Geopolitical Immunity

THE STORY - I've warned that this stock market rally may not yet be done, and there could still be room for another sizable push. But one of the things that I think is important to note, which I haven't highlighted yet, is the fact that a market that has been so immune to geopolitical risk over the past several years, could once again be at risk of being exceptionally vulnerable to such risk. You see, stocks have not only been rallying on monetary policy accommodation these past several years, they have also rallied on an equally consistent political accommodation. That is to say, the previous US administration was very diplomatic in its efforts, seemingly in an attempt to also keep sentiment running high. Just consider all of the geopolitical risk during the previous administration and the fact that nothing really ever escalated. 

THE POINT - So what's the point? Well the point is that not only are we seeing exhausted monetary policy that can no longer really act as incentive for higher stocks, we are also seeing the end of the political accommodation, given the new US administration's take on diplomacy. The new US administration is less likely to let things drag out on the diplomatic front, opting for a more aggressive response in the form of actions that definitely ramp odds of crisis escalation. So a market that was once able to find comfort in a US government keeping things stable around the globe, no longer has the luxury of relying on such comfort. Of course, at what point this fact is realized is a completely different question. Let's wait and see how it all plays out and when exactly it all comes crashing down. 

The story of geopolitical risk and investor immunity has been a fascinating one. Via @joelkruger

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