One of the most popular wishes for the new year will likely be world peace. There is a real chance that global conflicts will subside, as Trump promised this would be one of his top priorities.
This raises hopes that the ongoing conflict between Russia and Ukraine, which has been dragging on for almost three years, will come to an end. In addition, he plans to bring order to the Middle East.
If this happens, it could be a positive boost for the markets, not only for the countries directly involved in the geopolitical crisis (Russia, Ukraine, Israel, etc.) but also for the S&P 500, Dow Jones, and Nasdaq.
As for defense companies, it is unlikely to put them out of business. They have long-term contracts, and demand could increase due to Trump's push for NATO countries to increase defense spending to 5% of GDP.
To answer the question in the title, while there is hope for ending major direct confrontations, the overall environment will likely remain tense, especially over the upcoming trade wars.
For context, President-elect Donald Trump announced on November 25 that he plans to impose an additional 10% tariff on China and 25% tariffs on Mexico and Canada as part of his first Executive Orders.
He also suggested taking control of the Panama Canal, which the U.S. built and controlled for decades before ceding full control to Panama in 1999, if U.S. ships passing through are not charged lower tariffs.
So far, the markets, including the XAUUSD and the S&P 500, do not seem concerned about this. But that doesn't mean they won't be in the future, especially if tensions between countries continue to escalate.
Is now the time to take refuge in safe-haven assets?
Despite the uncertain geopolitical outlook, Wall Street remains bullish for the year ahead. A recent survey of investment banks and research firms puts the median target for the S&P 500 at 6,600 by the end of 2025.
In this sense, it may seem ridiculous to favor bonds, gold, and cash, but it is essential to remember that the global situation can change quickly. What seems impossible today could become the new reality tomorrow.
No one expected the Covid-19 pandemic or the Russia-Ukraine conflict. Therefore, having some defensive assets in your portfolio is never a bad idea. It might help you sleep better at night.