Despite a tumultuous week in global news, the markets have shown remarkable resilience. As tensions escalate in the Middle East and a devastating hurricane sweeps through the Southeast, one might expect investors to be running for cover. Add to that a massive dockworkers’ strike that brought ports to a standstill, and it’s a wonder the markets haven’t plummeted. Yet, the S&P 500, Nasdaq Composite, and Dow Jones Industrial Average have all remained steady, with losses of 1% or less over the past four trading days.
According to Wall Street strategists, the key to understanding this market calm lies in assessing the risks to the global economy and financial markets. While the conflict between Israel and Iran is certainly concerning, it would take a significant disruption to energy supply chains to have a material impact on the outlook. Similarly, the dockworkers’ strike, though potentially damaging to economic growth and inflation, was ultimately resolved without lasting consequences.
Markets have learned to distinguish between headline-grabbing news and actual economic indicators. As Fundstrat’s Tom Lee notes, while the port strike and Middle East tensions pose short-term risks, the underlying drivers of the market rally – including a dovish Fed and continued US economic growth – remain strong. The question for investors becomes one of expectations: will the current headwinds impact future cash flows and earnings, or will the market’s tailwinds prevail? For now, it seems the latter is winning out.
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