Geopolitical Events — Wars, Elections, and Market Shocks

Then something happens that is not on any calendar.

A war breaks out. A government collapses. A major election produces a result nobody expected. A pandemic emerges. A critical piece of global infrastructure is disrupted. A country defaults on its debt.

These are geopolitical events. They are by definition unpredictable in their timing and often in their magnitude. And they can move financial markets faster and more violently than almost any scheduled data release.

You cannot predict geopolitical events. But you can understand how markets respond to different types of shocks, and that understanding means you are never completely caught off guard.

Safe haven assets rise. Gold strengthens as investors seek a store of value that carries no counterparty risk. The Japanese yen and Swiss franc strengthen because they are considered safe haven currencies. Japan and Switzerland are politically neutral, financially stable, and their currencies tend to appreciate when global uncertainty rises.

Risk assets fall. Stock markets sell off as uncertainty about the economic outlook increases. Currencies of countries near the conflict or economically exposed to it weaken.

Commodity markets react based on what the conflict threatens to disrupt. When Russia invaded Ukraine in February 2022, oil prices surged because Russia is one of the world's largest oil producers and the conflict threatened supply. Wheat prices spiked because Ukraine is one of the world's largest wheat exporters. European natural gas prices exploded because Europe was heavily dependent on Russian gas.

The speed and severity of the initial reaction depends on how unexpected the conflict was. When tensions have been building publicly for months, markets have already priced in some probability of conflict. When conflict erupts without warning the reaction is more violent because the market has to do all its repricing in a very short time.

Markets generally prefer outcomes that mean policy continuity, fiscal discipline, and stable international relations. They react negatively to outcomes that create policy uncertainty, threaten trade relationships, or signal significant shifts in taxation or regulation.

The 2016 US presidential election result caused an immediate shock reaction. US stock index futures fell 5% in the hours after the result. Then, as markets processed what a Trump presidency actually meant for tax cuts and deregulation, futures recovered and went on to make new highs within days.

Brexit, the 2016 UK referendum result in favour of leaving the European Union, caused one of the largest single day moves in British pound history. GBP/USD fell over 10% in a matter of hours as markets priced in the uncertainty of what a UK outside the EU would look like economically.

The lesson from both events is that the immediate post election reaction often overshoots. Markets react to the shock of the unexpected result before they fully process the policy implications. The initial move is often partially reversed as cooler heads prevail.

The first is knowing your safe haven assets. Gold, the Japanese yen, the Swiss franc, and US Treasury bonds all tend to strengthen in geopolitical uncertainty. When something unexpected happens in the world, these are the assets that benefit from the initial flight to safety. Knowing this means you can look for opportunities in these assets when the news hits rather than being paralysed trying to work out what is happening.

The second is understanding which assets are most exposed to specific risks. Which currencies are most affected by Middle East tensions? Ones connected to oil, including the Canadian dollar, the Norwegian krone, and any currency belonging to a major oil importing nation. Which markets are most affected by tensions between the US and China? Technology stocks and global supply chains. When you know the connections, you can think through the likely market impact of a given event before it happens.

The third is managing your open positions around periods of elevated geopolitical risk. When tensions are clearly building, reducing position sizes and widening stop losses is sensible risk management. You do not need to exit everything. You just need to acknowledge that the risk of a sudden violent move is higher than normal and adjust accordingly.

The September 11 attacks in 2001 caused US stock markets to fall sharply when they reopened after being closed for several days. Within a month markets had largely recovered. The long term economic impact was significant but the initial pricing of that impact was overdone.

The COVID-19 pandemic caused the fastest bear market in history in February and March 2020, and as of 2026, this remains the record. The S&P 500 fell 34% in 33 days. By August 2020 it had fully recovered and made new all time highs. The initial market pricing was, in hindsight, significantly overdone in both directions.

The pattern that repeats is this. Geopolitical shocks create violent initial reactions that are often excessive. As the actual economic impact becomes clearer and as the initial panic fades, markets tend to stabilise and partially reverse the initial move. For patient traders who can keep a clear head when others are panicking, geopolitical shocks often create some of the best medium term trading opportunities available.