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CONTRIBUTORS

Stephen Dover, CFA

Head of Franklin Templeton Institute

Lawrence Hatheway

Global Investment Strategist
Franklin Templeton Institute

Originally published in Stephen Dover’s LinkedIn Newsletter, Global Market Perspectives. Follow Stephen Dover on LinkedIn where he posts his thoughts and comments as well as his Global Market Perspectives newsletter.

This week, strong geopolitical signals and judicial events appear to be moving markets. US President Trump's Davos appearance and two key US Supreme Court cases have increased market sensitivity across sectors. Risks and policy changes continue to drive uncertainty and volatility. Below is my team's perspective at the Franklin Templeton Institute.

  • Headline risk remains elevated. Trump used a speech at the World Economic Forum in Davos to reinforce an assertive geopolitical posture, notably Greenland, while offering partial de-escalation language, including a pledge not to use force. Markets may treat this as a modest near-term sentiment stabilizer, but not a durable de-risking.
  • Trade policy remains the clearest market transmission channel. Trump’s willingness to use tariffs as leverage elevates the probability of episodic risk-off moves, with the biggest impacts on EU-exposed multinationals and global cyclicals.
  • Trump spoke about other issues of interest to investors
    • Affordable housing: Trump’s messaging around affordability, especially housing, and “pro-growth” solutions adds to the market debate over how much fiscal/administrative action could feed through to demand, supply constraints and inflation expectations.
    • Federal Reserve (Fed) leadership: He also signaled near-term attention to Fed leadership, which fixed income investors typically translate into a potential term-premium risk factor, which will likely be influenced by the Supreme Court’s decision in the Lisa Cook case.
  • Additional remarks from the administration at Davos echoed Trump's statements
    • US Treasury Secretary Scott Bessent’s remarks underscored the perception that the administration is willing to tolerate market volatility in pursuit of negotiating leverage.
    • US Commerce Secretary Howard Lutnick’s critique of globalization reinforces the notion that investors should treat trade/industrial policy as a recurring feature—not a one-off episode.
  • Two US Supreme Court catalysts now join the Davos narrative.
    • Independence of the Fed: The Supreme Court heard arguments today on whether the president can remove Fed Governor Lisa Cook. Markets will focus less on the individual dispute and more on what it implies about the perceived independence of the Fed.
    • Legality of tariffs: Investors are also tracking a Supreme Court decision on the legality of tariffs imposed under emergency authorities. Market participants are focused on a February decision window.
  • If the Supreme Court rules against Trump on tariffs:
    • A near-term bounce is risk assets (equities, credit) is likely, but it could be short-lived if Trump uses other powers to impose new tariffs not covered by the SCOTUS decision.
    • Considerable uncertainty would remain about other aspects, including the beneficiaries of any refunds, which might be subject to further dispute and litigation.
       

What investors should watch next

We believe investors should track these key developments: the scope, rates and expansion of tariffs; Europe’s response, especially regarding retaliation or compromise; Supreme Court rulings and any rapid “Plan B” policy shifts; the potential for policy news to drive long-term rates and term premiums; and actionable changes to housing supply, mortgage access or credit conditions. These factors will significantly influence market volatility, growth, inflation and housing affordability in the near future.

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