Despite War and Oil Price Fears, the Three Pillars Supporting Wall Street

[Financial News]  \r\n
\r\n\r\n
Analysts say there are clear reasons why Wall Street has kept setting record highs despite the Iran war and the resulting surge in oil prices.
The streak of record highs briefly stopped on the 12th local time as profit-taking hit semiconductor stocks, but the Standard & Poor's 500 Index (S&P 500) and the NASDAQ Composite Index (NASDAQ), both heavy in technology shares, remained close to their all-time highs.
Consumer News and Business Channel (CNBC) identified three major reasons why the New York stock market, which might once have been gripped by fear, appears to be shrugging off the war.
\r\n\r\n
Although the closure of the Strait of Hormuz, which handles 20% of global oil and natural gas shipments, sent international oil prices soaring by more than 40% after the war began, the actual impact on U.S. companies has been smaller than expected.
At least that was the case in first-quarter earnings reports.
TriVariate Research analyzed quarterly earnings releases from 1,465 companies disclosed since March and found that the combined market capitalization of firms expecting negative or mixed effects from the Iran war accounted for only 10% of the total U.S. stock market value.
TriVariate Research added that even that 10% figure may be overstated.
That suggests the broader S&P 500 can remain solid even if some market sectors struggle.
\r\n\r\n
Another reason the market has shown strong resilience and resumed its record-setting run is the robust earnings of Big Tech companies built on artificial intelligence (AI).
The largest Big Tech names in the S&P 500 have delivered results that are hard to compare with anything seen in the past.
Thorsten Slok, chief economist at Apollo Global Management, said the top 10 companies in the S&P 500 account for about 34% of the index's total net income, roughly double the 17% share in 1996.
JPMorgan Chase's trading desk noted that last week the net income of the M7 Big Tech companies exceeded that of the other 493 companies by more than 40%, the first time since 2014.
A market so heavily concentrated in a few names can make investors uneasy, but their rapid earnings growth on the back of AI is a positive for stocks.
The AI theme slowed on the 12th amid inflation concerns, but it still remains a key driver of the market's rally.
\r\n\r\n
The global economy has sharply reduced its reliance on oil after the first and second oil shocks, and the amount of oil needed to keep the U.S. economy running has also fallen significantly, helping support Wall Street's record run.
Antonio Gabriel, global economist at BofA Securities, said in a note last month that the amount of oil needed for the U.S. economy to generate the same level of gross domestic product (GDP) has fallen to about one-third of the 1970s level.
Gabriel explained that even if the Iran war escalates and pushes oil prices higher, the shock would be far less severe than in the past. He projected that a 10% rise in oil prices would add only 0.25 percentage point to inflation today. During the oil shock in the 1970s, inflation rose by 0.9 percentage point.
Gabriel said, "The likelihood of a 1970s-style scenario repeating itself is low."
However, some experts warn that although energy efficiency has improved and oil dependence has declined, current oil consumption is concentrated in logistics, the lifeblood of the economy, so a drop in oil supply could bring the economy to a standstill.
\r\n
dympna@fnnews.com Song Kyung-jae Reporter