In short
Why stock markets stayed resilient and hit record highs despite the Iran war, while bond markets stayed flat; what could break the “no war, no peace” mindset.
Guests
Winnie Su, Bloomberg equities markets reporter based in Hong Kong; Ruth Carson, Bloomberg bond market and currencies reporter based in Singapore.
Key claims
Investors are desensitized to war headlines (“curious exuberance”) and trade on a “Trump put”/policy pivot cycle, keeping conviction and volumes low. Money flows into AI/tech and companies with earnings strength. Earnings so far look robust, helped by an “oil cushion” from released reserves, but it buys time, not safety.
Notable examples
SK Hynix and TSMC profit growth; S&P companies beating Q1 expectations; Strait of Hormuz mine-clearing could take six months; U.S. consumer sentiment hit record lows in April.
Written by AI. May contain mistakes. Listen to the episode to check what was said.
Chapters
Tap a time to open that second in VOMarket Resilience Amid Global Tensions
1:41 to 2:55
Discussing the surprising stock market performance despite the Iran war.
“stormed the lobby outside the ballroom at the Washington Hilton, where the annual White House Correspondents' Dinner was being held.”
Understanding Investor Confidence
2:55 to 4:03
Exploring the reasons behind current market resilience and investor behavior.
“That even if a ceasefire holds and the Strait of Hormuz reopens to global oil traffic, there are longer term economic risks for companies and consumers.”
Desensitization to Market Changes
4:03 to 5:28
Investigating how prolonged conflict affects investor reactions to market news.
“What explains today's investor confidence?”
The Taco Trade Phenomenon
5:28 to 6:45
Examining the cyclical trading behaviors influenced by geopolitical events.
“That weird disconnect is showing how people have become desensitized to war.”
Tech Stocks and the Iran War
6:45 to 9:49
Analyzing the impact of AI and tech stocks on market trends during the war.
“And one investor put it this way, actually, that markets are right now in this no war, no peace zone.”
The Oil Cushion's Role in the Economy
9:49 to 12:11
Discussing the significance of oil reserves in stabilizing the economy amid conflict.
“Because so far with this oil cushion that we're seeing actually, that some of the economies have been releasing these oil supplies and companies have all these extras oversupply as well.”
Bond Market Concerns Amid Exuberance
13:49 to 14:03
Exploring the disconnect between stock market exuberance and bond market caution.
“The stock market has largely barreled ahead despite the headlines of the past couple months.”
The Caution Flags in Bonds
14:03 to 15:18
Exploration of the bond market's current state and its implications.
“Same with commodities and bets on emerging markets.”
Central Banks and Interest Rates
15:18 to 17:27
Discussion on central banks' rate decisions and their effects on bonds.
“Until bonds move one way or another, if bonds sell off from here a lot more, it means, hey, everything is well, stock investors are right.”
Impact of the Iran War on Markets
17:27 to 18:36
Analysis of how the Iran war is affecting oil markets and economic forecasts.
“Is this something that's been priced in, that kind of potential long-term impact?”
Show all 11 chapters
Consumer Confidence and Market Divergence
18:36 to 19:38
Examining the disparity between Wall Street and Main Street confidence levels.
“I think a good way to look at this is as simple as your cost of living.”
Transcript
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2:15Ruth Carson:stormed the lobby outside the ballroom at the Washington Hilton, where the annual White House Correspondents' Dinner was being held.
2:22Winnie Hsu:Typically, headlines like these panic investors. But if you look at the stock market right now, it tells a different story.
2:30Ruth Carson:It's almost as if nothing has happened in the past two months when you look at how markets flumped and then now making record
2:38Winnie Hsu:highs. That's Bloomberg's Winnie Su, who covers equities markets from Hong Kong. So it seems like,
2:44Ruth Carson:you know, right now they're pricing in that the worst is over and that the peak of uncertainty
2:50Winnie Hsu:is over as well. Central banks and economists have cautioned that the worst actually may be yet to come. That even if a ceasefire holds and the Strait of Hormuz reopens to global oil traffic, there are longer term economic risks for companies and consumers. But investors have gotten good at shrugging off these warnings.
