Power, Disorder and Market Opportunities

Article from Beat Wittmann, Chief Investment Strategist @ Key Family Partners


Power over Partnership

The U.S. administration is implementing policy priorities closely aligned with the Heritage Foundation’s Program 2025. Governance under President Trump is highly centralized, transactional, and utilitarian. This governing style and strategic direction are expected to persist through the 2026 mid-term elections, with courts and Congress unlikely to impose meaningful constraints.

U.S.–European relations have entered a structurally consistent and predictable phase. This is evident in Vice President JD Vance’s Munich Security Conference speech in February 2025, the unilateral U.S. peace initiative on Ukraine and Russia, and the newly released 2025 U.S. National Security Strategy. U.S. foreign policy is now explicitly unilateral and transactional, with minimal commitment to traditional alliances. Only China currently operates on an effectively equal strategic footing with the United States.

Trump’s unilateral 28-point U.S.–Russia “peace proposal” for Ukraine — negotiated without European or Ukrainian participation — marks a decisive break with the post-World War II alliance-based order. The proposal aligns with Russian territorial ambitions, indirectly serves China’s geopolitical interests, and reflects Washington’s desire for rapid strategic closure driven by Trump’s personal Nobel Prize and business aspirations. Ukraine and Europe are consciously sidelined. This signals a world shaped primarily by direct U.S., Russian, and Chinese hard-power bargaining rather than alliances, institutions, or shared values and norms.

This posture is rapidly accelerating global geopolitical and economic fragmentation.

Trump’s leadership style is also producing tangible domestic effects, including widespread self-censorship within U.S. corporates. Technology companies in particular are either openly aligning with the White House or deliberately minimizing political visibility to avoid regulatory or political retaliation.


The European Sovereignty Imperative

Europe now faces a defining historical moment. Without rapid implementation of the objectives and policy agenda articulated by Chancellor Merz and embedded in the Draghi Plan — particularly in defense, capital markets, industrial policy, and strategic infrastructure — Europe risks being structurally subordinated to the strategic dominance of the United States, China, and Russia.

Policy debate within European institutions is intensifying around measures to accelerate strategic autonomy, including:

• Redirecting defense and critical-infrastructure procurement toward European suppliers,

• Imposing regulatory and fiscal pressure on U.S. technology firms operating in Europe,

• Exploring financial repression, targeted taxation, or regulatory constraints on foreign investments (including U.S. Treasury holdings) to disincentivize capital outflows and redirect domestic investment.

These discussions, once theoretical, are now gaining real momentum across influential European think tanks, central banks, and policy institutions.

The implications of U.S. retrenchment are already concrete. When the Trump Administration halted new aid to Ukraine at the start of 2025, European countries — led by Germany — stepped in with materially expanded military support. NATO now supplies Ukraine with “ready-to-use” weapons from U.S. stockpiles, financed by European member states. As a result, the era of chronically underfunded European militaries and reliance on de facto worthless external security guarantees is effectively over.

Containing Russia’s imperial expansion requires not appeasement, but a modern geopolitical equivalent of Brest-Litovsk (1918): exhausting Russia economically through significantly tightened sanctions and decisively degrading its military capabilities, including through deep strikes on critical military infrastructure. Ukraine is buying Europe time — both by fighting the common enemy and by serving as the real-world laboratory for 21st-century warfare.

For Europe, this is now an irreversible turning point. Strategic sovereignty, credible hard-power capability, and industrial self-sufficiency are no longer optional political projects but existential necessities.


Market Opportunities and Fragilities

The baseline global economic outlook for 2026 remains resilient. A global recession or systemic financial crisis is not the base case. However, vulnerabilities are clearly building: elevated leverage, declining liquidity in parts of credit markets, and widespread mispricing of credit risk.

Even in the event of a severe risk-off episode, a sovereign or corporate default cycle, or a major “black swan” shock, policymakers retain sufficient monetary and fiscal firepower to stabilize the system and contain systemic fallout.

