If you only watched equity volatility this spring, you might think markets had entered a regime of elevated uncertainty: trade frictions re-escalating, U.S. exceptionalism fading, the bond market wobbling, and constant recession chatter. But beneath the surface, the real economy quietly proved more durable than most forecasts anticipated. And, as often happens when expectations overshoot fundamentals, the second-order effects are now being felt in markets that trade on momentum and liquidity.

The improvement in macro fundamentals coincides with the ongoing geopolitical shock in Israel/Iran, and such shocks typically provide strong entry points into risk assets. We don’t think this time is different and are using the geopolitical turmoil to load up on risk assets (including crypto). Let’s walk through why:

The Real Economy Held the Line
April and May brought peak uncertainty in U.S. macro data. Trade policy shifts and geopolitical messaging created just enough noise to spook consumers and investors alike. But the actual response in the real economy was more muted. In fact, retail sales beat expectations at +0.1% for April, with discretionary subcategories like restaurants and general merchandise outperforming. Moreover, our nowcast indicators also show a solid bounce in services, which make up most of the U.S. economy.

Chart 1.a: Discretionary spending is actually resilient even at COVID-level uncertainty