Political And Policy Volatility On The Rise

Winkelmann

Forex

Political

Economic

Summary:

Recent elections in the U.S. and dynamics in Europe highlight rising political volatility and the potential for divergent policy shifts. Investors should prepare for further turbulence ahead.

While last week's tech-led sell-off is yet another example of the equity market volatility investors have been contending with throughout the year, recent elections in the U.S. and political dynamics across Europe show political volatility is on the rise and heading higher than we have seen in decades.

The November 4 election of Democratic socialist Zohran Mamdani as the new mayor of New York City is a fresh example of how volatile the political environment is in the U.S., with the striking recent rise of rightwing populist parties in France, Germany and the U.K. demonstrating the breadth of this development.

This may not be front of mind now as U.S. equity markets gyrate over concerns over AI—a topic we covered recently AI: Boom? Bust? Or Both?—and the risk of a hawkish pivot by the Federal Reserve. But as we look toward 2026, political volatility across key western economies will need to be closely watched by investors as it poses important implications for policy decision-making and risk markets.

Polarization and Policy Swings

Political volatility may feel commonplace in the U.S. and around the world, but Mamdani's victory provides a fresh jolt and tangible reminder of its underlying causes.

Despite an economy in decent shape, economic anxiety among voters has been rising and shifting across a broad base. At its simplest, we can view this shift as 'blue-collar' workers impacted by automation gravitating toward right-leaning populism, while 'white-collar' workers facing a tougher job market are being drawn more toward the political left.

What this ultimately points to is the end of the post-war consensus era in political leadership. The political divides are now greater, increasing tail risks and uncertainty around policy trajectories in a way we have not seen over at least the past 50 years. Indeed, there has been more agreement than not among ruling political parties, creating greater stability and certainty in policy direction and decision-making.

As this new era of political division develops, several areas show meaningful read-through, financial, energy, technology/AI and antitrust policy chief among them.

Financial regulatory regimes can be heavily influenced by changes in political leadership, e.g., stricter oversight under progressive administrations versus a more deregulatory bias under conservative administrations. Shifts in supervisory intensity, capital requirements, consumer protection rules and enforcement priorities can alter cost of capital, lending growth and profitability across the financial sector.

Energy policy presents similarly sharp contrasts. Climate‑first approaches imply tighter emissions standards, accelerated renewable deployment and a changing investment mix; fossil‑fuel‑friendly policies typically aim to reduce permitting friction and support traditional energy production. These swings can influence capex decisions, project economics and commodity paths, and can often also serve as the transmission channel for geopolitical shocks via energy prices.

On the technology/AI front, a patchwork of state‑level rules is already emerging; stricter regimes are being contemplated in states such as New York, California and Colorado versus looser frameworks in Texas and Florida. This fragmentation raises compliance costs, complicates product rollouts and can confer uneven competitive advantages depending on where firms operate and where standards coalesce. Divergent approaches to antitrust policy under different administrations also matter, reshaping the competitive landscape for large‑cap tech and influencing broader market structure dynamics, from M&A viability to platform conduct.

Investment Implications

Amid higher political volatility and policy uncertainty, investing becomes more complex, affecting time horizons, portfolio construction and asset allocation.

Investing for the long term should remain a core principle, but the environment argues for greater agility, e.g., shorter tactical horizons and flexible allocations to navigate regime shifts without abandoning strategic objectives.

At the company and industry level, the priority is resilience to policy swings. Investors should assess policy sensitivity across sectors, recognizing that financials, energy and large‑platform tech typically carry higher "policy beta" than many other industries. The preference is to tilt toward business models with diversified revenue sources, adaptable cost structures and robust balance sheets that can absorb regulatory or fiscal shocks.

As part of this, building clear policy scenarios into portfolios and risk budgets is warranted; consider progressive versus conservative control at federal and state levels. Stress-test how these paths could affect revenues, margins, investment plans and the cost of capital. Scenario‑based position-sizing can help manage the wider dispersion of outcomes and the higher tracking error that accompanies policy‑sensitive views.

To support the approach, use cross-asset diversification to help manage risk and ensure adequate liquidity. Public markets provide greater ability to adjust positions quickly to policy shifts, while private markets tend to exhibit more constrained exit optionality.

Volatility Demands Agility

Political volatility is now a central feature of investing, not background noise. With the U.S. midterm elections approaching, the pace and visibility of policy shifts are likely to increase, raising both risk and opportunity.

For investors, it's imperative to be prepared to act with agility as the policy cycle turns. Those who combine long‑term discipline with tactical flexibility will be better positioned to protect capital and capture opportunity in an environment defined by wider policy outcomes and faster market repricing.

Source: Neuberger Berman

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Justin

Stocks

Economic

Billionaire Peter Thiel has exited his entire stake in artificial intelligence major Nvidia, filings showed over the weekend, amid growing concerns over an AI-fueled bubble in technology valuations.

