"Timing is everything" -- And -- What If the bulls (on the economy) have it right?

I sympathize with the following from MRB Research's latest analysis:

"The outlook for capital markets is close to being binary, with the most likely scenario an easing of Middle East tensions in the near term and a rebound in asset prices. However, with the potential imminent landing of U.S. military on Iranian territory, there is a non-trivial risk of a severe escalation in the regional war that would almost certainly trigger widespread selling pressure. 

We are convinced that the U.S. seeks an offramp to ease tensions, but to a considerable extent, the global economic outlook hinges on whether and to what extent flows of energy and other commodities through the Strait of Hormuz normalize1. Timing is everything.

The global economy had substantial positive momentum coming into the year, which, combined with supportive fiscal and monetary policies, is providing resilience against the negative shock of the war on energy and other supplies and prices. A guestimate is that significant economic fallout soon will be evident if the negative shock is not clearly easing in the coming month or two. What is unknown is whether markets will focus more on the easing of hostilities and geopolitical risks or on what is likely to be a relatively slow pace of recovery from disruptions to shipping and energy supplies.

While investors cannot dismiss the downside scenario, our base case is that the global economic expansion will largely regain its footing in the second half of this year, with positive implications for risk assets. At the same time, there was substantial optimism baked into asset prices prior to the war, which is increasingly likely to be scaled back due to both a higher geopolitical risk premium and greater earnings uncertainty. Notwithstanding the recent setbacks, global equities and credit remain expensive, and corporate earnings expectations elevated, leaving limited sustainable return upside on a 6-12 month horizon.

Against this backdrop, we continue to recommend overweight exposure to cash within a multi-asset portfolio, complemented by neutral exposure to equities and credit, and an underweight in fixed income. Our base-case scenario also warrants maintaining overweight exposure to emerging market, Japanese and euro area stocks within a global equity portfolio and a mild underweight on the U.S. Those equity markets should also benefit from an expected weakening of the U.S. dollar on a 6-12 month horizon."

Again, I very much sympathize with the economic probabilities, and even with the asset allocation expression; i.e., our structurally weak-dollar posture, which we're emphasizing via Japanese and euro area, as well as emerging market equities (from commodity-producing emerging mkt regions in particular).

With regard to our US equity exposure, we must remain very cognizant of the later-in-the-year equity-market risk that the oomph/animal spirits -- engendered by the ending of the war, the softening tariff hit that we anticipate, record US tax refunds, massive capex spending (AI datacenters), and what amount to stimulus injections via the pending fiscal package (the One Big Beautiful Bill Act) -- may bring... I.e., too much of too many good things in this environment will see inflation remain stubbornly high and, thus -- with its attendant higher interest rates -- make for a potentially not-small headwind for US equities... A scenario our core commodities exposure and inflation-protected treasuries are explicitly designed to address.

Stay tuned...