Despite our expectation of a continued late cycle rally which will pivot to non-US markets, geopolitical tensions remain a wild card that could abruptly disrupt this late cycle rally. The chief short-term risks emanate from simmering tensions between Iran and the U.S. as well as a no-deal Brexit in the fall.

The most important long-term risk remains the strategic rivalry between China and the U.S., despite yet another climb-down by the President at the G20 meeting in Japan. The good news is that actualizing the risks is not in the rational interest of any of the principal actors in all three scenarios. President Trump does not want another unpopular war in the Middle East, particularly against Iran, which would require boots on the ground. While China is a bi-partisan bogeyman that fires up the base, the risks of further escalation would stymie the all-important stock market yardstick, which the President cares deeply about. Finally, neither Iran nor China, despite bellicose nationalist rhetoric for domestic consumption, desires a full-blown armed conflict (in the case of Iran) and trade war (in the case of China). While both the EU and Boris Johnson (the leading candidate for leadership of the UK Conservative Party) are incented to publicly portray a more rigid negotiating stance, neither party benefits from a nodeal Brexit; so, the most likely course may be yet another delay.