Equities have decided the Strait of Hormuz doesn’t need to be open.
Or, more precisely, that an open Strait isn’t a prerequisite for a succession of new all-time highs on Wall Street. It’ll be open eventually (maybe, hopefully) after all, and stocks are forward-looking.
Nearly two months on from Ali Khamenei’s assassination, waters around the world’s most important oil chokepoint are doubly closed. The US Navy’s inhibiting traffic to and from Iranian ports and in response, the IRGC’s firing on and seizing other vessels.
Historically, this was considered the absolute worst-case scenario in the Mideast: Open warfare between the US and Israel on one side, and Iran on the other, with the Gulf monarchies as collateral damage and the Strait closed.
But here’s the thing about stocks: They have a tendency to get bored with, and desensitized to, bad news that isn’t so proximate as to be unignorable. Everyone who’s been around for a while knows that, and yet we feign indignant surprise, which is to say we’re being a bit disingenuous when we act shocked by equities’ no-cares attitude.
Only once in my adult lifetime was it the case that stocks were truly under siege — earnestly beset, where that means at risk of outsized losses during any given session — for a period lasting longer than three months. That stretch was September of 2008 to March of 2009.
I should probably count 2022, although that was a “crashless” slog, not a GFC-style gauntlet. In both cases, the risk to risk, if you will, was immediately proximate: Capitalism was imploding in 2008 and in 2022, the cost of money was in the process of quintupling across advanced economies.
Crazy as this sounds, the reconstruction of global trade barriers (i.e., the tariff wars) and the choking off of maritime traffic which accounts for, among other critical things, a fifth of global oil supply, simply aren’t as immediately relevant for equities.
That’s certainly not to say they aren’t relevant at all, it’s just to underscore the point above: What’s another ship seized at this point? What’s another week of curbed Strait traffic?
Energy traders would scoff at that latter question because it’s not rhetorical: There’s a quantifiable cost associated with each day that waterway’s closed. I get that. (What’s not to get?) But riddle me this: What’s that cost worth, net of profit upside for supermajors from higher oil prices, in terms of aggregate S&P index EPS for the full-year 2026?
That’s not entirely quantifiable, but it’s guessable, so to speak, and as long as Tech holds up its end of the earnings bargain, overall profits for corporate America aren’t likely to be affected by this otherwise existential dustup, barring a scenario where oil’s north of, let’s call it $115, for a period of, say, six to eight months or longer.
The figure below shows you the S&P plotted with the cumulative number of new record highs notched during Donald Trump’s second term.
We’re now two worst-cases in — “Liberation Day” constituted a worst-case tariff shock, and it took SCOTUS the better part of a year to deem the associated levies illegal, and a full-on shooting war with Iran that closed the Strait was a worst-case geopolitical outcome — and the S&P’s hit 47 new records since Trump’s second inaugural.
It’s easy enough to “blame” AI. “The Strait of Hormuz needs to be reopened, but the market is giving the President a pass for now [and] the rally has produced some remarkable statistics,” JonesTrading’s Mike O’Rourke said, noting that the SOX closed higher for a 16th straight session mid-week.
The figure below shows you the three-week rolling gain for the semi gauge: It’s nearly 40%.
Although big-cap US tech “took a two-day breather [it’s] still up 17% over the same period [and] the S&P 500 Software Industry Group is up 18%,” O’Rourke went on. “As equities defy reality, we wonder why we are so lonely in the bubble camp.”
You’re not, Mike. Alone in the “bubble camp,” I mean. A lot of people — I dare say a large plurality of market participants — are in that camp, even if most wouldn’t use the word “bubble” for fear of downplaying the significance of a new tech epoch.
The problem I have with dwelling on the alleged implausibility of stock rallies in the face of purportedly existential crises is that the juxtaposition occurs in the presence of almost all crises, and there’s a crisis somewhere every, single day.
In other words: This “disparity” is preordained. Stocks go up over time (even Japanese stocks, as it turns out), and the human condition is one of perpetual tension, competition and war.
Past a certain point — and I reiterate this at regular intervals — bubble warnings cease to have any real meaning even if they’re borne out.
