Stock bulls are facing their first big test of 2020, and the timing couldn’t be worse.

After one of the best years for risk assets in decades, investors spent the fourth quarter unraveling safety trades that dominated 2019 and piling on risk. But with geopolitical uncertainty now rearing up to test their mettle, some are wondering whether that rotation was premature.

There’s certainly a fresh backdrop for this bunch of newly rejiggered portfolios. Just weeks ago, the low-volatility stock trade was losing its allure, flows into fixed-income funds were slowing in relation to equities, and everyone seemed to be rushing into shares that should outperform in an economic rebound. A U.S. airstrike that killed a top Iranian commander has altered the calculus behind that shift, but -- for now -- investors are holding the course.

“People aren’t changing their investment theses based on it,” JJ Kinahan, chief market strategist at TD Ameritrade, said by phone. “They’re going to wait it out a little bit and see what the next escalation point, if there is one, is.”

Despite the fiery rhetoric, market reaction so far has been contained. The benchmark’s fallen less than 1% from its record highs, after a year in which the S&P 500 Index gained almost 30%. A rebound in economic growth and corporate profits is still widely expected, but with billions of dollars recently shifting from defense to offense, the stakes are high.

Investors poured $90 billion into equity ETFs in the three months ended December, the most in two years and more than twice the amount that flocked to bond funds, Bloomberg Intelligence data show. That brought total inflows for stock exchange-traded funds to $161 billion in 2019, and ended three quarters in which debt demand topped appetite for equities.

Sector funds tracking technology and energy experienced their best three-month periods since 2016, taking in more cash than any other industry. Meanwhile, bond proxies including consumer staples and utilities ETFs, suffered their first quarter of outflows since the start of 2018.

“We’ve gone from ultimate bearishness to essentially euphoria in the last few months,” Mike Dowdall, a portfolio manager at BMO Global Asset Management, which oversees $260 billion, said late December. “It’s a little bit surprising.”

Perhaps more surprising is that investors seem to be maintaining their appetite for risk this year, even as tensions in the Middle East ratchet higher.

Funds buying oil, energy stocks, gold or Treasuries -- which could all benefit from escalation -- have seen little additional interest. Instead, economically-sensitive areas of the stock market garnered attention, with investors pouring $700 million into the $11.8 billion Industrial Select Sector SPDR Fund on Friday, the most for any day since 2016.

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