“Recent talks at the Alaska Summit have reopened the possibility of peace between Russia and Ukraine. While no agreement is guaranteed, both sides appear more willing to compromise. Markets remain cautious — currently pricing in only a 25% chance of peace before year-end (according to Polymarket). History shows that if peace comes, it tends to happen quickly and catch markets by surprise, which means investors need to be prepared.

At the same time, global liquidity — the amount of money flowing through the financial system — is turning higher again after a long stretch of tightening. Liquidity is the single most important driver of asset prices over time. Understanding where we are in that cycle is just as important as tracking geopolitics.

Why Peace Matters for Investors

Energy Costs: A peace deal would likely lower global oil and gas prices, especially benefiting Europe, where high energy costs have weighed heavily on households and businesses.

European Recovery: With reduced geopolitical risk, European companies could finally catch up after years of underperformance.

Reconstruction Boom: A peace settlement would unlock billions in aid from the EU, IMF, and World Bank to rebuild Ukraine’s infrastructure, creating global demand for materials, machinery, and engineering.

Defense Spending Shifts: Military budgets won’t collapse, but they could shift focus toward aerospace, maritime, and advanced defense technology rather than purely frontline weapons.

Bottom line: We have held European positions for years, and our patience has paid off. With valuations still much lower than in North American markets, this portion of our asset allocation has performed well — and if a peace deal is reached, Europe could become the new “hot” market attracting capital.

Timing of Market Reactions

• Short-Term: A peace announcement would likely trigger a sharp rally in European stocks and energy-sensitive sectors.

• Medium-Term: Reconstruction efforts would create a steady tailwind for industrial and infrastructure-linked industries.

• Ongoing: Defense and technology firms remain relevant if peace stalls or military spending priorities shift.

The Liquidity Cycle: Where We Are Now

I believe we are currently in an early recovery stage — growth is still muted, but inflation has cooled, and liquidity is starting to improve.

• Central Banks: 83% of central banks globally are cutting rates. The U.S. Federal Reserve is expected to begin its own cuts later in 2025 and into 2026, providing further support.

• Dollar Weakness: The U.S. dollar, which was very strong earlier this year, has weakened, easing global financial conditions.

• Credit Growth: Lending is picking up in the U.S., Europe, and China. This is fresh “fuel” for the economy and markets.

Bottom Line: We’ve likely passed the worst of the liquidity squeeze. The environment is gradually becoming more supportive for risk assets.

Jackson Hole and Market Dynamics

We’re at an interesting stage in markets. Summer months usually bring low liquidity, which exaggerates market swings. Recently, markets have moved past the noise of tariffs and political rhetoric, and the real focus is back on liquidity.

Friday’s Jackson Hole conference is being closely watched. On one side, the Trump administration is pressing hard for lower rates. On the other, Fed Chair Jerome Powell — nearing the end of his tenure — wants to protect his legacy and avoid appearing bullied into a move.

Markets currently expect a 25-basis point cut (roughly a 70/30 probability). While the exact size of the cut matters less, the broader point is that rate cuts mean more liquidity, which helps risk assets. Inflation, when measured by alternative gauges like “truflation,” (my measurement of choice for inflation) is running just over 2%, giving the Fed room to ease.

Meanwhile, the market mood is cautious, not euphoric. The NASDAQ has pulled back slightly, and there are whispers of an “AI bubble,” but these feel more like background noise. Historically weaker months — September and October — are ahead, and traders will reassess when back from summer break.

Importantly, retail investors have been buying the dips and doing well, while much of the so-called “smart money” (institutions and hedge funds) sold in April, sat on the sidelines and are now playing catch-up. This is why markets feel like they are climbing a “wall of worry” rather than reflecting overexuberance. 

Bottom Line:  While markets have recovered and are hovering near all-time highs, investors appear cautious rather than overly greedy. Market tops are usually defined by excess optimism and heavy leverage — conditions that I don’t see today — which suggests the upward trend in markets remains intact.

Investment Positioning

The question many investors ask is: sell or hold?

Our view leans toward holding, not selling. Liquidity is improving, and that is the most important driver of asset prices. Pullbacks are normal — even healthy — and often create opportunities. The last thing investors should hope for is markets moving straight up without pauses, as that tends to end poorly.

Conclusion

Two major forces are shaping markets: the underpriced possibility of a Ukraine peace deal and the steady improvement in global liquidity. Peace could lower energy costs, revive Europe, and spark a reconstruction boom. Liquidity, meanwhile, is transitioning from tight to easier conditions, helped by global rate cuts and renewed credit growth.

Markets may wobble in the near term — especially through the seasonally weaker fall months — but the bigger picture is improving. We are past the worst of the squeeze, and both peace prospects and liquidity trends offer meaningful upside for patient investors.

Bottom Line: Stay the course. Pullbacks are opportunities, not reasons to exit.

To listen to Mark’s CBC interview on the use of Artificial Intelligence in personal finance, please click here.

If you have any questions on the markets, or would like to discuss your investments, please don’t hesitate to reach out to Mark, your Portfolio Manager. All of us are available to address any questions or concerns regarding personal finance.

Sincerely,

Mark, Leanne, and James

Book an appointment with Mark:  https://calendly.com/mark-ting

Book an appointment with Leanne:  https://calendly.com/leanne-brothers

Book an appointment with James:  https://calendly.com/james-pelmore

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