Good morning. Why have US stocks decided they no longer care about the war in Iran? After falling for much of March, the S&P 500 has ripped to new all-time highs in April. This despite the sustained closure of the Strait of Hormuz, which under normal conditions carries a fifth of the world’s supply of oil and natural gas. Developing Asia is already facing an energy crisis, and if the strait stays closed, the trouble seems likely to move west.

There are a range of explanations, some of them complex and contentious. But there are two clear, unarguable factors at work: habit and strong corporate earnings.

The habit, as we all know, is buying the dip. Over the past 10 years, the S&P 500 has been hit by a series of crises and corrections: rate pressure, valuation worries, Covid-19, tariffs and now the Iran war. And in each case, the market came back shortly. Even after the deep lows of 2022, it only took 15 months to hit a new all-time high. With that history drilled into investors’ (and algorithms’) memories, it doesn’t take much of a reversal for optimism to take hold. 

A similar steady upward trajectory is visible in market fundamentals. S&P 500 earnings per share have compounded at 11 per cent a year over the past decade. Only the Covid crisis was able to slow the upward march — and the lost earnings of 2020 were made up in the hyper-stimulated economy of 2022. And for the past year or more, earnings have been growing in the mid-teens, a pattern that has been confirmed by the companies that have reported first-quarter earnings so far. 

Of course, neither the historical context nor strong earnings growth would matter if the market was not pricing in the strait opening to tankers before long. One Wall Street research group released a report this week entitled “The Post-War Boom”. Is the optimism misplaced? Send us your thoughts: [email protected].

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Hakyung: Leaders of the future.

Katie: Where have the benches gone?

Daire: Petro-media.