Optimism or baked in behaviour?
Readers will have no doubt noticed, probably with relief, that however absurd the latest Truth Social post from Trump is, however counter-productive US policy is, however belligerent Israeli and Iranian leaders remain, whatever the direction of the oil price or data on tanker movements, stock markets have and are taking everything swimmingly.
Perhaps that seems strange to you? You would not be alone.
The conventional wisdom
Most experienced stock market investors would tell you that what happens in the global economy is useful in assessing the long term direction of asset valuations but really has no direct impact on short term share price movements unless that news indicates a systemic or all-encompassing change in the climate for business.
The shorter term valuation of shares should logically depend upon current company profitability, or at least expected future earnings, in the case of equities, and the trend in interest rates when it comes to fixed income stocks.
This might be the logic that should be applied currently. The markets are assuming that the war will be short lived and although oil prices have shot up with all the implications we are familiar with, this is taken as short term only and will not impact corporate profitability and perhaps only slightly delay the previous trend of reducing interest rates.
