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It’s been a tough week for mainstream news headlines.
Conflicts in the Middle East are further escalating, with Iran firing missiles at Israel during an Israeli operation in Lebanon, and many are wondering if there will be a response. Hurricane Helen devastated the Southeast. And of the approximately 45,000 longshoremen who quit their jobs at ports across the country, one case appears to have ended without incident.
It’s not hard to feel like things are much more precarious than they were a week ago. However, the market tells a different story.
Through four trading days this week, the S&P 500 (^GSPC), Nasdaq Composite Index (^IXIC), and Dow Jones Industrial Average (^DJI) are all down about 1% or less, with the latter two is still falling in price. Best flying distance ever.
The market’s resilience is an example of how Wall Street equity strategists and economists are assessing the rising risks to the bull market’s upside.
“While the recent escalation of the conflict between Israel and Iran is alarming, significant further escalation of the war, including actual disruption of energy supply chains, would be necessary to bring about a significant change in the global economic outlook.” “Our view remains that financial markets need to change,” Jonas Goltermann, deputy chief market economist at Capital Economics, wrote in a note to clients on Thursday.
The same can be said about how economists evaluated the longshoremen’s strike.
“Strikes could hurt economic growth and raise inflation, but only if they last for a long time,” Morgan Stanley economist Diego Anzoategui said in a note to clients this week ahead of the resolution. I wrote. The market seems to have learned something unexpected, and it paid off.
To be clear, if these issues escalate, it could (or could) weigh on the stock price. Tom Lee, Fundstrat’s head of research, is typically considered one of the more bullish strategists on Wall Street, but he said he is cautious about stocks in the month ahead.
Mr Lee stressed in a video to customers on Wednesday night that the ongoing port strike could have caused “economic damage” and was something to “keep in mind.” He also pointed to escalating tensions in the Middle East as a “short-term” risk. And even if the port comes back online, it’s just as easily possible that it won’t.
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Still, Lee argued that the S&P 500 will end the year higher with a “dovish Fed” cutting interest rates, while the U.S. economy continues to grow despite volatility as a key driver of market forecasts. .
This reminds us of an important concept when considering what worrisome headlines mean for the market. That means there is always a reason to sell. At the end of the day, the question is how expectations for future cash flows of U.S. companies and how any of their reasons for selling could affect their earnings, the ultimate driver of stock prices. .
For now, Lee seems to believe that “strong” tailwinds supporting the market rally, including a Fed rate cut, are more important to the market’s trajectory than the short-term headwinds making headlines.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer.
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