Data Outweighs Geopolitics

Investors,

Saturday night was extremely stressful with the news of heightened geopolitical tensions and outright missile attacks in the Middle East.

I wanted to make a few points on this topic:

I’m not a geopolitical expert.
I’ve never pretended to be one.
I don’t plan on starting today.

I don’t make investment decisions based on geopolitical risks.

In fact, international conflicts don’t have a clear impact on stock market returns!

Are average asset returns lower than normal on a forward 1-year basis? Yes.

But a median 1Y return of +8.4% with a 68% positivity rate are nothing to scoff at.

Despite the frequency of these major geopolitical events, yet alone all of the other risks that have occurred over the past 80+ years, this is what the S&P 500 has done since 1940:

The S&P 500 has gained +67,300% since the lows in 1942, DESPITE all of the risks that were either known or unknown at the time, geopolitical or otherwise.

Another aspect that I want to point out is the following:

I’ve been vocally bullish and optimistic on the U.S. economy and asset market for the past 12 months, and I’ve generally retained that optimism in 2024 due to an objective review of the data. While I’ve expressed a concern recently about the re-acceleration of inflation, which I reviewed in yesterday’s report, I also proposed that a modest uptick re-acceleration might actually have bullish side effects.

At the present, I reiterate my bullish outlook for both equities and Bitcoin/crypto.

Of course, there is a risk that this conflict continues to escalate.

Therefore, if my bull market thesis is invalidated because of this geopolitical conflict, I’ll take that on the chin and recognize that my fundamental thesis of resilient macro wasn’t the point of failure that produced bearish price action.

Again, I’m not a geopolitical strategist.

I’ll focus on my core competencies.

By focusing exclusively on macro & market dynamics, all risks within the world will be condensed into the data that I analyze. If geopolitical tensions are rising and the impact is a net negative on asset prices, I’ll see that in the data.

That’s exactly what I intend to do in this report — simply analyze the data.

Let’s begin.