Trump stuck down blind alley as markets stay blinded by profits

A war that threatens the flow of one-fifth of the world’s oil supply should be dominating market pricing. It isn’t.

President Donald Trump has pushed the US deeper into confrontation with Iran, locking policy into a narrow and dangerous path.

The Strait of Hormuz remains under constant threat, energy flows are disrupted, and, as a result, oil has surged above $110 a barrel at points in recent days and remains structurally elevated.

Yet equities continue to climb, supported by something else entirely: exceptional corporate earnings.

This is where, for me, the disconnect begins.

Roughly two-thirds of S&P 500 companies have now reported first-quarter results, and the numbers are undeniably strong.

Earnings growth is running at around 25% to 30% year-on-year, one of the fastest expansions in recent years. More than 80% of companies are beating expectations, many by a wide margin. Revenues are holding firm, margins remain resilient, and the largest tech companies are once again driving a disproportionate share of the gains.

The market is leaning heavily into this strength.

Money is flowing into AI-linked sectors, infrastructure, and mega-cap tech names with a level of conviction that reflects belief in sustained earnings expansion. The S&P 500 is trading near record levels as a result. We’re clearly seeing that momentum is powerful and concentrated.

It’s also masking risk.

Earnings tell you what has already happened. Markets should be pricing what comes next. Right now, investors are anchored to backward-looking data while underweighting a geopolitical shock that is unfolding in real time.

Oil above $100 is not a background variable. It feeds directly into inflation, transport costs, supply chains, and corporate margins. It raises input costs across industries and forces central banks into a more restrictive stance than markets would otherwise expect.

The transmission mechanism is already visible. Airlines are warning on fuel costs. Logistics and transport companies are facing margin pressure. Supply chain costs are beginning to edge higher again. These are early signals, not isolated incidents, and, in my opinion, investors should be paying more attention.

The broader issue is that geopolitical risk is being mispriced.

President Donald Trump is not stepping back, it would seem. The rhetoric has hardened. Military actions have intensified. Strategic shipping routes remain vulnerable. Each escalation increases the probability that disruption becomes prolonged rather than temporary.

History offers a clear framework. Oil shocks tied to conflict rarely resolve quickly. They embed themselves into inflation, into policy decisions, and into asset pricing over time. The current situation has already disrupted a significant portion of global supply flows, and the potential for further escalation remains high.

Despite this, there has been no meaningful repricing of risk assets.

Equities remain resilient. Volatility is contained. There has been no broad-based de-risking. Markets are behaving as though strong earnings can absorb geopolitical stress.

They can’t.

Strong earnings can delay the impact of external shocks. They cannot eliminate it. If oil remains elevated, inflation expectations will rise. If inflation rises, interest rate expectations adjust. If rates stay higher for longer, equity valuations come under pressure.

At the same time, continued disruption to energy supply introduces the risk of further price spikes and more persistent inflationary pressure. The interaction between geopolitics, energy, and monetary policy is where the real risk lies.

Markets are currently pricing a benign outcome.

They are assuming that earnings strength will continue, that the conflict will stabilise, and that inflation will remain under control. Each of those assumptions is optimistic. Taken together, they represent a significant underestimation of risk.

This is how mispricing develops.

Markets tend to absorb geopolitical risk slowly, then adjust rapidly once the implications become unavoidable. The current environment reflects the early stage of that process. The signals are there, but they are being overridden by earnings momentum and sector-specific optimism.

This gap between reality and pricing is unstable.

Energy is not a peripheral input. It is the foundation of the global economy. A sustained disruption at this scale reverberates through every asset class. It changes cost structures, policy responses, and growth trajectories.

Staying out of the market is not the answer, however.

History teaches us that long-term capital still needs exposure, and periods of dislocation often create some of the strongest opportunities. The approach, however, has to evolve.

This is a market that demands sharper judgement.

Broad, passive exposure carries more risk in this environment. Greater selectivity, and advice, becomes essential.

Companies with pricing power, strong balance sheets, and direct exposure to structural growth themes remain better positioned. Energy producers, defence, and segments of commodities are likely to continue benefiting from the current backdrop.

At the same time, overextended areas of the market that rely on low-cost capital or flawless growth assumptions face greater vulnerability.

Positioning should reflect that shift.

Diversification across geographies and asset classes becomes more important as volatility builds. Holding liquidity to deploy into dislocations adds flexibility. A disciplined focus on valuation and earnings durability matters more than momentum alone.

Markets are not broken, but they’re increasingly misaligned with reality.

The repricing will come. Investors who remain engaged and who seek proper advice will be better placed to capture returns and manage the risks that are no longer being ignored.