If the U.S.-Iran memorandum of understanding remains intact and the Strait of Hormuz reopens as planned, risk assets such as equities, industrial metals and gold may continue to benefit from positive momentum over the coming weeks.
In that environment, investors may want to consider using market strength as an opportunity to gradually increase cash holdings and reduce overall portfolio risk. While this approach could result in some missed upside if markets continue to advance, it would also provide greater protection against a potential correction and leave investors better positioned to take advantage of future buying opportunities. Selling into strength can often make it easier to redeploy capital when valuations become more attractive.
Liquidity Conditions Remain a Key Concern
The broader challenge facing financial markets is that liquidity appears to be weakening at a time when inflation remains high enough to limit the ability of central banks to aggressively ease monetary policy.
Several major central banks are either maintaining restrictive policies or continuing to tighten financial conditions. At the same time, signals from both gold and cryptocurrency markets have been pointing to a gradual deterioration in global liquidity trends.
Another factor drawing liquidity away from financial assets is the growing wave of large-scale capital spending and public offerings.
Capital Is Moving From Financial Assets to Real-World Investment
Large IPOs and infrastructure spending programmes effectively redirect capital away from financial markets and toward physical investment.
One example is the SpaceX (NASDAQ:SPCX) initial public offering, which transferred approximately $75 billion from investors to the company. Those funds are expected to be deployed into projects such as data centres, launch systems and other infrastructure.
A similar dynamic is occurring across the technology sector as companies including Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOGL), Meta Platforms (NASDAQ:META), Oracle (NYSE:ORCL) and Amazon (NASDAQ:AMZN) prioritise AI-related capital expenditures over share repurchases.
As a result, money that might otherwise have supported financial asset prices is increasingly being directed toward real-economy investment.
Markets May Already Reflect an Optimistic Middle East Outcome
Another consideration is that investors may have largely priced in a favourable outcome regarding tensions in the Middle East.
If that is the case, markets could be more vulnerable to negative surprises than positive ones, particularly if geopolitical developments fail to progress as expected.
Long-Term Commodity Outlook Remains Positive
While caution may be warranted in the near term, the outlook for industrial commodities over the next one to two years remains constructive.
An often-overlooked aspect of the U.S.-Iran agreement is the potential creation of a privately funded $300 billion development programme aimed at rebuilding Iran and accelerating its integration into the global economy.
If implemented, the initiative could generate substantial new demand for a wide range of industrial commodities.
Although this part of the agreement has attracted criticism in some quarters, supporters argue that increased trade, investment and economic integration could help reduce the likelihood of future conflict by strengthening ties between Iran and the broader global economy.