The period from October 2022 to date has been a huge right-tail event for markets. Asset classes as diverse as gold, equities and infrastructure have all produced outsized returns, despite not normally being correlated.
Usually much lower government bond yields would be needed to get such an array of asset prices up, but the yield on the US 10-year is little changed over this period. So what is going on?
Geopolitical turbulence: market implications and investor responses
The global geopolitical environment has grown more complex over the last few years, but it seems to have had little or no adverse impact on either economies or asset markets.
The Greenland episode in January saw S&P futures experience a modest decline of just over 3% during the episode, which stands in contrast to the more pronounced 16% drawdown following reciprocal tariff announcements the previous year.
Markets have learned that talk is cheap and that u-turns are always likely, and although trade was hurt in 2025, business investment remained robust, in large part because of the artificial intelligence boom.
Europe in general, and Germany in particular, have created new mechanisms to boost defence expenditure. Although Germany was a bit slow to get this stimulus going in 2025, the German deficit will likely rise from 2.5% last year to 3.5% in 2026, which will provide a big boost to growth.
Geopolitical turbulence can also be good for asset prices. Since 7 October 2023 Hamas attacks, gold is up 173%, European defence and aerospace stocks up 186% and world defence and aerospace stocks up 142%.
Economic forecasts: strong growth to be the dominant theme of 2026
The global growth outlook continues to accelerate. When we made our 2026 GDP forecasts last year, the consensus for 2026 US growth was 1.8%, slightly below likely trend levels of around 2% to 2.2%.
We argued that high household wealth and loose financial conditions, which were likely to get looser in 2026 whoever took over the Federal Reserve in May, would underpin 2.4% growth.
Since then we have learned that the end of 2025 was even stronger than we anticipated which creates a carry over into 2026 and have boosted our assumption to 2.6%. Since then we have learned that Kevin Warsh will be the new Fed chair.
While traditionally seen as being more hawkish than some of the other potential candidates, we doubt he would have got the position without promising to deliver rate cuts. However, the opportunity for cuts will likely be limited and if we’re right about growth then inflation could be picking up by the end of year, and the story for 2027 could be about rate hikes.
In the UK, economic growth continues at a modest but positive pace. Our view for UK GDP growth in 2026 stands at 1.1%, marginally above prevailing forecasts.
Uncertainty about what the chancellor of the exchequer had planned for property taxation, had stalled the housing market but with the budget now out of the way and the Bank of England poised to cut twice this year we think the UK economy should grow.
Technological uncertainty demands resilience
Technological innovation, particularly in AI and digital infrastructure, is poised to reshape the global economy over the coming decades.
Analysts have two AI-related worries at the moment: sustainability of digital infrastructure investment and the ability of AI tools to completely disrupt existing business models.
OpenAI, the lab behind ChatGPT, has an extraordinarily ambitious eight-year $1.4tn investment plan. With NVIDIA providing financial support, this creates concerns about vendor financing. Investment in datacentres has surged from approximately $125bn in 2023 to a projected $620bn in 2026.
The S&P software and services index is down 27% from its October peak, as the market fears that tools like Claude code will be able to quickly replicate software and enable organisations to build bespoke software on the fly rather than relying on third-party tools.
Much of the industry has been financed by private equity and credit, creating fears there too, and an important reminder that manager selection is even more important in private markets where returns can be far more disbursed.
Today the focus might be on software but tomorrow it could be something completely different. It is not just AI that could prove to be disruptive. Demis Hassabis, the CEO of Google DeepMind, claims that’s AI could “solve” nuclear fusion which would disrupt the energy industry.
Quantum computing could challenge the encryption used by financial services. In this environment diversification across asset classes, sectors, geographies, and investment strategies is absolutely essential.
The broader impact of AI is anticipated to be transformational. While official forecasts project long-term US productivity growth at 1.4% with UK productivity growth at 1%, historical precedents suggest that periods of rapid labour productivity growth - such as the post-war era in the UK - are possible. AI could facilitate similar gains, with annualised productivity growth reaching 3% in major economies.
Typically, new technologies see a J-curve, their introduction can initially be harmful to productivity as organisations work out how to best optimise them. However, large language models might already be having a positive impact. Erik Brynjolfsson director of the Stanford Digital Economy Lab, argues that labour productivity in the US likely accelerated to 2.7% in 2025.
How can not-for-profit investors respond?
Against this backdrop, not-for-profit investors face unique challenges and opportunities, necessitating a strategic approach to creating both portfolio resilience and long-term growth.
Rigorous manager selection remains paramount; this is illustrated when we assess opportunities within digital infrastructure. Partnering with established developers, who are well-placed to take on construction risk, but who have long-term agreements with high-credit-quality hyperscalers, in our view represents a sweet spot in the space.
By contrast speculative developments, or projects with only short leases, risk being exposed to obsolescence risk if data centre needs change, and hence could prove poor investments. Not-for-profits might be tempted to focus on short-term cash flows to maximise distributions, but we think it pays to be cautious in this environment and focus on those investments where contractual income is as secure as possible, with more upside than downside risk.
Conclusion
Not-for-profit investors must navigate the complexity created by heightened geopolitical turbulence and new technologies with a clear-eyed focus on resilience, opportunity identification, and prudent risk management.
Integrating global insights and selecting the right managers is more important than ever, and is the best way for investors to position portfolios to withstand uncertainty and capture long-term value.
Derry Pickford is head of investment strategy and economics at Aon