After 47 new records since January of 2025, we’re at SPX 7137. Let’s say stocks fell 25% over the next week in response to a hypothetical collapse of US-Iran ceasefire talks. Would that vindicate the bubble crowd?
The S&P would still be above the “Liberation Day” lows, it’d be 49% higher than the 2022 nadir, 133% higher from the March of 2020 COVID plunge and, wait for it, 680% higher from the March 2009 bottom.
The world’s always ending just like you, me and everyone else are always dying. Investing based on the former makes about as much sense as letting the latter dictate your capacity to enjoy life.
Stocks reflect the worst human impulses vis a vis the fear and greed motivators. Nothing’s an emergency until it’s a catastrophe and then everyone is selling everything to try to avoid the pain. Anything resembling good news or not bad news is a net positive that should be bought into.
We’re seeing canaries though, first Blue Owl, and then yesterday I saw Spirit Airlines is asking for government loans to continue operations. As leveraged as many firms are, there is no way that a 50% yoy increase in the cost of petroleum won’t cause catastrophic impacts. Farmers are being doubly impacted by the loss of cheap immigrant labor and a 30% increase in the cost of fertilizer. Eventually these things will cascade into a sequence of a failures that forces the market into the fear index. The question is really when.
“The question is really when.”
No, the question is (and always is) about forgone upside in the mean time. If you wait around for the “inevitable” to happen, by the time it finally does, the deleterious fallout is rarely (which is to say almost never) dramatic enough to erase the entirety of what you would’ve missed had you sat around uninvested.
Of course, that’s a strawman because most people are invested, at the very least in some manner of retirement plan.
But the point here — and this is explicit in the article — is that after a while, the term “right” is a misnomer for crash-callers. Jeremy Grantham’s the quintessential example of this. I mean my God, how many times has he implicitly said stocks were going to crash anywhere between 30% and 50% since the pandemic? It’s not every other month, but it sure feels like it. Have there been selloffs over that period? Sure. But look at the overall gain. What kind of selloff would it take to erase that? A kind that simply isn’t on the cards.
I expect the same things were being said sometime in early 2008 just before the 50% selloff and home foreclosures ramped up. To say that something won’t happen because it hasn’t happened (lately) is to ignore the reality that it can happen because it has happened before (repeatedly). That’s not to say I’m not invested, and strategically, where I think a Trump created crash would benefit. But I think to fully embrace the ignorance of the markets in their current state is to lose site of the historical damage the markets have had on people when they finally accept the reality the rest of the world is experiencing.
Nihilism has a funny way of proving itself to be a foolish concept when reality forces everyone to care about what’s actually happening to them. The markets are an insulator from reality and in that regard they are quite insulated from the reality they help create. But even with the top 1% owning over half the assets, those insulary effects are not impregnable.
Yep. I recall that in 2007-2008 the popular narrative was “Home prices have never fallen in unison in all US markets.” Oppsie!
A good friend of mine worked at Countrywide during that time frame.
At a big meeting with the finance guys he innocently asked what would happen to these loans if people started defaulting on their loans. Being an HR guy, they proceeded to laugh and lecture him about why that wouldn’t happen…
“Nihilism has a funny way of proving itself to be a foolish concept when reality forces everyone to care about what’s actually happening to them. The markets are an insulator from reality and in that regard they are quite insulated from the reality they help create. But even with the top 1% owning over half the assets, those insulary effects are not impregnable.”
That’s pretty good actually.
“I expect the same things were being said sometime in early 2008 just before the 50% selloff and home foreclosures ramped up.”
Yeah, and you know what? The same things that you said, and some of the other commenters here said re: foreboding, nonspecific, undated predictions of a coming crash “were being said sometime” before every crash that didn’t happen, which is to say someone’s always predicting a crash and someone always sees a massive bubble.
Hilariously, if you call for 85 crashes and you hit one, you’re a seer. Whereas if you call for 85 rally extensions and there’s just one selloff, you’re somehow a dunce.
That’s why the bear blogger / bear newsletter cottage industry is so lucrative. Because people don’t see the absurdity in that.