3:13Sara Silverstein:When I went for coffee the other day with a hedge fund trader, he looked at stock markets and said there is a very curious exuberance that's incredibly hard to explain. And it's true.
3:31Winnie Hsu:Bloomberg's Ruth Carson, who covers the bond market and currencies from Singapore.
3:35Sara Silverstein:Now, is there going to be a tipping point when suddenly people wake up to the reality that a war hasn't gone away, that oil is still disrupted, that soon we're going to see this coming out in the economic data.
3:54Winnie Hsu:I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, so far, markets have been brushing off the Iran war. What explains today's investor confidence? And what could shake it?
4:18Winnie Hsu:Bloomberg's Ruth Carson and Winnie Su say there are a handful of reasons why the markets are so far more resilient than expected.
4:26Sara Silverstein:There's obviously the focus on fundamentals. People are focusing on AI and its disruption and all that. But when you look at where we are, week nine, week 10, week 11 into the Iran war, nothing's really changed here. So I was having a chat with an analyst who was holidaying in Australia and he's been following markets, unable to switch off because of the war. And he basically said this, people in general, not just investors, are becoming ever more desensitized to both good news and bad. So think about it, right? We're multi-weeks now into the war. Markets are signaling that, you know what, buy stocks, this is fantastic.
5:18Sara Silverstein:And bond markets are going, no, it's really not. But they're stuck between a rock and a hot place and not really moving, which does not make sense. In theory, they should be gaining a lot more than stocks for that safety bid. That weird disconnect is showing how people have become desensitized to war. Right.
5:39Winnie Hsu:I mean, Winnie, we've been seeing this pattern over the past few weeks where the Trump administration escalates or looks like it's about to escalate attacks in Iran. Markets dip. Then the Trump administration pivots or softens its stance. And investors who bought that dip stand to win when the market inevitably bounces back. It's been called the taco trade. Trump always chickens out. How is that cycle, that assumption, booing the markets right now and influencing investors?
6:09Ruth Carson:Investors are pretty much just betting on the Trump put to come through. And as we talked about how it has shown up last year during Liberation Day and also what we saw back in the Russia-Ukraine war. So with investors betting on that to happen, it actually makes it more difficult for them to bet towards one side heavily because the risk of being caught wrong footed. And hence, we're seeing that trading volume remains very thin because of the lack of conviction. And one investor put it this way, actually, that markets are right now in this no war, no peace zone. So right in between. That means there's no durable macro conviction at the point.
6:57Ruth Carson:And we're only looking at some technical relief whenever escalation does not worsen. And what that means for markets is that money still has to go somewhere and somewhere credible. That's where we're seeing right now. It's flowing into the ones that have good fundamentals, which in this case are areas that are showing earnings strength as well as betting on the AI theme. Mm-hmm.
7:24Winnie Hsu:Well, Winnie, let's talk a little bit more about AI because excitement and skittishness around this technology has pushed the markets up and down over the past few months, even before the Iran war, of course. What role have AI and tech stocks played in sustaining this recent rally?
7:42Ruth Carson:That's a very interesting question because at the beginning of the war, actually, they were the ones that got hit the worst because they were the ones that have surged the most into the war. And also investors were talking about because of these expectation for inflation that it's going to hurt growth stocks more. In fact, these data centers rely heavily on energy. So the higher energy prices actually are supposed to be weighing on tech stocks even more when it comes to the AI theme. However, recently what we are seeing is that the earnings really prove that the demand itself remains very strong.
8:26Ruth Carson:And we saw that in chip makers like SK Hynix, like TSMC, hosting massive profit growth. And that goes to show how it is actually quite insulated so far, just because the demand is so strong.
