The stock market has divorced the physical economy. War in the Gulf has pushed Brent crude above $125 a barrel, and US petrol prices have surged 42 per cent since the conflict began. And equities responded to the supply shock by breaking records; the S&P 500 climbed 10 per cent in April, its steepest monthly jump since 2020. Investors are buying tech stocks indiscriminately, ignoring energy shortages and stagnant consumer confidence alike.
The illusion of portfolio diversification has pretty much collapsed. Developed-market investors traditionally bought emerging-market equities for exposure to under-represented sectors: energy, commodities, or maybe basic materials. They now hold the same heavy concentration of semiconductor manufacturers that dominates their domestic indices. The IT sector overall accounted for less than 20 per cent of the MSCI EM index a decade ago; today, TSMC and Samsung alone account for that share. Capital has thus flowed directly into Asian chipmakers, nicely tying the fate of global portfolios to two specific technology hubs.
The capital markets have decided that an AI infrastructure spending boom is more important than a functioning economy. Amazon, Meta, Microsoft, Alphabet: four companies planning to spend $725 BILLION on infrastructure this year. This figure drives the Nasdaq higher, and chipmakers like Intel along with it, up 114 per cent in a single month for the latter. This is happening alongside a contraction in purchasing power for ordinary people - headline inflation at 3.5 per cent in March, annualised GDP growth of two per cent in Q1. Market participants simply do not care about diesel prices, up 48 per cent to $5.57 a gallon, because the technology mega-caps they hold don't run on physical supply chains - someone else's problem.
Financial media treats the stock market as a creature, bearing moods and intentions. It reflects zilch about underlying economic health, moreso reflecting the herding behaviour of HFT algorithms, nowadays driving between 60-80 per cent of all trading flows, pile into ETFs, exploit minute price gaps, and manufacture momentum. Human traders follow the machines because they're afraid of missing out. The resulting price action merely records speculative inertia. Nobody's is bothering to pretend otherwise anymore.
Politicians are quite happy to encourage this. Trump treats the stock price as a direct scorecard of his presidency, celebrating the equity surge as his approval rating drops to 34 per cent. His administration's attack on Iran triggered an energy shock, but the investment class ignores the policy failure and keeps buying, on the assumption that the administration will intervene to prevent a crash (the taco phenomenon seemingly provides a sense of security).
This environment has inevitably led to investing degeneracy: it is all gambling. There's no long-term bet, only options for the next day predicated on whatever polymarket is telling them, or better yet, the latest ticker they saw in an AI-generated post on twitter. Mention supply chain, memory, or AI and they flock to it - especially if Trump has just posted a 2,000-character essay to truth social.