A lasting impact: Volatility as the new normal in valuations

In summary

• Volatility is now a constant feature in public and private markets 
• Market shocks – from the global financial crisis, through Brexit, to Trump’s tariffs have had a lasting impact on businesses and expectations 
• Valuation methodologies need to take account of a world in which geopolitical risks and black swan events are no longer peripheral 

Heightened volatility is a constant for businesses currently. Unusual times are now the new normal. Shock events are sometimes clearly distinguishable as political or economic, but the line between the two continues to blur. Many have both political and economic motivations and consequences. Previous expectations of how the markets may react to a particular type of shock no longer hold true. Today, expectations of stability are diminishing, undermining analysts’ ability to forecast market behaviour.

Given this context, how should companies and practitioners assess the impact of more frequent short-term and long-term volatility shocks? There have been several events we could look at in recent memory to explore this. We will not discuss the impacts from Covid, primarily a health emergency rather than a politically driven event, and in any case covered extensively in the market. Pandemics have also been historically infrequent, thankfully.

Instead, we focus on political and economic events: two fairly recent, and two from longer ago. We will seek to understand how volatility has changed over time with data from the FTSE All-Share Index over these four significant events: 

• The global financial crisis, starting in September and October 2008, following the collapse of Lehman Brothers panic set in over the subprime mortgage crisis and banking failures, with listed UK banks losing up to 90% of their value 
• Brexit, triggered by the June 2016 referendum vote in the UK to leave the European Union 
• The Ukraine crisis, starting from Russia’s invasion in February 2022
• US tariffs under the Trump administration, implemented in April and May 2025 

The key question is whether these events have prompted merely a change in short-term sentiment (however marked) or a sustained change in the baseline positions. 

Following the subprime mortgage crisis, which led to the collapse of Lehman Brothers, the GFC of 2008 exposed issues with the financial regulatory environment. It marked a defining moment in modern economic history, exposing deep-rooted vulnerabilities within global financial markets.  

The dramatic decline following the collapse of Lehman Brothers is obvious, but equally striking is how slow the recovery was and the persistent instability in the years following 2008. The FTSE All-Share index did not return to its 2007 levels until 2013. A ripple effect on the global economy was also notable, with European Central Bank and the International Monetary Fund bailouts across Greece, Ireland, Portugal and Cyprus furthering instability.

While the GFC was a defining moment, it was an accumulation of shocks following, and triggered by, the Lehman Brothers collapse that drove a lasting change in risk expectations. The economic effects on society continued for many years to come with a prolonged period of austerity and a fundamental shift in interest rates. It took until 2013 for the FTSE All-Share to recover to pre-GFC levels. Following the GFC, investor behaviour changed considerably, suggesting this economic shock resulted in a permanent disruption.  

For business valuations, risk assessments came under greater scrutiny following the GFC. An increased emphasis on ensuring sufficient scenario analysis and a recognition that black swan events are not as rare as once believed have been lasting legacies of the GFC.  

They were also vindicated in 2016, when Brexit introduced a new wave of uncertainty. 

While the GFC (and the Ukraine war, as we’ll discuss) had global effects and consequences, the impact of the UK’s decision to leave the European Union in 2016 was more concentrated on the UK and Europe. Brexit sent shockwaves through financial markets in both, triggering one of the most significant economic disruptions in recent history. The immediate aftermath saw a dramatic spike in market volatility to levels not seen since the GFC, as investors grappled with the uncertainty surrounding future trade, regulation and economic stability. 

The day after the referendum, UK financial markets experienced sharp declines. The FTSE 100 dropped by approximately 3.2%, while the more domestically focused FTSE 250 plunged nearly 14.0%, one of its steepest single-day falls ever. European markets mirrored this turbulence, with the Stoxx Europe 600 index falling around 7%, underscoring widespread apprehension across the continent.  

The initial shock created uncertainty around regulatory alignment, market access, and supply chain stability. However, there was a quick recovery of the market, particularly for those businesses that were not as reliant on the UK and European markets (as could be seen comparing the FTSE 250 with the FTSE All-Share) and for those businesses that were able to assess the impact and adjust accordingly. As shown in the graph, major indices rebounded and even surpassed pre-referendum levels.

