War, what is it good for?

The song tells us “absolutely nothing,” but it’s apparently good for record-high stocks. And not just on Wall Street. All around the world, too.

On Monday, the broadest gauge of global equities managed to eke out a new record high amid optimism that Donald Trump and Tehran have forged a path to peace.

Maybe a deal between the US and Iran will come together, maybe it won’t, but we shouldn’t kid ourselves: At the (considerable) risk of offending some readers, there’ll never be durable peace in a region where a majority of people subjugate all other concerns to religion. I’ll just leave that there.

The figure below shows you the above-mentioned record on the MSCI All-Country World gauge, along with the rolling 40-session change.

As you can see, the gain from the late-March, Iran-war lows counts among the most pronounced advances over a comparable daily lookback of the 2020s.

Indeed, we’re now on the cusp of the third-largest such gain of this decade, behind only the rebound from the original COVID plunge and the recovery from the “Liberation Day” swoon.

Some — a lot — of this is the Trump playbook manifesting in equity prices: He does something “crazy,” stocks fall, then he backs off and stocks rally.

But, as I never tire of reminding readers, there is a fundamentals-based narrative. It’s not a coincidence that the equity surge played out alongside one of the best US earnings seasons in years, and in conjunction with a historic inflection in EPS expectations.

The figure above shows you the rolling four-month percentage gain in 12-month forward profit forecasts (hat tip to SocGen’s Andrew Lapthorne) along with the three-month rolling change in the same MSCI global equities gauge, using monthly prices.

As Lapthorne pointed out late last month, we’ve just witnessed the largest four-month percentage increase in global profit expectations ever outside of recession recoveries.

Recall that in addition to a record jump in self-reported global equity allocations, the May installment of BofA’s Global Fund Manager survey found panelists expressing quite a bit more in the way of optimism around global profits versus April. Indeed, the month-to-month increase in those expecting EPS to improve was the sixth-largest ever.

The post-War global security architecture may be breaking down right in front of us, US hegemony may be sunsetting in real-time and the economic backdrop might’ve reverted to a pre-“Great Moderation” state of macro volatility, but the value of stakes in the fictional entities we call “corporations” — the market price of claims on those entities’ profits — has never been higher.

Put differently: It’s the end of the world as we know it. And stocks feel fine.