Despite favorable conditions like tax cuts and deregulation, a broad investment boom has failed to materialize outside of AI. This isn't due to tight credit, but to massive policy uncertainty from unpredictable tariffs and immigration stances, which discourages long-term capital commitment.

The current geopolitical environment favors a "wartime allocation of capital." This means investing in scarce, physical resources that cannot be printed—like oil, metals, and food—over financial assets, as global trust and supply chains break down.

Rather than simply de-risking, J.P. Morgan strategists recommend proactively creating a "shopping list" of EM assets to acquire once the conflict de-escalates. The list should prioritize assets with high carry, proactive central bank management, and low energy vulnerabilities, as cleared-out positioning could lead to a sharp rally post-crisis.

After COVID and the Russia-Ukraine war, equity markets have been conditioned to price in recovery and move on from geopolitical or health crises much faster than fixed-income or commodity markets, which tend to dwell on the negative impacts for longer.

In a market crisis, liquidating positions isn't just about stopping losses. It's a strategic choice to create a clean slate. This allows a firm to go on offense and deploy fresh capital into new, cheap opportunities once volatility subsides, while competitors are still nursing their old, underwater positions.

While markets fixate on Fed rate decisions, the primary driver of liquidity and high equity valuations is geopolitical risk influencing international trade and capital flows. This macro force is more significant than domestic monetary policy and explains market resilience despite higher rates.

Unlike market tops which form over extended periods, market bottoms often occur rapidly after a final capitulation event. Investors should anticipate this speed and be ready to deploy capital during periods of peak negative sentiment, as the recovery can begin just as quickly.

With major US policy variables like tariffs and fiscal stimulus now more defined, investors should shift focus from predicting policy direction to analyzing how businesses and consumers react to these established policies, as this will drive market outcomes.

Despite investor fears fueled by geopolitics and rising gold prices, key market indicators—inflation expectations, rate volatility, USD valuation, and credit spreads—show surprising stability. This suggests the underlying economic foundation is stronger than negative sentiment implies, supporting a positive market outlook for now.