The US stock market reached yet another record high on Thursday, marking a significant milestone that indicates all sectors of equity are being buoyed by this trend. However, a closer examination through the lens of risk factors reveals more intricate dynamics that have surfaced since the onset of the conflict with Iran on February 28, as shown by a variety of ETFs through the market’s close yesterday (May 14).
Throughout April, the premium on the US 10-year Treasury yield over a fair-value estimate remained relatively modest; however, it has been gradually increasing after dropping to a near-equilibrium level late last year. The looming threat of higher inflation due to the Iran conflict still poses a risk, although the adjustments in market premiums have been subtle thus far.
President Trump has indicated the possibility of resuming strikes against Iran, suggesting this stance is less of a negotiation tactic and more of an initial step in a prolonged standoff. Recently, he cautioned that the fragile cease-fire was on “massive life support.” This signals a potential for a lengthy and entrenched impasse, posing a threat to the global economy as extended energy export blockades from the Gulf could lead to dwindling oil supplies and rising scarcity risks.
President Trump described the ceasefire with Iran as being on “massive life support,” indicating that the risk of inflation is likely to remain high.
Current forecasts suggest the US economy will maintain a growth rate of over 2% in the second quarter, according to medium-range estimates gathered by CapitalSpectator.com. This preliminary assessment indicates that the economy may be more resilient to the challenges stemming from the Middle East conflict than previously believed.
● House of Fidelity: The Rise of the Johnson Dynasty and the Company That Changed American Investing
Justin Baer
Review via Financial Times
Few companies have a greater impact on everyday lives than Fidelity. Headquartered in Boston, this financial powerhouse directly manages $7 trillion and oversees a total of $18 trillion, catering to approximately 57 million individuals—one in five American adults—through various retirement plans, investment funds, and brokerage accounts.
Yet, this private company is owned and operated by a reclusive New England dynasty that largely avoids publicity. As a result, clients and competitors alike have had to speculate on the strategies employed by CEO Abigail Johnson and her team as Fidelity experiences rapid growth and surpasses its rivals in terms of workforce, revenue, and crucially, profit margins.
In “House of Fidelity,” seasoned journalist Justin Baer seeks to unveil the inner workings of this enormous organization, which employs over 80,000 individuals and generated an operating income of $12.7 billion last year—significantly overshadowing BlackRock, the world’s largest publicly traded asset manager.
Investing in foreign bonds has not yielded significant advantages for U.S. investors since the inception of the Middle East conflict, with the notable exception of high-yield corporate bonds from emerging markets.
In the days leading up to the conflict with Iran that began on February 28, The Capital Spectator reported that “Bullish Momentum Holds Firm in Global Asset Allocation,” based on data from a selection of ETFs focused on multi-asset strategies. The risk-on sentiment quickly dissipated as investors sought safety amidst the hostilities. However, more than two months later, it appears that risk appetite is regaining strength.
War? What war?
The ramifications of the Middle East conflict continue to shake the global economy; yet, for the strongest performers among US equity factors, the war has become little more than a minor distraction.
The conflict between the US and Iran has now entered its third month, with the likelihood of a swift resolution appearing slim following the recent breakdown of a fragile ceasefire in the Gulf. Oil and gas prices remain high, virtually assuring that inflation will continue to rise or at least stay elevated in the short term.
