Markets Near Record Highs After Investors Confirm Middle East War Still Mostly Someone Else's Problem
NEW YORK — Global stock markets remained near record highs Friday after investors carefully reviewed escalating tensions in the Middle East and concluded that, while potentially devastating for millions of people, the situation currently appears unlikely to interfere with quarterly earnings.
Oil prices climbed amid renewed geopolitical concerns and threats to shipping near the Strait of Hormuz, one of the world’s most important energy chokepoints. Equities responded by briefly declining before remembering that Nvidia still exists.
“Obviously, any widening of the conflict would be tragic,” said one portfolio manager while increasing his exposure to semiconductor stocks. “But from a valuation perspective, we’re mainly concerned about tragedy that affects the denominator.”
Markets have become increasingly skilled at distinguishing between ordinary human catastrophe and material human catastrophe, the latter generally defined as anything capable of reducing S&P 500 earnings estimates by more than 0.7%.
Analysts said investors were monitoring developments closely, which in financial terminology means occasionally checking the price of Brent crude between refreshing their brokerage accounts.
“Geopolitical risk is definitely elevated,” said one strategist. “Fortunately, it appears to be fully priced in.”
Asked what price the market had assigned to a possible regional war involving several major energy producers, the strategist replied, “About twelve basis points, apparently.”
The VIX remained relatively subdued, suggesting investors currently expect global instability to continue in an orderly and predictable fashion.
Wall Street economists also reassured clients that disruptions to the Strait of Hormuz could have significant consequences for energy markets, inflation, monetary policy, global trade and economic growth, but stressed that none of those consequences should be incorporated into anyone’s forecast until after they happen.
Federal Reserve officials are reportedly watching oil prices closely for signs that higher energy costs could reignite inflation. Markets, meanwhile, are watching Federal Reserve officials closely for signs that higher energy costs might cause them to say something slightly different at the next meeting.
Despite the uncertainty, investor sentiment remained resilient.
“If things deteriorate, obviously that would be bad,” one trader explained. “But if they deteriorate enough, the Fed might cut rates.”
Markets rallied on the clarification.
