Stocks Are Up 8% on a War That Isn't Over | Prof G Markets

0:00 Two markets that perform the best are one Taiwan of 15%.

0:03 And I wonder how much of that is like, okay, AI is is the place to be.

0:09 They are the number one producer of chips, right?

0:13 And so their market's up 15%.

0:14 As the chips market goes, so does the Taiwanese market.

0:18 And the interesting one is Israel's market is up uh 9%.

0:22 And I think what people have uh I think if you try and read into it,

0:26 the market has basically decided that that Israel

0:29 is the new superpower is the superpower,

0:31 the definitive superpower in the Middle East and its tax sector.

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1:22 The war with Iran reaches its twomonth mark tomorrow.

1:25 That's well beyond the four-week timeline

1:27 the Trump administration had initially suggested.

1:30 So with the conflict stretching into its third month,

1:33 we thought it was a good moment to step back

1:35 and assess how it's impacting prices and also the broader market.

1:40 But the bigger question still looms.

1:41 How and when does this actually end?

1:44 Scott, let's just look at what's happened with the markets here.

1:49 Um we're now at month two.

1:52 We started this war on February 28th.

1:56 Uh tomorrow it will be uh April 29th.

2:02 So we've we're essentially two months into this thing.

2:05 Oil prices are rising still.

2:08 Uh Brent crude is above $103 a barrel.

2:12 So I think a lot of people expected that maybe oil prices

2:14 would kind of calm down that the markets would sort of temper.

2:17 that hasn't really happened.

2:19 It's still very volatile and it's still pretty significantly elevated compared

2:24 to where we were before uh the start of the war.

2:27 But what has been interesting is how well the the stock market has performed.

2:34 So since the ceasefire was announced, the Dow has risen 6%,

2:39 the S&P has risen 8% and the NASDAQ has risen 12%.

2:44 And actually, it's not just US markets that are rallying.

2:47 It's markets everywhere around the world.

2:49 So again, since the ceasefire, since Trump announced that ceasefire,

2:53 and we can debate whether it actually was a ceasefire,

2:55 but since that announcement, Europe's stock market up 3%,

2:58 Germany's up 4%, China's up 5%, India's up 5%, Japan up 10%.

3:06 So it does seem that investors are either

3:10 breathing a sigh of relief or deciding that things

3:15 don't matter perhaps as much as they originally thought

3:19 when it comes to uh the war and its

3:21 impact on the larger economy or they're just looking

3:23 at the earnings that we're seeing and the earnings

3:25 have been pretty phenomenal that that which we've

3:29 seen uh since the start of this war.

3:33 The point being markets, stock markets are doing pretty well right now.

3:37 Uh, and they continue to do quite well.

3:39 Um, there's some nuance that we can dive

3:42 into, but let's just start with your reactions to that fact.

3:45 S&P up 8% since the ceasefire.

3:48 The markets seem to believe that the war is going to come to an end.

3:51 Also, I think it's a bit of a recognition or belief that we have fully

3:56 transitioned to a tech and services economy

3:59 and the straight of hormones doesn't stop that.

4:01 and at the center for tech and services is the United States.

4:05 And distinct of the fraying of our alliances.

4:08 I mean, I I I think long term there just impossible to believe

4:12 this is not going to have some sort of a pretty serious economic impact.

4:16 But when the majority of the S&P is fueled by companies and services and tech,

4:21 whether it's JP Morgan or Microsoft, those companies don't seem to be I mean,

4:26 in many ways, those companies kind of benefit from this.

4:29 I mean, there was talk of data centers being bombed, but not really.

4:32 The tariffs don't affect them.

4:34 Energy prices, I guess, arguably might affect them,

4:37 but they have the capital to try and I mean,

4:40 the really good ones kind of secured

4:41 the energy supply um before this nonsense, right?

4:45 So, it has been and if you look at the the markets that have performed the best,

4:50 the two markets that performed the best are one, Taiwan up 15%.

4:54 And I wonder how much of that is like, okay, AI is is the place to be.

4:59 They are the number one producer of chips, right?

5:03 And so their market's up 15%.

5:05 As the chips market goes, so does the Taiwanese market.

5:08 And the interesting one is Israel's market is up uh 9%.

