Jules Rimmer
4 min read
Despite a deluge of adverse events, including trade wars and kinetic wars, oil-price spikes and other geopolitical strife, most developed equity markets are trading at or near all-time highs. Strategist Tom Essaye explained why markets appear relatively immune to the negative headlines in the Sevens Report, his daily market-strategy note.
The most immediate threat to the stability of risk assets in the past week has been the sudden outbreak of hostilities between Israel and Iran. Typically, investors would take fright at the jump in energy prices — West Texas oil futures WBS.1 rose from less than $60 in May to $75 on Friday — and bond markets would fret about inflationary pressures.
However, Iran’s military capabilities have been so degraded, Essaye wrote, that Tehran’s ability to respond to Israel’s missile strikes and to counter its overall military superiority is severely inhibited. Moreover, Iran, owing to long-established sanctions, is no longer a big exporter of crude oil, while the U.S is a net exporter of oil (unlike during the 1970s oil-price shock) and the Saudis have plenty of spare capacity they can tap if supplies are seriously imperiled.
A second well-established hazard for risk assets is U.S. President Donald Trump’s tariff fight, which could undermine global economic activity, slow U.S. economic growth and supercharge inflation. So why aren’t investors panicking? According to Essaye, tariff fatigue has caused complacency to set in. There are too many headlines and deadlines for the average investor to follow accurately, and markets now routinely dismiss Trump’s ultimatums as bluff and bluster, as evidenced by the recent coinage “TACO,” or “Trump Always Chickens Out.”
The next significant deadline is July 9, the end of the 90-day pause in the imposition of Trump’s tariffs, and at that time markets may well reassess their current phlegmatic approach. Right now, however, Essaye believes that “markets are so [convinced about] TACO that it’s going to take a sustained tariff increase to shake the belief.”
