Markets seem to discount war-related risk with record rallies

Optimism spreads across markets amid hopes for an extended ceasefire: US stocks hit an all-time high on Wednesday and continued to climb yesterday as investors cheered on hopes of an extended ceasefire. The Nasdaq 100 has climbed for 12 consecutive days, marking its longest streak of gains since 2017, Bloomberg reports. Regional markets have also continued to rally, with the DFM and the ADX slowly inching closer to pre-war levels, while Asian markets have started to recoup earlier losses.

The main reason? Signs that negotiations might lead to a permanent ceasefire. Despite there being no set date yet for the second round of talks, reports of a possible extension of the two-week ceasefire — and other reassuring signs that negotiations will be resuming — have helped calm market jitters.

Even options traders are now racing to position for gains in tech stocks, after earlier sell-offs left them underexposed. Tech stocks, in particular, are currently undervalued, with the premium for the Magnificent Seven narrowing to near eight-year lows in comparison to the broader S&P 500.

A part of this could also be that markets priced in a lot more than what has actually happened earlier in the conflict, CNBC’s Jim Cramer said. The fact that interest rates have not spiked as some had expected has helped reassure investors, he added.

But policymakers believe markets are underestimating the potential fallout of the war — even if it ends soon. When asked if markets need to be more wary, IMF chief Kristalina Georgieva said: “I would argue, yes, because what we see in supply chain disruptions is already quite significant.”

The issue is not just what’s happening right now, but the economic fallout expected after the war concludes, which, according to economists, will be severe. The IMF just this week slashed its global growth forecast by 0.3 percentage points and hiked its inflation forecast by 0.7 percentage points.

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MARKETS THIS MORNING-

Asian markets didn’t get the optimism memo, opening lower and bucking a wider rally across equity markets. Japan’s Nikkei and Hong Kong’s Hang Seng both fell 0.9% this morning, while South Korea’s Kospi was down 0.2%. Over on Wall Street, futures gained marginally.

The values in the table above are listed according to the market position as of 3:30pm IST / 2pm GST.