Not ending Iranian civilisation has many upsides, not least for investors. Indices enjoyed their best day in almost a year after Donald Trump announced a ceasefire with Iran, marking yet another victory for the Taco (Trump always chickens out) traders.
Nine of the S&P 500’s 10 best days during Trump’s second term have come on similar bursts of relief – so much so that, while the index is up a relatively modest 13 per cent since his inauguration, those sessions alone would have delivered gains of roughly 35 per cent, according to Dow Jones Market Data.
Trump might be inclined to view this as further proof of his greatness. “I guess they say it was the biggest day in financial history,” he said after markets soared following last April’s tariff U-turn. “It’s gonna be a record.”
However, unnerved investors might agree with Spanish prime minister Pedro Sánchez’s comment about not applauding those “who set the world on fire just because they then show up with a bucket”.
In essence, stocks are profiting from the extinguishing of fires that didn’t need to be lit, with returns being the product of relief rather than growth.
Mind you, that relief is milder than it once was, almost priced in before the crisis even peaks. Instead of plummeting on the day that Trump warned that “a whole civilisation will die tonight”, the S&P 500 actually advanced.
Threatening Armageddon, it seems, no longer spooks investors.
However, markets’ calm carries an obvious risk: if aggressive rhetoric isn’t punished, it may embolden further brinkmanship. Furthermore, strategic bluffs can take on a dangerous life of their own: as Bloomberg’s John Authers noted, the Iran episode was as much Waco (Will the ayatollahs chicken out?) as it was Taco.
One sees why investors err on the side of optimism, but the danger is that eventually, a crisis could spiral beyond Trump’s control.