How I expect Trump’s second year to shape global markets

President Trump’s second year in office is already reshaping the global macro landscape. From the recent US–Iran conflict to renewed trade tensions, policy decisions in Washington could significantly influence gold, oil, currencies, and equity markets in the coming year.

Political cycles rarely move markets in predictable ways. Campaign promises often collide with geopolitical realities, and investor expectations shift as policies begin to take shape. As President Trump enters the second year of his presidency, markets are increasingly forced to react not only to economic data but also to political decisions from Washington.

Trump’s policy agenda has historically centered on three themes: protectionist trade measures, strong geopolitical positioning, and domestic economic stimulus. Each of these areas has the potential to affect financial markets in different ways.

Recent developments in the conflict between the US and Iran have reinforced this dynamic. The escalation has already increased geopolitical risk across energy markets and has reminded investors that political events can rapidly reshape macro expectations.

In my view, Trump’s second year could be defined by a mix of geopolitical volatility, shifting trade relationships, and renewed debate around inflation and central bank policy. For investors, understanding how these forces interact will be critical to navigating the next phase of global markets.

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Geopolitics returns as a market driver

The impact of the US–Iran conflict

One of the most significant recent developments shaping markets has been the escalation of tensions between the US and Iran. Even a limited military confrontation can quickly shift investor sentiment.

The Middle East remains one of the most important regions for global energy supply. Any perceived threat to production or shipping routes, particularly around the Strait of Hormuz, can trigger sharp moves in commodity markets.

The recent conflict has reminded investors that geopolitical risks can move markets faster than economic fundamentals.

Trump’s foreign policy approach

Trump’s foreign policy strategy has often relied on economic pressure, sanctions, and strategic leverage rather than multilateral diplomacy. While this approach can create negotiating power, it also increases the likelihood of geopolitical volatility.

Markets, therefore, must continuously price the possibility of political escalation.

This dynamic could become a recurring theme during Trump’s second year, particularly in regions where energy supply chains intersect with geopolitical rivalries.

Oil markets in a politically sensitive environment

Energy supply risks in the Middle East

Oil markets are typically the first to react when geopolitical tensions intensify. The recent escalation involving Iran has revived concerns about supply disruptions across the Middle East.

Oil traffic through the Strait of Hormuz plunges as geopolitical tensions disrupt global supply routes

Even without direct production losses, the mere possibility of disruptions to shipping routes can push prices higher. Insurance costs rise, shipping premiums increase, and traders begin pricing additional risk into futures markets.

These factors often create sudden price spikes even when physical supply remains stable.

Domestic production and policy priorities

At the same time, Trump’s administration continues to prioritise US energy production. Support for shale development and domestic drilling has been a consistent theme in US energy policy.

Increased domestic production could help offset some geopolitical supply risks. However, global oil markets remain sensitive to major disruptions.

For this reason, I expect oil markets to remain highly responsive to political developments throughout the year.

Gold as a safe-haven asset

Geopolitical uncertainty and investor behavior

Gold has historically performed well during periods of geopolitical instability. Investors often turn to safe-haven assets when uncertainty increases across global markets.

Gold delivers its strongest year-to-date rally in decades.

The conflict involving Iran has already strengthened demand for gold as investors seek protection against potential market disruptions.

Periods of military tension or geopolitical uncertainty often trigger inflows into precious metals.

Inflation expectations and monetary policy

Gold’s outlook is also closely linked to inflation expectations and central bank policy.

Trump’s economic agenda could boost fiscal spending, while geopolitical tensions could push commodity prices higher. If inflation expectations begin to rise again, central banks may face a more complex policy environment.

Gold often performs well during periods when inflation risks increase and real interest rates become uncertain.

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Currency markets and trade policy

Tariffs and global trade tensions

Currency markets may become one of the most sensitive areas as a result of Trump’s economic strategy, particularly when considering the broader forex outlook for 2026.

Trade policy has always been central to his approach. Tariffs, trade negotiations, and economic pressure on rival economies can quickly influence exchange rates.

When trade tensions escalate, currency markets often react before other asset classes.

Major currency pairs such as EURUSD, GBPUSD, and USDJPY may experience increased volatility as traders respond to political developments.

Safe-haven currencies and risk sentiment

Geopolitical uncertainty also influences capital flows toward safe-haven currencies such as the US dollar, Swiss franc, and Japanese yen.

The US dollar records its strongest two-day gain in nearly a year as Middle East tensions boost demand for safe-haven currencies

During periods of heightened political tension, investors often move funds into assets perceived as stable.

As a result, currency markets could see rapid short-term fluctuations driven by geopolitical headlines rather than purely economic data.