Thiel sold some 537,742 shares in NVIDIA Corporation (NASDAQ:NVDA) through the July-September period, with a Form 13F filing from his Thiel Macro fund showing that he no longer held any shares in Nvidia as of September 30.

The sale price of the shares amounts to nearly $100 million, Investing.com calculations showed, based on Nvidia's average stock price in the July-September period.

Thiel also slashed his holding in Tesla Inc (NASDAQ:TSLA) to 65,000 shares from 272,613 shares, and purchased 79,181 and 49,000 shares in Apple Inc (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT), respectively.

Thiel also entirely exited his stake in energy generation firm Vistra Energy Corp (NYSE:VST), which amounted to 208,747 shares, the Form 13f showed.

Thiel's disclosed sale in Nvidia comes just a week after Japanese tech conglomerate SoftBank Group Corp. (TYO:9984) disclosed it had sold off its entire stake in the firm. Last week, investor Michael Burry, famous for predicting the 2008 financial crisis, also disclosed heavy short positions on Nvidia and Palantir Technologies Inc (NASDAQ:PLTR).

The rationale behind Thiel's sale was not immediately clear.

Thiel– who co-founded Paypal and Palantir– had earlier this year warned over stretched valuations in Nvidia, and had earlier also compared the recent spike in tech valuations to the 1999-2000 Dotcom bubble crash.

His exit from Nvidia comes amid rapidly increasing concerns over an AI-fueled bubble in tech valuations. Investors fretted over how AI major OpenAI planned to meet its over $1 trillion spending commitments, and how this could affect Nvidia and other chipmakers, which are major suppliers to the firm.

Nvidia's investment in OpenAI also sparked concerns over circular financing, while a host of recent megacap tech earnings showed rapidly increasing capital expenditures on AI among Wall Street's biggest firms.

Source: Investing

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Samantha Luan

Stocks

Economic

Japanese tourism and retail-related stocks slumped Monday after Beijing warned its citizens against traveling to and studying in Japan amid a deepening diplomatic spat between the nations.

Cosmetics firm Shiseido Co.'s shares plummeted as much as 11%, the most since April, with Pan Pacific International Holdings, which operates Don Quijote retail stores, plunging as much as 8.9%, the most since August 2024. The two companies are popular with Chinese tourists.

Department store operator Isetan Mitsukoshi Holdings lost over 12% with its peers J Front Retailing Co. and Takashimaya Co. down over 6%. Meanwhile, Tokyo Disney Resort operator Oriental Land Co. shares fell over 5% and Uniqlo parent Fast Retailing dipped 6.9%, the most since mid-July.

The declines come after Beijing warned students planning to study in Japan of heightened risks for Chinese citizens in the country. The directive followed comments by Japanese Prime Minister Sanae Takaichi that military force used in any Taiwan conflict could be considered a "survival-threatening situation."

Read: China Warns Its Students in Japan of Risks as Tensions Rise

China's warning "threatens tourism-led sales-growth expectations" for Japanese retailers, said Catherine Lim, a senior analyst at Bloomberg Intelligence.

There's also "heightened risk of boycotts of Japanese goods within China," which could hurt mainland China sales of Uniqlo, Asics Corp and Ryohin Keikaku Co.'s Muji, she added.

Travel-related names were hit Monday morning too, with airline operator ANA Holdings Inc. falling 3.8% and hotel chain firm Kyoritsu Maintenance Co. down as much as 8.1%.

Source: Bloomberg Europe

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Justin

Forex

Political

Economic

President Donald Trump said proposed Senate legislation to sanction countries conducting business with Russia would be "okay with me," his strongest indication yet that he would support a monthslong push to strangle Moscow's funding.

"The Republicans are putting in legislation that is very tough sanctioning, etcetera, on any country doing business with Russia," Trump told reporters before leaving Florida on Sunday to return to the White House.

Senate Majority Leader John Thune said in October that he was ready to bring legislation long championed by Senator Lindsey Graham of South Carolina that sanctions Russia to a vote, but didn't "want to commit to a hard deadline."

The bill would allow Trump to impose tariffs of up to 500% on imports from countries that buy Russian energy products and are not actively supporting Ukraine. This specifically targets major consumers of Russian energy, such as China and India.

"We may add Iran to that," Trump said Sunday, without elaborating.

Democrats and some Republicans in Congress have pushed for legislation to punish Russia for its continued war on Ukraine. Trump had been reluctant to support it as he tried to bring Russian President Vladimir Putin to peace talks with Ukrainian President Volodymyr Zelenskiy.

Putin is showing no sign of letting up in his military campaign after almost four years of war in Ukraine, with Trump failing to sway Putin even after hosting the Russian leader for a summit in Alaska.

