The S&P 500 isn’t reacting like you’d expect it to considering the escalation of conflict in the Middle East.
The index is down 0.3% mid-afternoon Thursday, hardly a big market moment for anyone. It’s more of a small blip in its otherwise healthy 19% gain this year.
The non-reaction is surprising considering Israel and Iran are at risk of a potentially costly and prolonged conflict. Iran launched a barrage of missiles into Israel earlier this week. Israeli leader Benjamin Netanyahu has promised that Iran “will pay” for its actions, and President Joe Biden said he’s discussing the possibility of Israeli strikes on Iran’s oil infrastructure.
This has already led to a shake-up in the oil market. Shares of transportation companies and airlines, which highly depend on fuel prices staying low, could rise. Defense stocks could rise.
Considering the threat, it makes little sense that investors aren’t reacting more strongly.
The market has been incredibly resilient in the face of a whole host of uncertainties this year. The S&P 500 has hit record levels 43 times this year even as investors tempered their assumptions on rate cuts. Lower rates bump up the valuation of stocks given that the future cash flow estimates increase.
It helps to look at fundamentals. The S&P 500’s third-quarter earnings estimates are down from two months ago, but for the year analysts are still expecting a 10.2% earnings growth, which is healthy.
Read More: Dow Falls, Oil Prices Rise on Biden Iran Remarks; Tesla, Nvidia, Humana, and More Movers