Markets Haven’t Reacted Yet

In this episode of the Know Your Risk Podcast, hosts Zach Abraham and Chase Taylor analyze the rapidly evolving geopolitical landscape following a potential de-escalation in the Middle East conflict, particularly around Iran and the Strait of Hormuz. Despite severe physical disruptions—such as fuel shortages in the UK and Australia, the closure of critical LNG infrastructure, and global energy supply shocks—the markets remain stubbornly resilient, with major indices up and volatility down. The hosts argue that the market has become detached from fundamentals, functioning more like a 'pinata' or 'Santa Claus with a bag of nickels,' rewarding optimism regardless of real-world damage. They highlight that while the war may be effectively over, the economic fallout—higher energy prices, supply chain kinks, and global fragility—remains unpriced in equities. The episode underscores a growing disconnect between market performance and underlying economic reality, with the S&P trading at 240% of GDP and 20% equity drawdowns equivalent to losing half of national GDP. The hosts caution against complacency, warning that the market’s exuberance could lead to a 'rug pull' if it fails to account for persistent inflation, higher fuel costs, and the repatriation of foreign capital. They also spotlight emerging opportunities in offshore oil, electrification, solar, and nuclear energy as structural shifts accelerated by the crisis.