Market Overview & Geopolitical Risk - Equity investors are largely comfortable ignoring geopolitical risks unless oil prices significantly increase [2] - The market recovery suggests reassurance that equity investors can overlook geopolitical risks if oil prices remain stable [2] - Geopolitical risks are primarily assessed through the channel of oil prices [3] Investment Strategy & Positioning - The firm recommends a long position in high-quality US equities due to earnings growth, high valuations, and headline risks [4][5] - A rotation from growth stocks into quality stocks is advised due to changes in the interest rate market [6] - Institutional investors had significantly recovered their positioning, though slightly less heavy than in late February [8] - Positioning is considered pretty full, close to levels seen in mid to late February, but not underweight [9] Sector Analysis - Energy sector is generally underowned and not considered a core part of quality stocks, but potential persistence of geopolitical risks may force positioning [10][12] - Large-cap banks are favored due to a seemingly good operating environment, while regional banks are considered tricky due to lack of sponsorship for lower quality trades [18] Macroeconomic Factors - A weaker dollar is a tailwind but could become a concern if it becomes too volatile, potentially signaling the end of US exceptionalism [13] - Foreign investors are hedging more of their dollar risk [15] - Strong Q1 earnings, particularly from Hyperscalers doubling down on capital expenditure, have reinforced the AI trade and attracted investors back to US equities [13][14]

Geopolitical Impact on Markets - The market initially reacted positively because the situation between Israel and Iran didn't worsen significantly over the weekend [2] - Markets generally don't react strongly to geopolitics, except for oil prices, which are closely monitored [2][3] - The market believes that as long as the US remains on the sidelines and oil prices stay relatively stable, the conflict's impact on stocks will be manageable [4] - US involvement would change the market's assessment [2][5] Market Drivers and Sentiment - The primary driver of the market is currently momentum, with a return to the momentum trade [6] - Equity markets assess geopolitical events based on their potential impact on companies' bottom lines [7] - The AI trade and mega-cap tech are currently not significantly affected by the geopolitical situation in the short term [8] Economic Concerns and Fed Policy - The economy is showing signs of a slowdown, which is a concern [11][12] - The Fed is unlikely to cut rates due to concerns about tariffs and potential higher oil prices [9][12][13] - The major risk is that the economy slows down while the Fed remains on the sidelines, potentially disrupting the momentum trade in the long run [13]