GeoMacro

Investors should stick to a defensive stance in the very near term as the Russia-Ukraine conflict and persistent trade tensions cause market volatility.

Russia poses an immediate risk to global financial markets, and then perhaps a buying opportunity. Trump is pivoting to ceasefires and trade deals, but Russia could trigger a new tariff shock first.

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Artificial intelligence will destabilize domestic politics and international security. States will try to adopt more creative fiscal policy, including by raising taxes on Big Tech.

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Global investors should keep an open mind regarding global trade and whether "Cold War II" is taking shape. Today's international context is different from that of the original Cold War, but economic integration has declined and could well continue to decline if the great powers do not manage their security competition better in coming years.

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Despite macro headwinds, the OBBBA clearly favors Industrials, Financials, and Consumer Discretionary equity sectors. A carefully constructed, factor-aware basket in these sectors is well positioned to outperform in a fiscal-driven, uncertain environment.

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The pace of global political change is not unprecedented, but it is accelerating, driven by demographic forces as well as failures of conventional military deterrence.

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Saudi Arabia’s middling position in our FDI Attractiveness Index reflects closed trade channels and patchy infrastructure that weigh on an otherwise promising investment story. Addressing those gaps could significantly bolster the Kingdom’s appeal as an FDI host.

We have thrown caution to the wind and gone overweight equities. Why? Three reasons: the Fed is under immense political pressure to pivot, USD has depreciated, and inflation is in check. It is going to be a very difficult job for Fed Chair Powell to ignore the downside risks to both inflation and growth. If he does, he will be accused – correctly – of political bias.

Acute geopolitical risks, like a massive oil shock, may be abating. But structural geopolitical risk remains high and could upset a blithe market. Cyclical economic risks are underrated as the US slows down and China continues to stumble. Investors should book some profits in anticipation of tariff implementation and a downturn in hard economic data.

Monetary policy is about to become a powerful tailwind to the already bullish brew that includes Trump’s repeated step-downs from a global trade war, irrelevant geopolitical risks in the Middle East, and a fiscal policy that is no longer as alarming to the bond markets as the raft of campaign promises appears to be. Investors should hesitate to get overly bearish either bonds or stocks. However, we remain uber USD bears.