Given the recent geopolitical turmoil, you could excuse people for assuming the worst-case scenario when it comes to the investment markets. However, when push comes to shove, while things haven’t been fun, they haven’t been all that bad, either.
To illustrate, I recently had a meeting with a client who told me they had stopped looking at their portfolio the minute the United States began carrying out airstrikes on Iran again. While I wasn’t completely sure they were telling the whole truth, their logic for tuning out the markets was pretty sound.
Here are a few of the following salient points and observations, which I have taken the liberty of paraphrasing:
- “Last year, they told us they had shifted focus away from Iran’s nuclear program. Now, they are apparently going after it again, or something. Our intelligence must be faulty, or they weren’t telling us the whole truth. Either that or the Iranians are far more advanced than we thought they were. None of that is comforting.
- “There was no way crude oil prices weren’t going to skyrocket – and they have. Anyone can tell you that isn’t in the recipe for rapid economic growth. If it is, the game has changed dramatically.”
- “What I can’t figure out is how we are going to dismantle Iran’s entire government structure without putting boots on the ground. We must either get more involved than we would like, accept less than our definition of success or hope for a miracle. I don’t like any of those options.”
I strongly suspect there are more than a few of you who either commiserate or agree with those bullet points. Am I right?
In truth, I would be lying if I told you things haven’t been at least a little head-scratching. The whole mess in the Middle East aside, the economic data has been, shall we say, mediocre. So much so, it is hard for me to envision any significant chance for a rate cut between now and the end of the summer. Extremely unlikely based on current data.
Further, there is the prospect of higher crude oil prices causing systemic consumer inflation throughout the global economy. Can the Fed really risk making things that much worse by giving the financial markets even cheaper money?
On the flipside, would they really raise rates, making money more expensive, to throttle the inflation high energy prices threaten? This, when the data has been, once again, mediocre? It would be one thing IF the economy were growing at a constant, say, 4%, but the Bureau of Economic Analysts (BEA) has reported that U.S. Gross Domestic Product (GDP) for the fourth quarter of 2025 was a relatively anemic 0.5%. Furthermore, the Atlanta Fed’s ‘GDPNow’ is currently predicting a 1.3% annualized rated for the first quarter of 2026.
Those aren’t the types of numbers which would ordinarily warrant embarking upon a tighter monetary policy.
So: sluggish economic growth, stagnant monetary policy, war in the Middle East and, for good measure, continued dysfunction in Washington? Taken together, these factors would typically present a challenging backdrop for investors. Am I right? Why don’t you pour me a glass of that delicious witch’s brew, will you?
However, folks must be seeing something they like in there somewhere. Perhaps Americans are the most optimistic people on the planet. Perhaps not.
You see, for all the negative news we have had to endure thus far in 2026, as of 1:44 pm CDT on April 16, 2026, the S&P 500 was up 2.71% for the ‘year-to-date.’ At least that is what my Bloomberg indicated at the time. On a simple annualized basis, that pace would translate to roughly 9.6%, though such short-term extrapolations can be misleading.
In other words, things appear to be shaping up to be a pretty standard or even very decent year. Obviously, there is a lot of time between now and New Year’s Eve, and anything can happen. No argument. However, a lot of stuff has already happened, and investors have largely shrugged it off. Or so it would seem.
It is enough to make one wonder how much longer this can last? Are domestic investors overly optimistic? Or are the headlines unnecessarily glum?
My experience has been, whenever you are faced with these sorts of extremes, the truth is often somewhere in the middle. To be sure, that doesn’t mean it will be this time. However, past performance is indeed no guarantee of future results. Or so they say.
In my personal opinion, I think the best way to describe the markets’ seemingly counterintuitive behavior would be something along the lines of the following. Please note, I am quoting myself, which is sort of narcissistic. Or should I say Norris-istic?
The fact that the markets have behaved as positively as they have thus far in 2026, despite all of the negative news, is likely due to investor confidence in the U.S. economy and financial system. Apparently, there is nothing in the aggregate ‘crystal ball’ which portends a significant economic or financial system collapse or slowdown in the United States. While that doesn’t mean such things are impossible, it suggests investors seemingly believe the U.S. economy is poised to grow, at least somewhat, and corporate America can potentially generate an acceptable amount of earnings off this growth.
Despite the clever wording, that isn’t a terribly insightful paragraph. Why? As is evidenced by the vast size of the American economy and the enormous market capitalization of the U.S. equity markets, the underlying tendency for both is to grow. In fact, it sometimes takes a real shock to the system to throw things out of whack.
You can thank the Financial Crisis of 2008, Y2K and the dot-com bubble or even tighter monetary policy in 2022.
But a potential, and hopefully, short spike in crude oil prices? Discord in the Middle East? Political backbiting in Washington? All of the stuff which presumably ails us at this point in time?
Seems like we have been down this path previously. Still, perhaps this time really could be different. The worst-case scenario really does happen. Those folks hoarding gold coins and ramen noodles actually were right this time around. The sun might not rise in the East in the morning, and the Earth is spinning slowly down to die. All of it.
Yes, it could happen. However, until such time it does or becomes glaringly apparent, investors might have to have to get accustomed to the seemingly illogical returns in their portfolios. It could be worse, I suppose.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this and every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Investment Officer
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