they are willing to take.
“Your investments can become unbalanced over time if they aren’t brought to heel every now and again,” he explained. “In today’s climate it’s easy to fall into the trap of regulating your portfolio according to Donald Trump’s posts on Truth Social, and while these are clearly important, it’s worth bearing in mind your investments are a long-term project which will outlast the current presidential term.”
Similarly, Wealth Club chief investment strategist Susannah Streeter said that it’s worth investors checking that they haven’t put all their “eggs in one basket”, in terms of portfolio exposure to certain sectors or geographies.
For instance, she said that some global passive funds can still be overweight in certain sectors, such as US tech due to the valuations of these companies, which can “make portfolios more vulnerable to turns in sentiment”.
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“Multi-asset funds, can provide in-built diversification by spreading money across a range of investments, including bonds, gold (GC=F) and equities focused on infrastructure for example,” said Streeter. “This built-in diversification can help smooth returns, if one type of investment sells off, others may hold their value or rise.”
Streeter said that investments focused on generating income can also be attractive in periods of volatility.
“This could be via investments in a range of established companies which have more reliable dividends, or through funds which offer in-built diversification by including bonds for income generation, as well as shares,” she said.
Streeter added that precious metals “can also be a sensible addition to portfolios to add ballast and diversification. However, it’s worth bearing in mind that gold (GC=F) and silver (SI=F) keep surpassing record levels this year amid the uncertain economic environment, and that historically prices have been cyclical.”
InvestEngine’s Prosser suggested that investors keep in mind their investment time horizon when considering the level of risk in their portfolio.
He said: “Investors with shorter time horizons will naturally hold different portfolios to those investing for 30 years or more. If market swings feel overwhelming, it may be a sign you’re taking on too much risk and should consider rebalancing into less volatile investments.”
“But if you’re comfortable with your risk level and investing for the long term, stepping back and letting compounding do the work can often be the best approach.”
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