Where stocks will go after the Iran war ends
Sam Ro of the TKer newsletter reminds us where the stock market was before the war started, and offers thoughts on where it might go after.
Remember the Mag 7? The sell America trade? The buy America trade?
Before President Trump started the Iran war on February 28, markets were trying to navigate the artificial-intelligence boom and determine whether it was a bubble about to burst. Trump’s hot and cold trade wars posed another obstacle for investors.
The Iran war will end at some point, so I chatted recently with Sam Ro, founder of the TKer newsletter, about where markets are likely to be headed if—well, let’s be optimistic and say when—things get back to normal.
The full video is near the bottom, with a few snippets below. Takeaways:
Don’t try to trade the war. “What’s particularly unusual and fraught in this current situation is there’s no predicting what the president or the people around him are going to say,” Sam says. “We’ve seen this in recent days and recent weeks, where in the morning, it sounds like this is going to be a prolonged conflict. And then in the afternoon, they try to say it’s over.”
Don’t try to trade the war! 👇
Don’t sell America! “Two areas where the U.S. dominates the world is profit margins and earnings growth,” Sam reminds us. “Earnings have been growing faster in the US than most of the world for years. And that explains why these companies have been outperforming.”
Don’t give up on US stocks. 👇
Big US firms are remarkably adaptive. The “Magnificent 7” US companies—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla—are not monolithic, plying one trade forever. They’re remarkably adaptive, continually updating their business models. “There’s a pretty good chance, in five or 10 years, data centers won’t be the big market story, but Alphabet is still number one because they are in a completely different industry that we’re not thinking about right now,” Sam says.
The bottom might be in. 👇
“Sell America” can be misleading. “The S&P 500 gets somewhere between 30 and 40% of their revenue outside of the US, which is a lot,” Sam says. So if you own an S&P index fund, you’re already geographically diversified.
Full interview with Sam Ro. 👇
Market pressures could help end the war. “The way I think of it is, eventually there are greater forces than the people who are sort of making the decisions on whether or not to escalate or de-escalate the war or any conflict. If it does become the case that oil supply becomes severely constrained, then maybe more parties get involved to de-escalate this thing.”
And the future might look pretty good. “There’s a decent chance that the bottom in the stock market might already be in.”
In re wars, there is the advice of Nathan Rothschilds to “buy on the sound of the cannons and sell on the sound of the bugles.”
When wars end well, it has proven enormously difficult to overcome elimination of the stimulus effect of spending for war. When they end badly, it is worse.
There are “FRED” charts that track post WW II recessions. Until Ike began constructing the interstate highway system, we suffered repeated recessions. Much the same occurred after we wound down the Vietnam War.
Yes, the U.S. private sector has grown something like $160 trillion in “value” since the 2007-9 crisis, except for drops of roughly $60 trillion attributable to blunders between after 2016.
We are still up about $100 trillion, by the rather amazing capacity of free enterprise to adjust.
So, “TINA” prevails despite our collective stupidity.