8:43Winnie Hsu:And you've also been tracking earnings. The vast majority of S &P companies that have already reported their first quarter results have beaten analyst earnings expectations. So what does that say about how businesses are weathering the uncertainty?
8:59Ruth Carson:Yeah, actually, surprisingly, we're seeing earnings season have been pretty robust so far, showing you that the run risks so far have been quite contained. but it's worth noting that it's just first quarter earnings and that includes two months that was not impacted by the war so only one month into the Iran war and obviously there's also kind of some delayed effect as well so while some investors may see this as very positive signs we actually should be expecting the impact to come further down the road that can make a more painful Q2 that might not even show up in second quarter earnings, but somewhere down the road, maybe showing up third quarter or fourth quarter.
9:49Because so far with this oil cushion that we're
9:53Ruth Carson:seeing actually, that some of the economies have been releasing these oil supplies and companies have all these extras oversupply as well. So these are helping companies to weather the impact so far.
10:09Winnie Hsu:So, Ruth, Winnie just mentioned this idea of an oil cushion that countries all over the world have tapped their emergency reserves to help mitigate the impact of price spikes. That's especially true in Asia, which is the final destination for the vast majority of the oil that normally moves through the Strait of Hormuz. How important is that oil cushion and how long can it last?
10:32Sara Silverstein:So context is incredibly important. We were talking about a cushion, for instance, right? The cushion buys us time, not safety. So even if prices are, let's call it$100 per barrel today, if suddenly the world wakes up or investors think that markets are mispricing this risk and it suddenly turbocharges higher to$120,$130, then we're talking about a big shock and a sudden one. There are more and more people across the entire spectrum of markets who are sort of sounding the alarm here. The longer this goes on, the more desensitized people are too in markets, the more that breeds complacency. But no, when you look at the volatility and when you look at how long this takes, the cushion buys time, not actual safety, right?
11:28Sara Silverstein:The risks are very much there still for elevated oil prices. And bond markets are kind of signaling that.
11:35Winnie Hsu:You said this cushion buys time, but not safety. How much time does it buy?
11:43Sara Silverstein:How long is a piece of string? If the war ends tomorrow, that's a fantastic use of the time. But if we're talking about if the oil crisis, the energy crisis continues for another three months, six months, The longer the obstruction, the longer the chokehold. Supply losses suddenly deepen beyond what reserves can be replaced. That's critical.
12:11Winnie Hsu:Coming up, why there's less exuberance in the bond market and the signals investors will be watching for from central banks.
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13:57Winnie Hsu:The stock market has largely barreled ahead despite the headlines of the past couple months. Same with commodities and bets on emerging markets. But Bloomberg's Ruth Carson and Winnie Sue say there is one area that's flashing caution. Bonds.
Read the full transcript
14:14Sara Silverstein:Bonds have just flatlined.
14:17Winnie Hsu:Ruth says that's especially concerning because the bond market is considered to be a strong predictor of downturns and recessions.
14:25Sara Silverstein:So it shows that bond investors are really scratching their heads, that curious conundrum. Why on earth is there such exuberance in markets when clearly there are two major risks here? One, inflation. So that's bad for bonds. But number two, which is the harder risk to quantify right now, an actual real huge whacking ball to the global economic growth picture. And when bond investors grapple with these two, do I sell bonds because it erodes the value of what I hold because of inflation? Or do I buy the heck out of bonds because they give me safety right now when I know in two years or five years or 10 years time, the world will still be paying the price of this disruption.
15:18Sara Silverstein:What do you do? Until bonds move one way or another, if bonds sell off from here a lot more, it means, hey, everything is well, stock investors are right. But if you suddenly see a big drop in yields, watch out.
15:34Winnie Hsu:Well, this week is a huge week for rate decisions, right, Ruth? the U.S. Fed, central banks in Japan, the U.K., Canada, they're all making rate decisions. What might that mean for the bond market? What are they looking out for?