5:12 And I think what people have uh I think if you try and read into it,

5:17 the market has basically decided that that Israel

5:20 is the new superpower is the superpower,

5:22 the definitive superpower in the Middle East and its tax sector.

5:26 I mean I I think the market is betting

5:28 that their technological uh excellence as demonstrated during the war.

5:33 If you look at many of the a lot of people

5:36 would argue who argue for military spending that the spillover effect is

5:40 actually a creative that whether it was you know radar which

5:44 gave rise to GPS uh you know jet technology which ended up

5:49 transforming jet transportation that there's a lot of spillover DARPA was

5:53 basically a backbone communications network

5:55 for post-apocalyptic America that gave rise

5:57 to the internet and I think a lot of investors are looking

6:01 at Israel and saying the technology has demonstrated during this what feels like

6:05 a permanent conflict the last better part of the last three

6:08 years is going to spill into their tech sector which is now

6:11 I think the third largest tech sector in the world and has

6:15 really registered incredible growth they have more unicorns per capita than any

6:19 nation in the world so I think the world or the markets

6:22 have come to the conclusion one rich people drive the markets

6:25 and they don't care about energy prices and two the world has

6:29 become we're no longer a fossil fuels economy It makes a difference.

6:34 But this is a technology and a services

6:36 economy now and these companies are doing really well.

6:38 And also to be fair,

6:40 the earnings have been really strong across these companies.

6:43 So consumer sentiment, it's there's some dissonance.

6:47 While consumer sentiment claims,

6:49 studies say consumer sentiment is its lowest level.

6:52 It doesn't seem to be translating to a decline in consumer spending.

6:56 I mean, I guess the first thing to address, why are my markets rising?

7:03 And it could be that one, investors think that the war is about to end.

7:08 In which case, I fundamentally disagree with them.

7:12 I don't think this war is coming to an end.

7:14 I don't think we had any indication that this war

7:16 is even close to coming to an end.

7:18 I think it's actually going to keep going for a long time.

7:21 or two, they've decided that this doesn't matter that much

7:26 in terms of the markets because the markets care about earnings.

7:30 And so far, as you say, earnings have been extremely strong.

7:34 Every sector's earnings estimates have risen since the war began,

7:38 especially the tech sector, which is the most important one,

7:41 which the market is pretty much dependent on at this point.

7:44 Their earnings estimates have seen the largest increase in recorded history.

7:50 Uh so I think that that is the the correct reading

7:55 or at least if you're going to justify why the markets should go up,

8:00 why right now is a buying opportunity.

8:03 I think the correct reasoning is you would say not that the war is going to end,

8:07 but regardless of what happens with the war,

8:10 earnings in corporate America are fundamentally very very strong right now.

8:14 and they are increasingly driven by one sector that isn't going to be hamstrung

8:20 by the fact that there is traffic uh and blockades in the straight of Hormuz.

8:26 It isn't going to be fundamentally affected by rising gas prices.

8:31 Um that's not going to be really a problem.

8:33 And to your point, when we look at the the backward-looking data,

8:40 so that meaning the data that we already know, the evidence that we have, yeah,

8:45 consumer spending is actually not not going down.

8:50 Um, we've seen that consu consumer spending is is pretty stable.

8:56 We saw that in most of the earnings from the banks.

8:58 We also saw it from Capital One in their earnings last week.

9:01 They said that quote so far we've not seen any adverse effects

9:05 on our portfolio even in our credit or in our spend metrics.

9:07 Consumer spending is pretty much fine.

9:10 At the same time as you say you've got

9:12 consumer sentiment which has literally reached a record low.

9:16 So how people feel about the economy right now is not good at all.

9:20 And then the question then becomes how much of a metric is that really?

9:25 Um the question then becomes what happens next though?

9:31 because we haven't really seen what elevated and and durable

9:38 gas prices will do to this economy yet.

9:40 And while yes, we have electrified our economy more so than we have in the past.

9:46 And while yes, the top 10% of consumers make up half

9:50 of all consumer spending and they are not very sensitive to gas prices.

9:54 The reality is we haven't seen what a long and durable period

9:59 of elevated gas prices which are up 35% in America since the war began.

10:04 And they're up even higher in basically every other market around the world.

10:08 And so the question then becomes is it going to have a real

10:12 impact next quarter or the following

10:14 quarter or the following quarter after that?

