Geopolitical Risk Is Rewriting the Rules of Markets

Global macro trading has been objectively boring for the better part of the past 20 years, however, it has since been reborn alongside the rise in geopolitical tensions. A world focused on cost-cutting through globalization meant that foreign relations would remain strong, and therefore, volatility would remain low. But with globalization now withering away, so too are the relationships that once held the economic world together, and with that, comes an increase in volatility.

We Live in a Volatile World

Globalization was the glue that kept the world together. The biggest players all bought into the system and, in return, received the benefits that came with it. In 2008, trade growth as a share of global GDP peaked, and the marginal benefit of globalization began shrinking. The first real blow came in 2016, when Brexit was announced and Trump planted the seeds of onshoring capacity back to the US through his infamous slogan: "Make America Great Again." The breaking point came in 2020, when Covid exposed the fragility of global supply chains, forcing elected officials to rethink their reliance on foreign nations. Critical goods such as semiconductors, food, and energy became national security concerns, and that has driven policy ever since.

Geopolitical events don't have defined start and end points anymore; they compound, like a snowball rolling downhill. In 2021, US-China tensions escalated over Taiwan. Shortly after, Russia invaded Ukraine. In 2023, Hamas attacked Israel and the Middle East ignited once again. In 2024, Trump returned to power and immediately began reshaping trade, NATO, and global dynamics. In 2025, the US tariff war escalated into a full-blown global trade conflict, and whatever was left of globalization effectively ended. We are not even a quarter of the way through 2026, and the leader of Venezuela has been captured and Iran has been leveled. Viewed from the top down, the pattern is quite clear: events are getting bigger, faster, and closer together.

The end of globalization has pushed nations to become proactive rather than reactive, and that shift has largely become the driver of rising tensions. Trump's move to capture the leader of Venezuela is the clearest example of this. A decade ago, such a move would have been almost unthinkable. But in today's world, it will likely be forgotten by year end. Underneath most of the current geopolitical moves lies one commonality: USA vs. China. Most of what is playing out right now is nothing more than stockpiling for a potential conflict between these two behemoths. Alliances, semiconductors, energy, weapons. Everything is being positioned with that possibility in mind. The end result is a geopolitical environment that is more volatile, more unpredictable, and more consequential than anything markets have had to price in for decades.

AI Is a Geopolitical Accelerant 

The Speed Problem 

AI, even in its current form, is orders of magnitude more efficient than the defense leaders and elected officials who oversee it. Decisions that once required human sign-off can now be delegated to systems that operate faster than any chain of command. And while some remain skeptical about AI's role in active conflict, its application is already confirmed. The White House acknowledged the use of Anthropic's technology in the capture of Maduro, making it clear that AI is no longer a future consideration in warfare; it is already here. Traditionally, diplomacy acted as a circuit breaker during periods of heightened tension. When things escalated, there was time for back-channeling and de-escalation before situations spiraled out of control. AI has eroded that buffer. Public opinion now shifts so rapidly that the window for diplomacy is non-existent. By the time officials are working toward a resolution, narratives have already been shaped on both sides. Leaders end up responding to perception rather than reality, and that makes compromise more difficult than it used to be.

USA vs. China 

At the center of the escalating rivalry between the United States and China is the war on AI. In many ways it mirrors the space race, though the consequences are much greater. It is not just about economic output, but rather military superiority. This is a large part of why Taiwan has become such a focal point as of late. TSMC is arguably the most strategically important piece of infrastructure on earth right now, because whoever leads in AI, leads in everything that follows. 

The New Categories of Risk 

While the AI of today is largely centered around LLMs, the next frontier is robotics. When robots reach a sufficient level of capability, they will introduce a new set of geopolitical risks. Conflicts that once took months to play out could be decided in days. Nations that lack the AI infrastructure of the US or China will be increasingly vulnerable to advanced cyberattacks and surveillance capabilities beyond anything currently imaginable. Intelligence will become more precise, strikes will become autonomous, and the barrier to aggression will be lower than ever. As AI continues to advance along the S-curve, geopolitical instability will only compound.

What This Means for Markets 

The Investor vs. Trader Dynamic 

For nearly 40 years, markets operated in a globalized world where passive, slow-moving capital was the dominant strategy. But that world no longer exists. Buy-and-hold worked because it operated under the assumption that the global order would remain stable. Geopolitical volatility has since shattered that assumption. In this environment, traders benefit the most. News cycles move fast and render long-dated theses obsolete within days. Slow-moving investors and those anchored to outdated theoretical frameworks will need to pivot if they want to compete in today's market.

Volatility Is the New Normal

Old investment frameworks typically treated volatility as a temporary event. But in a world of compounding geopolitical tensions, there is no "waiting it out", and those who try often end up paying for it. We saw this in 2022, when bonds collapsed and the classic 60/40 portfolio was ripped apart. Many of those who held on are still sitting on massively negative positions today. These types of regime shifts reward those who act quickly and punish those who don't. Diversification has also lost much of the protection it once offered. During geopolitical shocks, correlations spike and assets move together, which is what crushed the 60/40 portfolio in 2022.

Adapt or Die 

Geopolitical volatility is structural. It compounds, and it leaves very little room for those who move slowly. The participants who will suffer most are those who refuse to update their mental models. Fading six-sigma moves with the old playbook will not work. Leaning on traditional valuation metrics will cause investors to miss major cyclical trends entirely. And assuming that companies have rock-solid moats in a world being reshaped by the day is a costly mistake. The world is moving at lightning speed. Adapt or die trying.