The war in Iran has unsettled energy markets, raised the cost of oil and fuel, and prompted warnings from the International Monetary Fund that growth could slow while inflation picks up. Yet equity investors appear to be looking past the disruption. In the US, the Nasdaq has surged back to record territory, with the S&P 500 also hitting a fresh high, as traders bet that the conflict will not derail corporate earnings for long.

According to NZZ, that optimism is being driven by faith in two things at once: a swift easing of the geopolitical shock and a longer-lasting payoff from artificial intelligence. The newspaper said the Nasdaq has now strung together one of its strongest winning runs in decades, while the broader market has also advanced sharply over the past year and beyond.

That rally looks expensive by traditional measures. NZZ noted that the S&P 500 is trading on a price-to-earnings ratio well above its decade average, but it also cited UBS, which argues that company profits are still expanding quickly enough to support current valuations. Even so, most of the earnings momentum is concentrated in a narrow group of stocks, especially large chipmakers and energy companies.

The same concentration of gains helps explain why investors remain willing to pay up for the biggest US technology names. A Federal Reserve Bank of Minneapolis analysis suggests digitalisation could allow firms to generate higher cash flow on invested capital than in the past, while the platform economy may reinforce dominant companies’ pricing power. That is the logic underpinning the huge market capitalisations of firms such as Nvidia and Apple: to justify them, they must keep producing exceptional profits for years. For now, even war-related turbulence has not knocked that thesis off course.

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Source: Noah Wire Services