Despite this, uncertainty around key economic factors led to more conservative valuation models, particularly for UK-based firms. Many investors applied higher risk premiums, and some international capital was redirected to more stable jurisdictions. This had a noticeable dampening effect on M&A activity and a recalibration of asset pricing across sectors. Nevertheless, Brexit’s impact was most pronounced in the short term. Today, while some structural effects and impacts remain, investor focus has shifted to newer sources of uncertainty, such as geopolitical conflict and trade policy. 

The Ukraine crisis sent immediate shockwaves through global markets, triggering sharp volatility, largely driven by surging commodity prices, particularly in energy and agriculture. Oil and gas prices spiked to multi-year highs, reflecting fears over disrupted supply chains and geopolitical instability. 

This turbulence wasn’t just a short-term reaction. It ushered in inflationary pressures and deepened uncertainty across energy-dependent economies. Investors responded with heightened risk aversion, while businesses faced growing unpredictability in costs and operations. The ripple effects have been far-reaching, exposing the fragility of interconnected markets and prompting a strategic rethink across sectors.

In contrast to Brexit, the graph shows no quick recovery in the FTSE All-Share Index, reflecting that businesses felt unable to predict further impacts. Crucially, the crisis has intensified the spotlight on geopolitical risk management and the resilience of investment portfolios. Many investors and analysts are now reassessing long-term strategies, not just to weather current instability, but to build in resilience for future shocks.  

From a valuation perspective, this shift is particularly significant. Traditional valuation models often rely on stable assumptions around supply chains, energy costs and geopolitical conditions. The Ukraine crisis has demonstrated the need to incorporate geopolitical risk premiums and scenario-based stress testing into valuation frameworks. Businesses operating in or reliant on volatile regions may now be subject to higher discount rates, revised cash flow projections or adjusted asset values to reflect this increased uncertainty.

Ultimately, the war has underscored the importance of dynamic, context-aware valuation approaches that can adapt to a world where geopolitical events are no longer peripheral, but central to financial decision-making. It was a message that would soon be reinforced. 

The introduction of US tariffs in 2025 offered a stark reminder of how swiftly political decisions can ripple through global markets. The “Liberation Day” April 2 announcements triggered an immediate and dramatic reaction, with US equities shedding trillions in value almost overnight before stabilising at lower levels.  

The shock was felt across industries, hitting, in the first instance, cost structures in everyday and luxury goods. Tariffs drove import expenses in an unprecedented manner, forcing expedited price hikes, supply chain overhauls and delays in capital expenditure, reshaping strategic priorities across the board. Private market funds, meanwhile, reported a slowdown in M&A activity, as dealmakers grew cautious amid the shifting landscape.  

For valuation practitioners and corporate finance teams, these developments once again underscored the critical need to incorporate political risk into valuation models. Tariff uncertainty, regulatory shifts and geopolitical tensions can materially affect cash flow projections, discount rates, and market comparables.  

The result is that scenario analysis, sensitivity testing and dynamic risk-adjusted valuation frameworks are no longer optional; they’re essential tools for navigating an increasingly unpredictable global economy. While the initial shock of the tariffs has subsided, volatility remains elevated. The unpredictability of future policy moves continues to weigh on investor sentiment, making it vital for businesses to stay agile and for valuation professionals to remain vigilant in assessing both direct and indirect impacts on enterprise value. 

From the seismic shock of the global financial crisis to the uncertainty of Brexit, the geopolitical tremors of the Ukraine war, and the swift market reaction to Trump’s 2025 tariffs, one thing is clear: Volatility is no longer an exception; it’s a defining feature of the global economic landscape.  

Each event has reshaped investor behaviour and forced businesses to rethink how they build resilience and assess and mitigate risk. Likewise, valuation models, traditionally built on assumptions of relative stability, now require dynamic, context-aware frameworks that can adapt to rapid change and political unpredictability. 

As we move forward, the challenge for valuation practitioners is not just to react to volatility, but to anticipate it. In a world where economic shocks are increasingly driven by political decisions, how firms evolve their valuation methodologies to stay ahead of the curve is crucial. They must always be asking the critical question: Are we doing enough to future-proof our analysis against the next disruption?