Trump's "geopolitical bomb" explodes into a gold mine? Wall Street cheers, saying political turbulence is just noise, profit growth is the buying point.

The United States is threatening to launch at least one economic war to seize control of Greenland; the uncertainty in Japanese politics has disrupted the global bond market; in addition, the independence of the Federal Reserve still faces threats from the Trump administration. It is noted that this situation is clearly not the typical background for people to shout "buy risk assets", especially since the bullish force currently outweighs the bearish force, and the valuation of US stocks is at a high level. On Tuesday, the stock market saw its biggest single-day decline since October, but Wall Street strategists said that despite the turmoil affecting the market, the foundation for further stock market gains remains solid. Their logic is usually based on the view that risk assets have always been able to navigate geopolitical turmoil in the long term, unless this chaos leads to a surge in oil prices. Although oil prices rose on Tuesday, the trading prices of Brent crude and West Texas Intermediate (WTI) crude oil are still well below long-term average levels. "Many investors are worried that this will shake the stock market, but we do not fully agree with this," HSBC Holdings emerging markets and stock strategy director Alastair Pinder wrote in a report on January 20. He pointed out that in the 36 major geopolitical events since 1940, the US stock market has risen 60% of the time in the following three months. "The main exception occurs when geopolitical events drive a significant increase in oil prices." Trump's imposition of tariffs on Greenland disrupts market peace There are other reasons to support the bullish view. The core support comes from corporate profits: fourth quarter profit growth is expected to be around 9%, and profit growth in every quarter of 2026 is expected to be in double digits. Artificial intelligence trading is still bringing wealth to enough heavyweight stocks, and investor interest in companies in a wider range of sectors, from healthcare to resources and consumer goods, is also rebounding. As of last weekend, about 70% of the stocks in the S&P 500 Index were above the 200-day moving average, and the Russell 2000 Index and equal-weighted indices hit historical highs. Chris Verrone, director of technical and macro strategy at Strategas Asset Management LLC, believes that this is "not the background we expected to see before a major top. There is nothing to prevent the market from entering a consolidation phase, especially when emotions are so one-sided and correction is needed, but in the long run, we still adhere to the long-term trend." Reasons for the market downturn are everywhere. U.S. President Trump escalated his attempt to seize Greenland, and despite reaching a trade agreement with the EU in July, he still threatened to impose tariffs on eight European countries. Japanese bonds fell sharply due to political turmoil, dragging down bond prices in developed country markets. These factors combined to cause the S&P 500 Index to fall 2.1% on Tuesday, marking the largest drop since October and erasing all gains so far this year. The Chicago Board Options Exchange Volatility Index (VIX) spiked above 20 - not quite panic, but still higher than any period since the AI stocks slid in November. Market sentiment has also become so optimistic that it is worrying. The Bull-Bear ratio closely monitored by the American Association of Individual Investors (AAII) has reached its highest level since 2024; according to a survey by the National Association of Active Investment Managers (NAAIM), fund managers' stock positions are hovering around 96%. So far, earnings have been impressive. According to data from Bank of America Merrill Lynch, 73% of S&P 500 Index component companies reporting earnings in the first week have exceeded analyst expectations, higher than the historical average of 68% at this stage. Dan Greenhaus, chief economist and strategist at Solus Alternative Asset Management LP, said, "If earnings season proves its strength, other disruptive factors will be marginalized." Forecasters also expect the U.S. economy to be boosted this year by tax cuts and real wage growth, while inflation continues to recede, all of which are positive for the stock market. In addition, there is a clear possibility that Trump will "pull back" (TACO) and reignite "tariff concession trade". The President is known for withdrawing tariffs within a week of causing market chaos with tariff increases on April 2. Allianz Investment even suggested on Monday that European decision-makers should intensify market turmoil to pressure Trump. At Barclays Bank, Alexander Altmann, head of global equity tactical strategy, told clients that he maintains a friendly stance on risk assets in the short term, although volatility may increase, at least until the end of earnings season. "The team still holds constructive views, but of course also recognizes that with the government releasing such high 'initial velocity' (referring to policy impact), the volatility pattern is transitioning to a higher level," he said. "This in turn may sometimes blur the path forward for the stock market." The J.P. Morgan trading department also expressed a similar view on Tuesday, with its global market intelligence director Andrew Tyler telling clients to "stay long but hedge." He maintained a tactical long position, but remained cautious in the short term. Tyler said in a report to clients that the team's optimism is rooted in a resilient macro background and positive earnings growth, despite the challenges the framework is currently facing. "It's too early to say that the macro situation has deteriorated enough to turn bearish," he said. "We also believe that giving up US assets now is premature, and a better approach is to hedge against downside risks, especially if we see a shift in position by Trump after the Davos Forum."