Six Impossible Things Before Breakfast?

The recent unwinding of the "Trump Trade" suggests a shift in market dynamics, with US equities underperforming European counterparts and notable outflows from crypto into gold. This indicates a tactical rotation rather than a panic over risk assets, driven by a perceived shift in growth prospects favoring Europe over the US. The substantial flows from Europe to the US over the past year are reversing, highlighting a recalibration of investment sentiment.

Policy changes under the current administration have introduced significant volatility, with rapid announcements and potential for sudden reversals, complicating investment strategies. Despite this, global equities are expected to yield positive returns in 2025, albeit with increased volatility due to ongoing policy uncertainty. The market's initial optimism regarding deregulation may be tempered by the adverse effects of tariffs and other policies, although potential regulatory benefits could still emerge.

Strategically, US exceptionalism remains a belief, but recent geopolitical shifts and policy decisions have weakened the US's relative advantages. Investors face challenges in pricing geopolitical risks, which are inherently difficult to quantify yet crucial to consider. A critical theme is the need to address recency bias, stripping away assumptions based on recent decades of US-led growth and stability. This requires a reevaluation of long-term allocations, acknowledging the difficulty in accurately pricing these biases while recognizing their importance for future investment decisions.