Despite companies in Australia and around the world grappling with the financial damage inflicted on their businesses by higher oil prices, and consumers struggling under the burden of petrol pump pressure, the US sharemarket is in clover.
The disconnect between Wall Street and Main Street seems logic-defying.
The dominant US sharemarket index, the S&P500, is on the brink of capping a three-week winning streak despite the still-elevated oil price that six weeks ago sent it into a downward spiral. Last night, it moved up 0.8 per cent and since the start of April has steamed ahead 10.7 per cent.
It’s not that the US market didn’t get the memo that the war remains on foot, it’s just that it has decided to ignore Trump’s bluster, choosing instead to focus on the tea leaves that suggest Trump has lost his enthusiasm for the war that is unpopular with his voters and responsible for a fresh bout of inflation.
The strength in the US market suggests there is a massive wall of money supporting that thesis. And the fact that the tech stocks are leading the upward charge is further evidence that investors have become less risk-averse.
The market has decided to look through the financial havoc already caused by more than six weeks of elevated oil prices. Inflation is normally the stock market’s kryptonite, but this time it is being ignored.
But back in the real world of Main Street, the war debris is difficult to avoid.
Our prime minister is, cap in hand, midway through an Asian tour to shore up fuel supplies and a fire at one of Australia’s two oil refineries, Geelong’s Viva facility, has heightened how vulnerable our supplies really are.
But the US sharemarket has chalked up five straight days of gains to wipe out all the losses from the Middle East war.
Already in Australia, we have seen the early trickle of corporate profit downgrades, starting with the aviation industry and one of the major banks, Westpac, which warned about the risks for diesel and fertiliser dependent businesses.
The floodgates will open over the next month when the full impact of higher oil prices is sufficiently understood to allow companies to better quantify the negative impacts.
The fall in consumer demand for discretionary products is already starting to show as people redirect spending to fuel and away from holiday travel and eating out.
Meanwhile, vehicle sales in Australia are now expected to go backwards in 2026 according to BMI, a unit of the Fitch Group.
To cap it off, the Reserve Bank of Australia’s deputy governor Andrew Hauser just declared to a Washington audience that for Australia: “Inflation is going to be higher, activity is going to be low, we’re going to be poorer. There’s not much upside news in that story.”
But even the Australian sharemarket has jumped on the optimism bandwagon, having recovered much of the war-led decline and is up one third of a per cent over the past five trading days.
The war ripples have even found their way to luxury brands which are struggling without sales from those mega Middle Eastern malls which have emptied as tourists avoid the region.
But it seems investors, particularly in the US, have developed a couple of additional skills beyond analysing the value of companies and their prospects. They have become Donald Trump psychologists and linguistic experts in translating Donald-speak.