10:16 And that is a question of how long are we going to remain uh in Iran.

10:21 It it it's it's a very complicated and and unclear

10:25 question right now and it is it does all go back

10:28 to this point that we've said a lot a lot

10:30 of the time which is that the economy is so fundamentally

10:33 dependent on both a handful of tech companies at the top

10:36 and also a handful of uh earners and thus spenders

10:40 at the top as well which means that it's it's it's

10:43 very hard to even understand how the economy is even doing.

10:47 And so the stock market is just, as we've said,

10:51 a pretty shitty indicator of general economic health.

10:55 But that's what we're here to talk about.

10:57 And so far, investors believe, and they're probably right,

11:01 that oil prices are not going to have that much of an impact uh on earnings,

11:06 especially when we're in this AI boom

11:09 and AI spending and revenue continues to rise.

11:12 I mean, it's a couple things in terms of markets.

11:14 your proximity to AI coupled with the uh trade surplus of oil.

11:20 So are you an oil exporter or importer and your proximity to AI?

11:23 So and the security around it.

11:25 So Israel markets up tremendous um proximity to AI.

11:30 Taiwan tremendous proximity to AI but they're

11:33 both oil my understanding is oil importers.

11:35 And what that says to me is the proximity to AI bests your need for energy.

11:40 And then you look at the US,

11:42 it is both got it not only has proximity to AI, it's ground zero for it.

11:46 And we're an oil exporter.

11:48 And despite the fact, okay, so think about the costs of production for oil

11:54 have not gone up in the United States.

11:56 They can still extract a barrel of oil for about

11:58 the same price as they could 5 weeks ago.

12:01 The difference is they're now getting what, you know, 40% more per barrel.

12:05 That is money that goes into the pockets of shareholders of US companies.

12:09 So it's not le to a certain extent

12:12 the increase in energy costs here aren't leaving our shores.

12:16 They're just being redistributed maybe inefficiently but you

12:20 have a lot of companies you have oil companies big companies in the S&P 500

12:24 in the United States who are benefiting from this.

12:28 So, while it'll cost consumers money and at some

12:31 point you'd think that squeeze out other purchases,

12:33 but you're not seeing a decline in the purchases

12:37 of site licenses for Anthropic because people are

12:39 spending more on gas this week and that's what

12:42 drives the market now in terms of moving forward.

12:45 Also, it just appears I mean there's just no getting around it.

12:49 The market has just become this incredibly resilient organism.

12:53 Yeah.

12:53 It's just a dip buying machine.

12:55 Yeah.

12:55 seems to be surviving wars, pandemics.

12:58 And a friend of mine, Jason Mudri,

13:00 who started Mudrick Capital, he's a distressed credit investor,

13:04 said something that is so simple, but it struck me as really insightful.

13:08 He's like, "As long as there's demographic growth,

13:11 as long as there's population growth and innovation through technology,

13:14 markets will over the medium and long term go up

13:16 and to the right." And he just struck me, he's right.

13:19 the market has decided that these dips

13:22 are opportunities that they're not structural,

13:24 they're cyclical, and then immediately capital weighs

13:27 in to benefit from the upcycle again.

13:29 Now, having said that, in 2022,

13:31 I didn't see any cause for the markets to throw up, and they did.

13:34 I don't know if it was people taking

13:35 we should ask Josh Brown what happened money off

13:38 the table but I still think it's more

13:40 likely that a announcement from a large corporation who

13:45 is been a big purchaser of site licenses of AI comes out and says we're not get

13:49 we're scaling back on our AI efforts because

13:50 we're not getting the ROI we had initially anticipated.

13:53 I think that is going to be more likely to be responsible for a draw

13:56 down in stocks in 2026 than Iran or um the oil or energy crisis.

14:03 But we're just we've been saying this forever.

14:05 We trans transitioned from an agricultural

14:08 society to a manufacturing to a services

14:10 and a lot of people said it's always been about energy.

14:12 I get it.

14:13 You know, Indonesia is a bit screwed here.

14:15 India big oil importer but it does feel like uh oil

14:21 and and I can't imagine the investment in renewables isn't going

14:25 to have such a huge uptick that fossil fuels are going

14:28 to are going to play an even less significant role uh moving forward