Why stocks hardly batted an eyelid despite two weeks of turbulent headlines: Morning Brief

This is the conclusion of today’s Morning Brief, which you can read Sign in Delivered to your inbox every morning, along with:

It’s been a tough week for mainstream news headlines.

The conflict in the Middle East continues to intensify as Iran fires missiles at Israel during its campaign in Lebanon, leaving many wondering whether there will be a response. Hurricane Helene devastated the Southeast. And around 45,000 longshoremen were eliminated from ports across the country, even though this work appears to have been completed successfully.

It is not difficult to justify these things feel far more uncertain than a week ago. But the markets tell a different story.

Through four trading days this week, the S&P 500 (^GSPC), the Nasdaq Composite (^IXIC) and the Dow Jones Industrial Average (^DJI) were all down about 1% or less, with the latter two still trending higher are well away from their all-time highs.

The market’s resilience is an example of how Wall Street equity strategists and economists are assessing the rising risks to the bull rally.

“Although the recent escalation of the conflict between Israel and Iran is concerning, we remain of the view that a significant further escalation of the war, including a real disruption of energy supply chains, would be required to materially alter the outlook for the global economy and financial markets.” said Jonas Goltermann, deputy chief markets economist at Capital Economics, in a note to clients on Thursday.

The same applies to economists’ assessment of the dock workers’ strike.

“The strike could hurt economic growth and boost inflation, but only if it is prolonged,” Diego Anzoategui, an economist at Morgan Stanley, wrote in a note to clients this week, before a solution was announced. The markets have apparently learned not to suffer – and it has paid off.

To be clear, any escalation of these issues could (or would have) weighed on stocks. Tom Lee, head of research at Fundstrat, usually considered one of the more bullish strategists on Wall Street, said he was cautious on stocks next month.

Lee stressed in a video to clients Wednesday evening that the ongoing port strike may have been “economically damaging” and that it needs to be “kept in mind.” He also noted that escalating tensions in the Middle East were a “near-term” risk. And even if the ports did come back online, they might as well not have.

The story continues

Still, Lee made the case for the S&P 500 to finish the year higher, with a “loose Fed” cutting interest rates as the U.S. economy continues to grow despite instability, citing this market forecast as a key driver.

When thinking about what worrying headlines could mean for markets, one key concept comes to mind: There are always a reason to sell. Ultimately, it’s about expectations for future cash flows from American companies and how each of these selling reasons could affect the ultimate driver of stock prices: profits.

At this point, Lee appears to be convinced that the “strong” tailwinds supporting the market recovery, including the Fed’s rate cuts, are more important to the market’s performance than the near-term headwinds that are grabbing headlines.

Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.

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