I know Trump has promised peace countless times before, and he has let investors down, but this one looks like a bankable real McCoy.
Anyone who doubted the stock market dividend from a Trump-Iran peace deal was put straight on Monday with the S&P/ASX 200 Index rising 110 points (or 1.25%), after banking a 2% gain last Friday. And if Monday’s rise wasn’t strong enough given the peace revelation that happened on Sunday (US time), just look at the market reactions around the world:
- Japan’s NIKKEI surged 4.99%.
- Shanghai put on 1.61%.
- Germany’s DAX rose 1.27%.
The headline in the AFR says it all: “Stocks and bonds soar as Iran deal eases fears.” To expand all of that — stocks prices rose, bond prices rose, which means yields or interest rates fell and even bitcoin had a good day at the office. This is what market experts call “risk on” and it says a headwind that was worrying those investing for growth has U-turned to become a tailwind.
Peace means the Strait of Hormuz gets opened and oil supplies start to move back towards normal and though it will take time, over time energy costs fall and so do all the costs and prices other oil-related products that escalated because of this Iran war.
The news reduces the chances of a global recession and could even stop our RBA from pushing through more rate rises, which could be mimicked by other central banks. This all adds up to very good news for businesses, their profits and share prices, and boy hasn’t our market needed some help?
Our S&P/ASX 200 Index is down 3.1% since the US bombing of Iran started, while the US-based S&P 500 index is up 9.5%! How does that happen?
Well, the Yanks have the greatest tech companies and AI-investing businesses on the planet, and this has driven US stock market indexes higher, while we are more reliant on our big banks and big miners.
So, it’s no surprise that BHP was up 3.6% today to a record high of $65.18,and gold companies rose with the likes of Newmont up 6.8% on lower oil prices, helping lower inflation and possibly stopping US interest rate rises, which helps the gold price.
Why would miners like Rio Tinto (up 2.71% today), and Fortescue (FMG), which rose 3.02% be chased by market players on peace prospects? Well, try that peace is a good stimulus for the global economy and when the world grows the demand for iron ore to make steel that goes into buildings, roads and all things infrastructural goes ballistic.
And given the consensus view is that the AI boom is not a done and dusted play, it all says being pro-stocks is not a dumb investment strategy.
Yeah, Trump has promised peace on multiple occasions, but this one looks the most believable, and provided this one is for real, then going long stocks, especially miners, makes a lot sense.
I also suspect that tech stocks will get re-loved eventually, but this might be a slower deliverer than the likes of BHP, but all up this peace deal does look bankable real McCoy.
And for those who want a safer, more diversified play, an overall market ETF such as VAS is likely to be a winner from peace in Iran.
