This Friday marks two months since the U.S., together with Israel, launched its operation against Iran. And while there are signs of de-escalation on paper, in reality, nothing has really improved: the U.S. is still building up its military presence, and Iran is in no hurry to reopen the Strait of Hormuz.
Still, for four straight weeks, the S&P 500 and Nasdaq have closed higher, with both hitting fresh all-time highs last week. Why?
First, they are counting on another “TACO” from the U.S. president. The thing is, unless ships start passing through openly, the negative effects will continue to build, including higher inflation and weaker growth, as the energy crisis persists and shortages of key materials like fertilizers, aluminum, and helium persist.
Second, the U.S. earnings season is helping keep markets afloat. According to FactSet, with 28% of S&P 500 companies reporting, 84% have beaten EPS expectations, and 81% have topped revenue forecasts. Last week’s standout was Intel, surging over 20% on better-than-expected results and strong guidance.
Microsoft, Amazon, Alphabet, and Meta aren’t expected to disappoint this week either, and given their combined market capitalization of over $11 trillion, they are likely to set the tone for the market as a whole. The point is that even solid earnings won’t be enough on their own. Investors will be looking for clear signs that the massive spending on AI and data centers is translating into real profits.
Looking beyond that, even if Big Tech delivers, it will be hard for the market to move higher without positive geopolitical news. If, in turn, strong earnings are also matched with good news on that front, the market could move higher, not just in equities, but also in precious metals and cryptos.
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