US equity markets in Trump’s second year

Policy support for corporate growth

US equities may benefit from continued pro-business policies, as discussed in this week’s stock market outlook for 2026.

Trump’s administration has historically supported tax incentives, deregulation, and domestic investment. These policies can strengthen corporate profitability and encourage business expansion.

Strong corporate earnings could therefore continue supporting US stock markets.

AI investment and the technology cycle

AI remains one of the most powerful structural drivers of equity markets.

Over the past few years, the rapid expansion of AI development has led to massive investment in data centres, semiconductor manufacturing, cloud infrastructure, and software platforms. Companies involved in AI hardware and computing power have already seen significant capital inflows.

Strong earnings expectations and the AI investment boom keep Wall Street bullish on US equities.

Trump’s second year could reinforce this trend. Policymakers in Washington increasingly view AI development as a strategic priority, particularly amid technological competition with China.

If government policy continues to encourage domestic AI leadership, companies involved in semiconductor design, cloud computing, and AI infrastructure could remain key drivers of equity market performance.

However, the AI boom also introduces new risks. Valuations across some tech names have risen rapidly, raising questions about sustainability if earnings growth fails to keep pace with investor expectations.

As a result, AI-related equities may remain powerful market leaders, but they could also become volatile if sentiment shifts.

Political risk and market volatility

At the same time, equity markets are highly sensitive to geopolitical developments and trade tensions.

Trade conflicts can disrupt supply chains, increase costs for multinational companies, and reduce global economic confidence.

Tech companies and multinational exporters may be particularly vulnerable to policy shifts.

For this reason, I expect US equity markets to remain fundamentally supported by economic policy and technological investment trends, while at the same time becoming increasingly reactive to geopolitical headlines.

Inflation and macro policy risks

Commodity prices and inflation

One of the key macroeconomic questions during Trump’s second year is whether inflation pressures will re-emerge.

Higher oil prices, geopolitical supply risks, and increased government spending could all contribute to rising inflation.

If inflation begins to accelerate again, central banks may be forced to reconsider their policy outlook.

The Fed’s policy challenge

The Fed may therefore face a difficult balancing act.

On the one hand, policymakers want to support economic growth. On the other hand, persistent inflation pressures could require a more cautious approach to rate cuts.

Financial markets would likely react quickly to any change in expectations regarding monetary policy.

Trading glossary

Safe-haven asset

A financial asset that investors typically move into during periods of market uncertainty or geopolitical instability because it is expected to retain value. Gold, the US dollar, and the Japanese yen are common safe-haven assets.

Geopolitical risk

The potential for political events such as conflicts, sanctions, or diplomatic tensions to disrupt financial markets, trade flows, or global economic stability.

Tariffs

Taxes imposed by governments on imported goods. Tariffs can influence global trade flows, increase production costs, and affect currency markets and international economic relations.

Inflation expectations

Investor forecasts about future inflation levels. Rising inflation expectations can influence interest rates, bond yields, currency values, and the performance of assets like gold.

Market volatility

The degree of price fluctuation in financial markets over a period of time. Higher volatility indicates larger or more frequent price movements and often occurs during economic uncertainty or geopolitical events.

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Final thoughts

Trump’s second year in office is likely to produce a complex market environment shaped by both economic and geopolitical forces.

The recent conflict between the US and Iran highlights how quickly geopolitical developments can reshape investor expectations. At the same time, trade policy decisions and fiscal priorities will continue influencing commodities, currencies, and equities.

Rather than a single dominant trend, the coming year may bring multiple overlapping market themes.

Gold may benefit from geopolitical uncertainty. Oil could remain sensitive to supply risks. Currency markets may respond rapidly to trade developments, while equity markets balance policy support against geopolitical volatility.

For investors, the key challenge will be navigating a world in which politics and financial markets are increasingly intertwined.

Understanding that relationship may be one of the most important skills for navigating markets in the year ahead.

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Frequently asked questions

How could the US–Iran conflict affect oil prices?

Escalating tensions in the Middle East can increase the risk of supply disruptions, particularly around the Strait of Hormuz, which may push oil prices higher.

Why might gold benefit from geopolitical tensions?

Gold is widely considered a safe-haven asset. Investors often increase gold holdings during periods of political instability or market uncertainty.

Could Trump’s trade policies impact currencies?

Yes. Tariffs and trade negotiations can influence global trade flows, which often affect currency valuations and exchange rate volatility.

What risks could equity markets face during Trump’s second year?

Geopolitical tensions and trade disputes could introduce volatility, even if domestic economic policies remain supportive of corporate growth.