Stocks Ignore Geopolitical Risks as Oil Market Remains Tense
The global market's reaction to the ongoing Iran crisis is a subject of debate. Despite the geopolitical tensions, US stocks have hit record levels, with the S&P 500 reaching an all-time high at the end of last week.
Nearly 90% of S&P 500 companies have reported quarterly results, showing aggregate earnings growth of around 30% from a year earlier. This strong corporate performance has given investors reason to look past geopolitical risks and focus on fundamentals such as revenue, earnings, margins, interest rates, and economic growth.
Investors may not be ignoring the Iran situation entirely, but rather becoming numb to repeated cycles of escalation and tension. This 'geopolitical fatigue' has led to smaller reactions to individual headlines compared to earlier in the conflict.
The real concern is not running out of oil reserves, but rather losing confidence that enough barrels can be released to control a price shock. The US Strategic Petroleum Reserve has declined significantly since March, from 415 million barrels to just 304.8 million barrels by July 31.