Through the 2026 mid-term elections, the U.S. administration is expected to actively support growth through:

• Expansionary fiscal policy,

• Accommodating monetary conditions,

• Further regulatory loosening, particularly in the financial sector.

This policy mix remains supportive of risk assets and could trigger a late-cycle equity “melt-up,” despite growing structural imbalances and long-term fiscal fragility.


The New Geoeconomic Order

Financial imbalances and geopolitical fragmentation across trade, supply chains, and capital flows between the U.S., Europe, and China continue to deepen. Globalization is structurally impaired but remains operationally indispensable.

China has secured its position as a core pillar of the global economy and now operates on broadly equal technological and industrial footing with the United States in key domains:

• Advanced manufacturing,

• Artificial intelligence,

• Rare earths and critical materials.

Behind formal geopolitical tensions, Chinese state-owned enterprises continue extensive cross-border financing and lending activity, including with major U.S. and European financial institutions. China remains the world’s most important manufacturing hub by scale, scope, and supply-chain integration.

At the same time, the non-U.S. world is increasingly developing parallel trade, financial, and settlement arrangements that exclude or circumvent the United States. This reflects the destabilizing planning uncertainty created by Washington’s erratic tariff regime and rising concerns over U.S. financial weaponization.


Artificial Intelligence as the Transformational Growth Engine

The United States is experiencing a full-scale AI investment boom, expected to represent the principal engine of growth for 2026 amid moderating consumption and a weakening labor market.

Globally, AI is expected to drive:

• Deep cross-sector transformation, particularly across service industries,

• Prolonged creative destruction in corporate structures and employment,

• Ultimately meaningful macroeconomic productivity gains.

This technological shock will directly interact with geopolitical competition, defense modernization, and industrial policy.


The Defense–Industrial–Technology Super-Cycle

The global rearmament and critical-infrastructure rehabilitation cycle — triggered by Russia’s invasion of Ukraine in February 2022 — is now firmly entrenched and expected to persist for many years.

From a financial-industry perspective, defense-industrial-technology corporate transaction and financing activity is currently distributed as follows:

• United States: ~60%

• Asia (China, Japan, South Korea): ~30%

• Europe (Germany, UK, France, Italy, Nordics, Eastern Europe): ~10%

This distribution underscores both the dominance of U.S. capital markets and Europe’s underrepresentation in scalable defense-technology financing — a gap that is now strategically unacceptable given Europe’s security exposure.


Next Generation Defense Investments

The timing to invest in the broader defense-industrial-technology sector, with a focus on Europe, remains highly attractive.

To date, most investors have accessed this theme primarily through public markets. Within Europe, publicly listed prime defense contractors (e.g. Rheinmetall) have appreciated dramatically — in many cases by multiples — over the past three years. From current valuation levels, superior forward relative returns from traditional listed primes are increasingly unlikely.

The most compelling opportunities now lie in:

• Publicly listed neo-prime companies (e.g., Anduril Industries in the U.S.),

• Private-market neo-primes (e.g., Helsing in Germany),

• Venture capital and growth equity across dual-use and defense technology.

The global defense-industrial-technology universe can be segmented along three defining dimensions:

1 – Geography: U.S.; Europe (Germany, UK, France, Italy, Nordics, Eastern Europe); Asia (China, Japan, South Korea)

2 – Sub-sectors: From critical infrastructure (e.g., undersea cables) to highly classified military systems (e.g., radar, counter-drone, autonomous warfare platforms)

3 – Corporate life cycle: Traditional primes, neo-primes, and early-stage technology companies


The Structural Forces of 2026

The world has entered a new geopolitical regime defined by direct great-power bargaining, strategic fragmentation, and accelerated militarization. The post-Cold War alliance-based order is effectively over. Europe, having lost the illusion of guaranteed U.S. protection, must rapidly rebuild military, industrial, financial, and technological resilience and sovereignty.

This structural reset coincides with a powerful AI-driven productivity cycle, sustained U.S. fiscal stimulus, and a multi-decade global defense-industrial super-cycle. Together, these forces are reshaping capital allocation, corporate power, and national strategy.