Markets climb into earnings season ignoring U.S.-Iran strikes
The S&P 500 added 0.6% Tuesday while the TSX Composite climbed 0.4%, both hitting fresh highs despite overnight strikes exchanged between U.S. and Iranian forces. Oil briefly spiked $2 a barrel on the news, then gave most of it back by lunch. By Wednesday morning, Brent crude was trading flat.
That's the pattern now. Geopolitical flare-up, headline risk repricing, fade by the afternoon session. Markets have learned the move.
"Investors are downplaying this," said Mike Archibald, vice-president and portfolio manager at iA Private Wealth, in an interview Tuesday. He's right. But downplaying isn't the same as discounting. The market isn't ignoring the strikes because it thinks they don't matter. It's ignoring them because it has something else on the calendar.
Earnings matter more than headlines
Q1 earnings season opens this week. JPMorgan, Wells Fargo, and BlackRock report Friday. The big tech names follow over the next three weeks. Analyst consensus expects S&P 500 earnings growth around 8% year-over-year, the strongest quarter since late 2021. If that number holds, it justifies current valuations. If it doesn't, geopolitical risk becomes the convenient excuse for a selloff that was always going to happen anyway.
The market's attention is finite. Right now it's pointed at whether Magnificent Seven companies can defend margins after spending $200 billion on AI infrastructure in 2024. A limited strike exchange in the Persian Gulf that doesn't disrupt shipping lanes or close the Strait of Hormuz registers as noise against that.
Archibald's comment captures something the conventional "risk-on, risk-off" frame misses. Investors downplay events not because they lack significance but because the immediate pricing mechanism, quarterly earnings, carries more weight in portfolio construction than a headline with no clear second-order effect. U.S.-Iran tensions have been part of the baseline risk environment for two years. Another strike cycle that ends without escalation fits the pattern. A tech earnings miss doesn't.
The oil fade tells the real story
Oil's intraday reversal is the tell. Brent spiked to $82 on the news, then closed Tuesday at $79.50. By midweek it was back under $79. That's not complacency. It's recognition that supply disruption didn't materialize and Iranian export capacity, already under sanctions, hasn't changed. Traders priced in the headline, then repriced when tanker traffic through Hormuz stayed normal.
This is what downplaying looks like in practice. It's not ignoring the risk. It's asking what changed materially, finding nothing, and moving on.
The contrast with 2020 is sharp. When the U.S. killed Iranian general Qassem Soleimani in January 2020, oil jumped 4% in a day and stayed elevated for a week. Markets sold off for three sessions. The difference now is that similar incidents have happened repeatedly without broader escalation. The pattern has trained the response.
That's either rational pattern recognition or recency bias depending on whether this time actually is different. We won't know until it is.
What the rally actually depends on
The TSX's move higher is less about ignoring Middle East risk than about energy and financials both trading up heading into their reporting windows. Canadian bank earnings start next week. Energy names rallied even as crude gave back gains, which suggests positioning ahead of results rather than macro repricing.
The equity rally since October has been built on two assumptions: inflation stays contained enough that central banks don't hike again, and corporate margins hold despite higher input costs and slowing revenue growth. Earnings season tests the second assumption directly. Geopolitical risk tests the first only if it moves energy prices enough to re-ignite inflation expectations.
So far, it hasn't. Oil back below $80 means headline CPI stays soft. That keeps rate cut expectations intact, which keeps equity multiples supported.
The market isn't ignoring U.S.-Iran strikes. It's just doing the math on what they actually change. Right now, that number is close to zero.
The S&P 500 added 0.6% Tuesday while the TSX Composite climbed 0.4%, both hitting fresh highs despite overnight strikes exchanged between U.S. and Iranian forces. Oil briefly spiked $2 a barrel on the news, then gave most of it back by lunch. By Wednesday morning, Brent crude was trading flat.
That's the pattern now. Geopolitical flare-up, headline risk repricing, fade by the afternoon session. Markets have learned the move.
"Investors are downplaying this," said Mike Archibald, vice-president and portfolio manager at iA Private Wealth, in an interview Tuesday. He's right. But downplaying isn't the same as discounting. The market isn't ignoring the strikes because it thinks they don't matter. It's ignoring them because it has something else on the calendar.
Earnings matter more than headlines
Q1 earnings season opens this week. JPMorgan, Wells Fargo, and BlackRock report Friday. The big tech names follow over the next three weeks. Analyst consensus expects S&P 500 earnings growth around 8% year-over-year, the strongest quarter since late 2021. If that number holds, it justifies current valuations. If it doesn't, geopolitical risk becomes the convenient excuse for a selloff that was always going to happen anyway.
The market's attention is finite. Right now it's pointed at whether Magnificent Seven companies can defend margins after spending $200 billion on AI infrastructure in 2024. A limited strike exchange in the Persian Gulf that doesn't disrupt shipping lanes or close the Strait of Hormuz registers as noise against that.
Archibald's comment captures something the conventional "risk-on, risk-off" frame misses. Investors downplay events not because they lack significance but because the immediate pricing mechanism, quarterly earnings, carries more weight in portfolio construction than a headline with no clear second-order effect. U.S.-Iran tensions have been part of the baseline risk environment for two years. Another strike cycle that ends without escalation fits the pattern. A tech earnings miss doesn't.
The oil fade tells the real story
Oil's intraday reversal is the tell. Brent spiked to $82 on the news, then closed Tuesday at $79.50. By midweek it was back under $79. That's not complacency. It's recognition that supply disruption didn't materialize and Iranian export capacity, already under sanctions, hasn't changed. Traders priced in the headline, then repriced when tanker traffic through Hormuz stayed normal.
This is what downplaying looks like in practice. It's not ignoring the risk. It's asking what changed materially, finding nothing, and moving on.
The contrast with 2020 is sharp. When the U.S. killed Iranian general Qassem Soleimani in January 2020, oil jumped 4% in a day and stayed elevated for a week. Markets sold off for three sessions. The difference now is that similar incidents have happened repeatedly without broader escalation. The pattern has trained the response.
That's either rational pattern recognition or recency bias depending on whether this time actually is different. We won't know until it is.
What the rally actually depends on
The TSX's move higher is less about ignoring Middle East risk than about energy and financials both trading up heading into their reporting windows. Canadian bank earnings start next week. Energy names rallied even as crude gave back gains, which suggests positioning ahead of results rather than macro repricing.
The equity rally since October has been built on two assumptions: inflation stays contained enough that central banks don't hike again, and corporate margins hold despite higher input costs and slowing revenue growth. Earnings season tests the second assumption directly. Geopolitical risk tests the first only if it moves energy prices enough to re-ignite inflation expectations.
So far, it hasn't. Oil back below $80 means headline CPI stays soft. That keeps rate cut expectations intact, which keeps equity multiples supported.
The market isn't ignoring U.S.-Iran strikes. It's just doing the math on what they actually change. Right now, that number is close to zero.
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