15:47Sara Silverstein:So everyone that I've spoken with and also swaps markets indicate that all the big central banks are going to keep their rates on hold. So it's kind of boring in that aspect. So what's really perking their interests right now is how they signal the risks from the Iran war. Now, if they turn around and they say, we need to fight this inflation hit, we are going to at some point have to raise interest rates or lean that way to tighten monetary policy, then that is a signal to sell bonds, at least in the short term. But if central banks turn around and they say, we're actually worried. Sure, there's an inflation shock, but we do worry about our economy.
16:41Sara Silverstein:Our supply only goes that far. We're running out of oil. Okay, we got to figure out how to bolster our economy. Then, then you will see bonds getting bought. And that's a clear signal. Remember, bonds always tend to move way, way faster than equities in terms of its harbinger status of, you know, your doom and gloom.
17:07Winnie Hsu:Even if this war ends tomorrow, last week, The Washington Post reported that the Pentagon had informed Congress that it could take six months from the end of the war to fully clear the Strait of Hormuz from mines. I'm wondering what that kind of extended obstruction could mean for global oil markets and markets more broadly. Is this something that's been priced in, that kind of potential long-term impact?
17:33Ruth Carson:So at this point, I don't think at least the equity market hasn't really been pricing in that longer-term impact. And we're seeing more calculations coming through for sure. And we're talking about, for example, Germany having already slashed their economic growth forecast in half. and the IMF also expecting a lower growth projection due to the war. So these seem to be factored in in the economic outlook, but a bit less when it comes to the equity space. But the risk right now is really further jump in energy prices, the physical supply shortages and the demand destruction that is yet to come.
18:16Winnie Hsu:I mean, the potential for demand destruction does seem elevated. In April, consumer sentiment in the U.S. hit record lows despite the stock market's gains that we've been talking about. For me, it's just another reminder that as the adage goes, the stock market is not the economy. But what does it mean that the confidence levels of Wall Street and Main Street have diverged so much?
18:41Sara Silverstein:I think a good way to look at this is as simple as your cost of living. If you know a war is going on and an unpopular one and it's showing up in your gas bill and your gas pump, that is not good for your confidence. How are you going to bring your kids to school? How are you going to get to work? You know, things like that weigh on the US consumer. Ironically, there is also this cycle going on where if consumer confidence is bad, if the economy is bad, the Fed would likely potentially cut rates at some point. And if you cut rates, that's actually great for stocks. So you kind of go, oh, okay, bad news is good news.
19:28Sara Silverstein:Perhaps that's also driving some of that because we know easy monetary conditions is great for equities, regardless if you're in the US or the UK or Australia or Japan. So bad news could be good news.
19:48Winnie Hsu:This is The Big Take from Bloomberg News. I'm Sarah Holder. To get more from The Big Take and unlimited access to all of Bloomberg.com, subscribe today at Bloomberg.com slash podcast offer. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.
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From the publisher
Global markets have been remarkably resilient amid major geopolitical and economic disruptions, from the Iran war to US tariffs, as investors find cause for optimism in strong earnings and AI.
On today’s Big Take podcast, Sarah Holder talks with Asia equities reporter Winnie Hsu, and Ruth Carson, chief FX/Rates correspondent in Asia, about what has kept markets strong — and what could shake them.
Read more: Five Reasons Global Markets Are Holding Up Despite War in Iran
We have a special Bloomberg subscription offer for podcast listeners at Bloomberg.com/podcastoffer.
Hosted by Sarah Holder; Produced by David Fox; Reported by Winnie Hsu and Ruth Carson; Edited by Tracey Samuelson and Jeffrey Grocott.
Fact-checking by Eleanor Harrison-Dengate; Engineering by Katie McMurran.
Senior Producer: Naomi Shavin; Deputy Executive Producer: Julia Weaver. Executive Producer: Nicole Beemsterboer.
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