Is the market immune to bad news?
The US conflict with Iran that started in February is still going on, the war in Ukraine continues and there are signs it may spread, and inflation just will not go away. And yet, the S&P is up about 13% through the first three quarters, the EAFE index is up over 10%, and emerging markets are up over 20% as of 9/30/2026 (based on publicly available index data).
The devil is in the details
It is true that productivity growth driven by AI is a major component. I will get to that in a moment, but it is not the whole story. While the conflict in Iran has not helped the market, if you told me in February that the conflict would remain unresolved in October, I would have expected much worse. Most would prefer to have oil cheaper than $100/barrel, but previous conflicts in the Middle East have seen oil prices double or triple, or even quadruple, as they did during the 1973 oil embargo. Consumers are understandably unhappy, and oil prices will likely be a significant driver in the upcoming election, but as far as the market is concerned, things could have been much worse.
Inflation has been persistent but has been driven primarily by energy prices, though food prices have begun rising a bit more lately as well. This has had a more muted impact on the economy, at least in part because Americans spend less of their income on food and energy than they have historically.
Productivity growth
To understand what continues to drive the market higher, we cannot ignore AI-driven productivity growth and the infrastructure to support it. This boom may be fundamentally different from what we saw during the dotcom era because it appears to be supported by strong corporate earnings in many areas, not just speculation. Recent earnings growth has been notable by historical standards, outside of recession rebounds. However, growth rates can change, and markets can reprice quickly.
What does this mean?
While the market has been resilient, it is not impervious to bad news. There are understandable reasons the market has not responded more negatively to the current news cycles. That does not mean it will continue forever. We have seen some strong-performing sectors, and this could be a good opportunity to make sure you are properly diversified and prepared for whatever comes next.
Important disclosures: This is for educational and informational purposes only and is not investment advice. Investing involves risk, including possible loss of principal. Past performance is not indicative of future results. Indexes are unmanaged and cannot be invested into directly.