Geo-politics clouds an ongoing bull market

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The disconnect between worrying news headlines and relentlessly optimistic financial markets will be tested this week. As Donald Trump flies into Davos, and European leaders weigh up retaliatory tariffs on US companies, the question is now: can investors hold their nerve?

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Another day, another crisis

The news flow so far in 2026 has been relentless. Domestic political developments, like the ongoing defections to Reform from the shadow cabinet, barely trouble the headlines, crowded out by bigger stories on the global stage.

This weekend, it was Donald Trump’s threat to impose additional tariffs on countries, including the UK, that have expressed support for Greenlanders’ wish to remain a semi-autonomous part of Denmark. By today, the story had moved on to Europe’s retaliatory options - tariffs or restrictions on US access to the European single market. By Wednesday, all eyes will again be on President Trump in Davos.

If someone had said at the New Year what January held in store (remember Venezuela?), they would have struggled to also make the case for an ongoing bull market in shares. But markets have continued to push ahead despite the unfolding omni-crisis. It’s as if there really is nothing at all to worry about.

A remarkable bull

Stand back from the noise and look at a chart of global share prices, and you would have no sense of impending doom. The MSCI World index has risen, since October 2022, from under 2,500 to more than 4,500.

And the bull market looks more secure than ever thanks to a broadening out from the leadership of the Magnificent Seven to the wider US market and, even more so, to international markets in Europe, Japan and emerging markets.

Since the autumn, the proportion of companies in the equal-weighted US index that are rising above their 50-day moving average has more than doubled to around three quarters.

The recovery since last April’s 20% drop after the imposition of swingeing US tariffs has been harder and faster than any comparable bounce back, with the exception of the rebound from the collapse of the Long-Term Capital Management hedge fund in 1998.

The parallel with the late 1990s is important because last year’s feverish talk of an AI bubble has dissipated. The broadening of the rally, and lower valuations this time around, has shifted the weight of opinion to boom not bubble.

Are gold and silver the real story?

Despite the apparent confidence of equity investors, it is perhaps the performance of gold and silver which tells the real story. Gold this week hit a new all-time high of nearly $4,700 an ounce, but the star of the show has once again been silver.

Silver shares gold’s safe-haven characteristics but it is also an important industrial metal, which responds to the fundamentals of supply and demand. The junior precious metal traded at around $35 a year ago but has recently exceeded $90 an ounce as a perfect storm of factors has swept the price higher.

Demand from the industries of the future is robust, supply has been constrained for years, and fears of tariffs have seen inventories build up in the US and China, leaving London, where the global price is set, short of supplies.

But the icing on the cake has been retail demand, where momentum-driven retail investors have sought to ride on the coattails of silver’s catch-up with gold. With no central bank stocks to provide a seller of last resort to stabilise the market, the upsurge has been irresistible.

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Where next for shares?

With no sign of any let-up in the geo-political noise, the future trajectory of shares hangs on the fundamentals of earnings and valuations.

With the fourth quarter earnings season getting underway, it remains too early to know if we are set for another period of higher-than-expected profits. With earnings growth forecasts now in the low double digits, the bar has been set high for further upside surprises.

But, arguably, the baton is being passed on from US earnings to profits in the rest of the world. Companies in Europe, Australia and the Far East (EAFE), and in emerging markets too, are now delivering higher rates of growth than their American counterparts.

And they continue to enjoy a big valuation advantage. Earnings are growing faster outside the US, and shares are still cheaper.

That’s feeding through into stock market performance, with shares in markets from the UK, Japan and Latin America outperforming Wall Street, and even the hot gold market too.

It’s a fragile bull market. But one that no-one wants to miss out on, for now.

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