“Markets don’t rise on euphoria; they scale the wall of worry.” (Michael Arone)
Why US equities keep rising as warships gather
Despite the outbreak of war in late February, US equities have shown remarkable resilience, with the S&P 500 recently reaching record highs. The reason for this worrying disconnect between what is happening on the ground in Iran and how the market is behaving is attributed to a few factors:
- US growth remains resilient, and corporate earnings continue to expand.
- The conflict is relatively contained, with recent rallies fuelled by optimism surrounding a potential ceasefire.
- The US stock markets are still being driven by a handful of the AI heavyweights, despite concerns about elevated valuations and market concentration.
However, institutional analysts like Goldman Sachs warn that markets are “sprinting across a peace bridge that has not been fully built”. Good news is currently fully priced in, and the bad news, such as a sustained oil spike or a policy shift, is not.
South Africa: A more tempered reality
While US markets continue to outperform strongly, the South African story has been more mindful of potential risks ahead. The JSE All Share Index entered bear market territory in April, falling more than 10% from its peak and, as at 22 April, was trailing the US S&P 500’s 8.42% one-month rally by more than 3 percentage points, with the JSE All Share Index at 5.1%.
Contributing factors to this return gap include South Africa’s position as a net oil importer, its high sensitivity to energy shocks, and the inflationary pressure from higher oil prices, which has translated into a surge in domestic fuel prices. The IMF also dented investor sentiment late in the month, cutting South Africa’s 2026 growth forecast to 1.0%, citing trade barriers and higher operational costs due to high energy prices.
Navigating volatility with a “faulty instrument panel”
Behind this overly optimistic market recovery also lies the reality that traditional market signals have grown less dependable during this crisis.
- Instead of acting as a safe haven, gold has declined 10% as investors sell liquid assets to cover losses elsewhere.
- While oil remains roughly 40% above pre-war levels, long-term inflation expectations have actually dipped, suggesting a complete divorce from fundamentals – for now.
- The dollar has also been surprisingly firm, strengthening despite Iran’s efforts to settle oil in yuan.
What to do as the Wall of Worry becomes increasingly unstable?
History has shown that unwarranted market optimism eventually confronts reality when tail risks come home to roost. Clients should stand firm rather than react out of fear or uncertainty. Investors can take the following steps:
- Manage asymmetric risk: While the upside is mostly priced in, a small negative shock could trigger an outsized move lower.
- Revisit inflation exposure: Stagflation, a potential outcome if the war becomes protracted, would erode fixed-income distributions. Consider investing in assets with pricing power.
- Maintain liquidity: Holding cash or maintaining money-market exposure provides flexibility when markets return to reality.
South African investors can take comfort from the domestic market’s more measured response and the fact that the country’s fundamental investment case still holds. If geopolitical tensions ease, the current undervaluation might be too pessimistic, potentially leading to a reassessment of the stock market’s value.
*All facts and figures accurate at time of writing.
Jason Yutar: +27 83 415 9603 or
Zaheera Mohammed: +27 82 775 1898
Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact us for specific and detailed advice.
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