Diplomacy/Foreign Relations
China is providing limited stimulus, promoting tech and trade, and maintaining a tariff truce with the US in 2026. Structural flaws and great power struggle continue to cast dark clouds over the long run.
The US removal of Venezuela's Maduro does not presage an invasion of Greenland. But it does justify a lingering risk of conflict with Iran.
US talks with Russia and China coincide with rising EU-Russia and Japan-China tensions. Stay overweight US assets and long Japanese yen.
Japan's first woman prime minister, Sanae Takaichi, will underperform on economic stimulus but outperform on defense spending and strategic diplomacy. Stay long Japanese yen.
Rising Russia-NATO risks, tactical oil/gold trades, tougher sanctions on Russia (maybe China), China stimulus with ~5% growth target, and US checks on Trump’s ambitions will define Q4.
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.
President Trump’s big beautiful bill will pass but faces near-term hurdles and will not tighten the government’s belt. It will combine with renewed tariff implementation to generate near-term risk for both the bond and stock market. The Iran crisis fizzled, saving Trump from a major oil shock that could have derailed his second term.
Even if Iran tries to revive talks, the US has an irresistible opportunity to dismantle its nuclear program. Tactically, investors should favor Treasuries over the S&P, defensive sectors over cyclicals, energy stocks over cyclicals, and US stocks over European stocks in the near term.
Israel’s attacks on Iran will continue until Iran is forced to strike regional oil supply to get the US to restrain Israel. That may not work. Investors should prepare for a broader economic impact of the conflict.