While Ukraine is increasingly striking Russian oil targets, Russia has intensified its air strikes on Ukraine and is pushing to capture the rail hub of Pokrovsk.

Source: Bloomberg Europe

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Isaac Bennett

Japan's economy sank at an annualized rate of 1.8% in the July-September period, government data showed Monday, as President Donald Trump's tariffs sent the nation's exports spiraling.

On a quarter-by-quarter basis, Japan's gross domestic product, or GDP, or the sum value of a nation's goods and services, slipped 0.4%, in the first contraction in six quarters, the Cabinet Office said.

The annualized rate shows what the economy would have done if the same rate were to continue for a year. The fall was still smaller than the 0.6% drop the market had expected.

A big decline during the quarter came in exports, which were 1.2% down from the previous quarter.

Some businesses had sped up exports, when they could, to beat the tariffs kicking in, inflating some of the earlier data for exports.

On an annualized basis, exports dropped 4.5% in the three months through September.

Imports for the third quarter slipped 0.1%. Private consumption edged up 0.1% during the quarter.

Tariffs are a major blow to Japan's export-reliant economy, led by powerful automakers like Toyota Motor Corp., although such manufacturers have over the years moved production abroad to avert the blunt of tariffs.

The U.S. now slaps a 15% tariff on nearly all Japanese imports.

Japan also faced political uncertainty recently, until Sanae Takaichi became prime minister in October.

Source: Yahoo Finance

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Daniel Carter

Economic

Japan's economy contracted an annualised 1.8% in the July-September quarter, the first fall in six quarters, due to a hit to exports ‌from U.S. tariffs, government data showed on Monday.

The decline, while not as steep as expected, could complicate ‌the Bank of Japan's plans to raise interest rates further. Analysts are now focusing on how soon the world's fourth-largest economy will overcome the tariff impact and rebound.

The decrease in gross domestic product was narrower than a median market estimate of a 2.5% fall in a Reuters poll.

It ⁠followed revised growth of 2.3%‌ in the previous quarter, when the economy got an extra boost from solid exports that reflected front-loading shipments to the U.S. as ‍Japan's tariffs negotiations lingered.

Washington formalised a trade agreement with Tokyo in September, implementing a baseline 15% tariff on nearly all Japanese imports, down from the initial 27.5% on autos and a 25% duty threatened for most other goods.

The third-quarter reading translated into a quarterly fall of 0.4%‌, better than the median estimate of a 0.6% contraction.

Private consumption, which accounts for more than half of economic output, rose 0.1%, matching a market estimate.

But that cooled from the 0.4% rise in the second quarter, indicating that high food costs kept households reluctant to spend.

Net external demand, or exports minus imports, knocked 0.2 of ⁠a percentage point off growth, versus a 0.2 point positive contribution in the April-June period.

Capital spending, a key driver of private demand-led growth, rose 1.0% in the third quarter, versus a rise of 0.3% in the Reuters poll.

The ‍weak GDP data comes ⁠as new Prime Minister Sanae Takaichi's government is compiling a stimulus package to cushion the blow to households from the rising living costs.

Close economic advisers to Takaichi have cited a likely ⁠sharp GDP contraction as a reason for aggressive stimulus measures.

The latest data could embolden those advisers to call for the BOJ ‌to go slow in raising interest rates, analysts say.

Source: Yahoo Finance

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Daniel Carter

Political

The US State Department said Sunday it plans to designate a Venezuelan drug cartel as a foreign terrorist organization and cited the country's president, Nicolas Maduro, as its leader.

The designation would take effect on Nov. 24 and ban entry to the US and allow the US to seize the organization's funds.

"Based in Venezuela, the Cartel de los Soles is headed by Nicolás Maduro and other high-ranking individuals of the illegitimate Maduro regime who have corrupted Venezuela's military, intelligence, legislature, and judiciary," Secretary of State Marco Rubio said in a statement. "Neither Maduro nor his cronies represent Venezuela's legitimate government."

The Treasury Department in July deemed the cartel as a specially designated global terrorist group, which imposed some penalties.

The US since September has been carrying out a campaign of airstrikes against alleged drug trafficking boats in the Caribbean and eastern Pacific Ocean, killing dozens, in a bid to halt South American drug cartels from exporting illegal narcotics.

Earlier Sunday, the USS Gerald R. Ford aircraft carrier entered the Caribbean Sea in a mission the Pentagon said was aimed at supporting President Donald Trump's goals of countering narco-terrorism.

Trump said Friday he had "sort of made up my mind" when asked if he had come to a decision on next steps with Venezuela. "I can't tell you what it is, but we made a lot of progress with Venezuela in terms of stopping drugs from pouring in," he told reporters aboard Air Force One.

Trump has repeatedly threatened to expand those attacks to land, fueling speculation about US strikes on Venezuela.