One more thing: It’s amazing how many people called 2008 by their own, after-the-fact account. That’s typical of crashes. Everybody saw them coming… once they’ve happened.
I’m an accountant (retired). Let the numbers speak for themselves.
The inflation adjusted (after inflationary effects), total annual return (assuming dividends were reinvested) for a USD into SPY in December, 2006 through March, 2026 is 7.67%.
Granted, there would have been a few miserable years in there.
Kay said it best: “There’s always an Arquillian Battle Cruiser, or a Corillian Death Ray, or an intergalactic plague that is about to wipe out all life on this miserable little planet, and the only way these people can get on with their happy lives is that they do not know about it!”
Unfortunately, media (including social) now does make sure we know about it and we’re all miserable waiting for the big one to hit.
Art Cashin “Never bet on the end of the world, because it only happens once.”
Every time I start thinking that I might be smarter than the “average bear”, I play around with an SP 500 calculator. Here are the results of my latest look:
$1,000 invested in 1920 (in equivalent of SP 500), dividends reinvested and inflation adjusted through March 31, 2026 (so excluding the last 3 weeks of positive returns), would be $2,895,624.
That is an annualized, after inflation rate of return of 7.87% – over a 105 year and 3 month timeframe. I’ll take that!
This is what is going on, which will continue to become an even bigger part of the investing/trading situation with equity markets.
The only way that I can think of to not get financially destroyed by this- is to invest for the long term.
https://www.wsj.com/finance/alex-gerko-xtx-markets-ai-d155626a?st=P4dSC7&reflink=article_copyURL_share
Everyone knows it, Jack Bogle preached it, but for whatever reason, stating it (as I did in this piece) makes people angry: “But 2008!” doesn’t change what everyone damn well knows, namely that the best investment strategy for 99.99% of humanity is fully-invested / dividends re-invested / dollar-cost averaging / buy the occasional dip / don’t freak out / don’t day trade / don’t think you can beat the market / don’t try to time the market / don’t invest based purely on your political views / etc. etc. None of that’s controversial. And anyone who doesn’t embrace it won’t perform as well over the long run as someone who does. It’s just that simple. And my goodness, just to reiterate, because I think we all know this is implicit in a lot of recent comments on this site: No one should hope for a stock crash simply because it would embarrass Donald Trump or, worse, simply because it would vindicate the “this has to be a bubble because I missed it” crowd.
Not investment advice…lol. But of course, actually best advice ever.
Your’e right, of course (and I love Jack Bogle!) I hate gambling simply because my wife and I worked too G-damned hard to earn our money. As someone who is retired now, it is not 2008 that I fear, but rather 2022: when after a torrid run, both stocks and bonds entered a bear market. I held on to my investments — just like uncle Jack taught us — but man that one hurt for a while.
No one does a better job than you do of dissecting the news on a daily basis — including the never ending clown show in Washington — which is why I gladly pay the full price of admission just to attend your lectures. But man, greed, distrust, and fear are strong emotions, and our current leadership simply does not inspire confidence. You are right, the markets will likely rise, and those who protest via their investments will likely pay the price, but I find it very hard to commit mentally when I can’t even feel the ground beneath my feet.
All you need is [semis] (All together now)
All you need is [semis] (Everybody)
All you need is [semis], [semis]
[Semis] is all you need
1Q26 earnings progress
So far, 25% by name/ 24% by cap of SP500 have reported, 78% / 86% beat revenues, 87% / 96% beat EPS, 64% / 62% saw next quarter consensus revenue go up, 45% / 59% saw next qtr cons EPS go up, average reaction to earnings was +0.1% / -0.1%.
Kind of ho-hum so far. The biggies await.
” ‘Cause they say
2000 zero-zero, party over, oops, out of time
So tonight I’m gonna party like it’s 1999.”
— The Artist
“Crazy as this sounds, the reconstruction of global trade barriers (i.e., the tariff wars) and the choking off of maritime traffic which accounts for, among other critical things, a fifth of global oil supply, simply aren’t as immediately relevant for equities”
My kind of crazy. Markets acclimatise to bad news quickly; it takes NEW shocks to drive further declines.