Top Market Themes Deep Dive: Geopolitics

Posted by Helena Eaton on 28th April 2026

In this article Bedrock’s Head of Investment Advisory, Helena Eaton, provides a deep dive into one of our key market themes for 2026, “Geopolitics takes centre stage and defence spending remains elevated.” A theme that has already played out prominently. The year began with events in Venezuela, followed by the escalation of conflict in the Middle East, triggering heightened market volatility and rising macroeconomic concerns. Since late February, many asset classes experienced sharp declines, which have since been partially or fully reversed.

Market Reactions Across Asset Classes

Precious Metals

Precious metals were particularly affected: gold at one point fell by 17%, while silver dropped nearly 25% from pre‑conflict levels. During periods of market stress, gold is often among the first assets to be liquidated, as investors seek liquidity to meet margin calls or other obligations. At the time of writing, both gold and silver remain approximately 8% below pre‑conflict levels. In contrast, some industrial metals proved more resilient, with copper rising 3% relative to its pre‑conflict level. Importantly, gold, silver, and copper remain up year‑to‑date by 12%, 14%, and 7%, respectively, and we reiterate our constructive view on both precious and industrial metals.

US Dollar

Amid the conflict, the US dollar once again played its traditional role as a safe‑haven asset. The DXY index rose by more than 2.5% at certain points following the outbreak of hostilities. However, US dollar strength has since reversed on news of a ceasefire and ongoing peace negotiations, leaving the DXY broadly flat both since the beginning of the conflict and year‑to‑date.

Equities

Equity markets have shown a relatively muted reaction. The global equities benchmark, the MSCI World Index, experienced a maximum drawdown of around 8% and is currently up 2.6% since the conflict began. Equities have been supported by optimism around corporate earnings and expectations that higher oil and gas prices resulting from the closure of the Strait of Hormuz will not be severe or prolonged enough to trigger a global recession. While Brent crude is up nearly 50% since the start of the conflict, it has retreated from recent highs following reports of a ceasefire and peace talks.

Oil and Gas

Disruptions to the oil and gas supply chain caused by the closure of the Strait of Hormuz led to a significant increase in energy costs for many countries. This has weighed on economic growth while simultaneously pushing inflation higher, thereby reducing expectations for interest rate cuts by the US Federal Reserve and the European Central Bank.

The Bigger Picture

These developments place another theme we outlined at the start of the year at risk, namely, that global economic growth in 2026 would remain strong and supportive of risk assets. In April, the International Monetary Fund (IMF) revised down its global growth forecast for 2026 by 0.2 percentage points, citing disruptions stemming from the Middle East conflict. At the same time, the IMF revised upward its global headline inflation forecasts for both 2026 and 2027¹. We believe the negative impact on growth and inflation is likely to remain relatively moderate, provided the conflict proves short‑lived and energy supply normalises in the coming weeks.

Geopolitical tensions should further strengthen governments’ resolve to invest in defence capabilities. Last year, NATO members committed to raising annual defence and security‑related spending to 5% of GDP by 2035. The rearmament cycle in Europe continues to gather momentum, with Germany at the centre of this push, supported by both fiscal headroom and political willingness. Total German defence spending is expected to rise by approximately 25% year‑on‑year in 2026². The United States is also accelerating military investment. According to the recently released US budget request, the White House intends to seek Congressional approval for a roughly 40% increase (equivalent to around USD 1.5 trillion) in military funding for the 2027 fiscal year, which would mark the highest level of defence spending in modern history³. These developments reinforce our conviction in European and US defence stocks.

If you’d like to explore this theme further, or discuss how you can take advantage of opportunities in this area, please get in touch with us at info@bedrockgroup.com.

Disclaimer: Certain statements included within constitute ‘forward-looking statements.’ These statements, which may include words like ‘believes,’ ‘expects,’ or similar expressions, are subject to numerous risks and uncertainties. Actual results may differ.

References:

1 World Economic Outlook 2026, April 2026, https://www.imf.org/en/publications/weo/issues/2026/04/14/world-economic-outlook-april-2026

2 https://www.bundestag.de/presse/hib/kurzmeldungen-1106068

3 https://www.nytimes.com/live/2026/04/03/us/trump-news#section-859387654

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