Apparent calm hides underlying troubles
What impact did Iran have on the markets?
The pace of change these days is pretty crazy. Headlines can move markets hourly, yet the S&P 500 has barely moved for weeks. That apparent calm hides a lot of chaos underneath. Sector rotations (where investors move money from one industry to another) have been violent, and speculative positioning (high-risk, short-term trades) has been squeezed across equities, rates, currencies and commodities. History offers a small reminder here. Over the past four decades, there have been more than 20 U.S. airstrike campaigns in the Middle East, and eight weeks later, the S&P was higher 95% of the time. Markets tend to adapt quickly to geopolitical shocks, unless something more fundamental happens. In most cases that “something” is energy. When oil flows freely, equities tend to ignore the noise. When it doesn’t, things change quickly. For now, the base case still assumes oil will continue to move. It’s plausible that Brent will stay in the mid-$80s range in the near term. The real risk scenario is simple: if flows remain disrupted for long enough, oil will push toward $100, and the market narrative will change. But so far, history is on our side.
What happened in China?
China quietly acknowledged something markets have been suspecting for a while. At the National People’s Congress, Premier Li Qiang set the country’s 2026 gross domestic product target at 4.5-5%, the lowest target since the early 1990s, and the first time Beijing has openly guided below the symbolic 5% threshold. The slowdown is coming from the domestic market. The property sector, once responsible for roughly a quarter of economic activity, remains in a deep downturn, with falling sales, declining construction and widespread developer defaults. Domestic demand remains weak as well. High youth unemployment, cautious households and limited social safety nets continue to push savings higher and consumption lower. China’s export machine is still powerful, producing a record trade surplus last year, but the old model of property, infrastructure and investment-driven growth is clearly losing momentum. Slower growth appears increasingly accepted by policymakers, as they shift focus toward longer-term structural changes. Remember however, that bad macro-economic news does not always spell bad news for the stock markets. In fact, it can accelerate reforms and stimulus. Bad news can be bad news, but it can also be good news. Still, higher oil prices are usually bad for Asian equities.
Is U.S. manufacturing still growing?
U.S. manufacturing data continues to send good signals. The ISM Manufacturing Purchasers’ Manager Index (PMI) eased slightly but remained above the 50 threshold that separates expansion from contraction. However, new orders are weakening, export demand is fading, and companies are becoming more cautious about hiring. Weather disruptions may have distorted some of the recent data, but businesses are also highlighting something more persistent: policy uncertainty, particularly around tariffs, is weighing on confidence and investment plans. Inflation signals remain contradictory as well. Some surveys show easing input costs, while others show prices rising sharply, reflecting volatility in energy and commodity markets. But still, the index remained above 50, and that means growth.
Are the markets immune to noise?
Looking ahead, the biggest lesson from the past few weeks may simply be behavioural. Markets have learned to absorb geopolitical noise faster than the headlines themselves. Unless energy flows are severely disrupted, investors tend to move on quickly. That does not make the risks smaller; it just means markets have become good at living with them.
Listen to the latest podcast from the IG Investment Strategy Team for further insights.
