Geopolitical Risk and U.S. Domestic Instability: How the Insurrection Act and Minneapolis Protests Are Reshaping Asset Allocation Strategies

The United States is at a crossroads. As President Donald Trump threatens to invoke the Insurrection Act to deploy federal troops in Minneapolis amid escalating anti-ICE protests, the nation faces a confluence of political volatility, civil unrest, and systemic risks that are reverberating through financial markets. The fatal shooting of Renee Good by an ICE agent in January 2026 has ignited nationwide tensions, with clashes between protesters and federal agents escalating into a crisis that tests the limits of federal authority and state governance. These events are not isolated; they reflect broader systemic risks to market confidence and capital flows, with implications for defense, insurance, and safe-haven assets.

The Insurrection Act and Defense Sector Dynamics

The Insurrection Act, a 19th-century law granting the president authority to deploy military forces for law enforcement, has become a political weapon in Trump's arsenal. His repeated threats to invoke the act-most recently in response to Minneapolis protests-highlight a dangerous precedent of conflating civil unrest with insurrection. Historically, the act has been used sparingly, such as during the 1992 Los Angeles riots, but its invocation in 2025 signals a shift toward militarized responses to domestic instability.

For the defense sector, this creates a paradox. While the U.S. military remains a global power, its domestic deployment risks eroding public trust and inflaming tensions. Defense contractors, however, stand to benefit from increased spending on equipment and logistics for federal operations. According to reports, Trump's rhetoric has already spurred speculation about expanded military budgets, with companies like Lockheed Martin and Raytheon seeing short-term gains as investors anticipate heightened demand for crowd-control technologies and armored vehicles. Yet, the long-term viability of such strategies is questionable, as civil unrest and political polarization could persist, leading to sustained pressure on defense budgets and operational readiness.

Insurance Industry: From Claims to Risk Reassessment

The Minneapolis protests have mirrored the 2020 George Floyd riots, which resulted in over $2 billion in insured losses-the costliest civil disturbance in U.S. history. Insurers are now grappling with the fallout from 2025's unrest, as businesses seek coverage for property damage and business interruption. However, policy language remains a critical hurdle. For instance, civil authority provisions typically require direct physical damage to a nearby property to trigger coverage, leaving many businesses in limbo.

The insurance industry's response reflects a broader trend of rethinking risk models. As noted by , political violence and civil unrest rank among the top global risks, prompting insurers to incorporate election cycles and social tensions into underwriting criteria. This shift is evident in Minneapolis, where banks like Bremer Financial and Citizens Financial Group have pledged support for small businesses, recognizing the socioeconomic fallout from prolonged unrest. Yet, the sector's ability to absorb large-scale claims remains uncertain, particularly as protests spread and policyholders demand more flexible coverage.

Safe-Haven Assets: Gold's Resurgence and the Fed's Fragility

Political instability has driven a surge in demand for safe-haven assets. Gold, in particular, has reached record highs, surpassing $4,400 per troy ounce by late 2025, fueled by fears over the Federal Reserve's independence and inflationary pressures. A Bloomberg analysis attributes this rally to central bank purchases in emerging markets and investor flight from volatile equities. The weakening U.S. dollar and expectations of Fed rate cuts further amplify gold's appeal as a hedge against geopolitical risk. According to Investing.com analysis, gold finds support as renewed geopolitical risks reinforce safe-haven demand.

However, the Fed's credibility is under siege. A criminal investigation into Chair Jerome Powell has intensified concerns about the central bank's autonomy, exacerbating market volatility. This erosion of trust underscores the importance of diversifying portfolios beyond traditional assets. Experts recommend allocating to hard assets like Bitcoin and real estate, alongside gold, to mitigate exposure to U.S.-centric risks.

Hedging Strategies: Navigating Capital Flow Shifts

The 2025 crisis has exposed vulnerabilities in capital flow management. During periods of political volatility, investors must adopt dynamic hedging strategies. For instance, capital controls and geographic diversification have proven effective in stabilizing emerging markets during U.S. policy shocks. Similarly, defensive equities and energy/commodity volatility positions can buffer against macroeconomic uncertainty.

Complex instruments like credit default swaps and payer swap options offer additional layers of protection, though they require sophisticated risk management. According to investment analysis, such instruments require sophisticated risk management. A key takeaway from recent case studies is the importance of avoiding overexposure to any single region or asset class. For example, India's structural growth and stable regulatory environment have made it a preferred destination for foreign capital amid U.S. instability.

Conclusion: A Call for Resilience

The invocation of the Insurrection Act and Minneapolis protests are not just domestic crises-they are symptoms of a broader erosion of institutional trust and market stability. For investors, the lesson is clear: portfolios must be hedged against political volatility through diversified, resilient strategies. Whether through safe-haven assets, defensive equities, or geographic diversification, the goal is to navigate uncertainty without sacrificing long-term growth. As the U.S. grapples with its identity in an era of polarization, the markets will continue to reflect the fragility of a nation at war with itself.