(The opinions expressed here are those of the author, a

columnist for Reuters.)

By Jamie McGeever

ORLANDO, Florida, April 23 (Reuters) - In a swirling

world of heightened uncertainty, investors could be forgiven for

hunkering down and minimizing exposure to proliferating risks.

Yet paradoxically, the biggest risk may be risk aversion itself.

With the Iran war set to enter its third month, the largest

global energy shock in decades is stifling growth, stoking

inflation, and confounding policymakers. And that's on top of

the new world order - marked by de-globalization,

de-dollarisation, and trade wars - that investors were trying to

make sense of before the war started on February 28.

All good reasons to reduce exposure to risk assets like

equities and adopt a more defensive posture, right? Not really.

As it turns out, money talks. Specifically, profit. U.S.

companies - particularly the tech megacaps - continue to

generate bumper earnings, largely driven by the artificial

intelligence boom. The possible holes in this narrative, like

the potentially unsustainable capex binge and the heavy sector

concentration, are well-known. But the fear of missing out -

"FOMO" - continues to outweigh everything.

Investors are being rewarded for holding the line. Since the

war started, traditional safe havens like gold, U.S.

Treasuries, and the Swiss franc have all depreciated, while the

Nasdaq and S&P 500 have climbed to new highs. The Nasdaq is up

9% since February 28.

Investors who sought cover found underperformance instead.

Other markets around the world have powered ahead too -

Japan's Nikkei 225 and South Korea's KOSPI both hit new peaks

this week - but none carry the "risk on" torch quite like Wall

Street.

BlackRock ( BLK ), the world's biggest money manager with $14

trillion of assets under management, last week went overweight

U.S. equities.

Meanwhile, JPMorgan's equity strategists upgraded their

year-end S&P price forecast to 7,600 points from 7,200, implying

a 7% rise from current levels. This was driven by the upward

revision to their earnings per share forecast to $330 - well

above the LSEG consensus of $315 - based on the AI outlook. If a

permanent ceasefire in the Middle East is reached, they reckon

the S&P 500 could hit 8000.

In other words, the outlook is either great or really great.

NO REWARD FOR UNDERPERFORMING

Given this backdrop, there are real costs to standing on the

sidelines.

The U.S. economy remains the most dynamic in the world -

home to the most innovative and profitable companies as well as

the most liquid and efficient markets. The market cap of U.S.

stocks is more than 70% of world shares, and U.S. stocks have

had a valuation premium over world stocks for the last 24 years.

"No one has been rewarded for selling U.S. equities," says

global capital flows expert Brad Setser at the Council on

Foreign Relations. "There's deep reluctance to be underweight

the U.S. and risk underperforming."

This echoes the "U.S. exceptionalism" narrative that gained

currency in 2024. It holds that investors can't afford not to

have large exposure to U.S. equity, especially tech.

While this thesis has been questioned over the past year due

to some of President Donald Trump's more unorthodox and

controversial policies, the dominance of U.S. hyperscalers has

offset any trepidation about the current administration.

Investors might be wary of the direction of U.S. fiscal or

foreign policy, but 'selling America' is simply too risky.

RUNNING OUT OF STEAM?

There are plenty of reasons why the current Wall Street

rally could run out of steam, however.

The S&P 500 just recorded its third consecutive weekly rise

of 3% or more. As analysts at Jefferies point out, this has only

happened twice in the past 75 years: August 1982, and May 2020.

Additionally, trading volume in "call" options - derivatives

contracts that are effectively a bet on further price gains -

has reached historically high levels in stocks and

exchange-traded funds, especially tech.

This hyper-bullishness means there is little margin for

error.

And there are alternatives. Investors wanting exposure to

the AI and tech boom have options in Asia, like Taiwan's TSMC

, and South Korea's Samsung or SK Hynix

. There are also several firms in Europe that stand

to benefit from the defense and tech spending splurge likely to

come in the years ahead.

Investors wouldn't necessarily be taking a performance hit

if they diversify on the margins. While the big three U.S.

indices have rebounded strongly from their Iran-war lows in

March, Japanese equities as well as the benchmark MSCI Asia

ex-Japan and MSCI emerging market indices have performed better

year to date.

However, they don't offer nearly the size or liquidity of

Wall Street. And in the U.S., loose financial conditions, strong

earnings, and plentiful liquidity all continue to suppress

volatility, which, in turn, should attract even more capital.

"When volatility spikes, investors have an incentive to

reduce leverage and risk exposure. But when volatility remains

contained, risk appetite can stay relatively buoyant even amid

broader uncertainty," says Sophia Drossos at hedge fund Point72

Asset Management.

For now, being cautious is a risk few can afford to take.

(The opinions expressed here are those of the author, a

columnist for Reuters)

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(By Jamie McGeever

Editing by Marguerita Choy)