Why Are Markets Shrugging Off the Latest Jump in Oil Prices?

Just a few weeks ago, investors were counting on a resolution to the Iran war to provide a positive backdrop for the stock and bond markets. But as the fighting has resumed, investors largely seem to be brushing it off. The catchphrase making the rounds is “looking through” the conflict.

Brent crude oil prices rose above USD 95 per barrel on Wednesday, the highest level in six weeks, after US President Donald Trump threatened a fresh escalation in the war. Investors have grown more confident in looking beyond geopolitical shocks since the war started in late February and a market selloff resulted, amid fears of an energy-driven surge in inflation. But while the ceasefire that began in April powered a relief rally, its unravelling this month has done little to shake the momentum. Instead, attention is now largely focused on expected strength in corporate earnings, particularly the continued artificial intelligence buildout.

In the background, investors remain convinced that despite the conflict restarting, President Trump won’t pursue it for long. “Part of the explanation may be that investors continue to have faith in the so-called ‘TACO trade,’ expecting policymakers to step in should economic growth come under pressure,” explains Anna Macdonald, investment strategy director at Hargreaves Lansdown. (“TACO” is an acronym meaning “Trump always chickens out.”)