Global stock markets have staged a notable recovery since late March, even as the Strait of Hormuz remains under blockade and oil prices continue at elevated levels. In a note to clients dated Tuesday, Yardeni Research examined the apparent disconnect between buoyant equities and the ongoing energy-related risks.
The firm recorded that equity markets worldwide fell sharply after the U.S. and Israel attacked Iran on Feb. 28, but then broadly recovered from the end of March onward. Yardeni highlighted that many markets have climbed back to, and in some cases surpassed, record highs during that rebound.
Yardeni acknowledged the paradox of rising share prices under circumstances that many would expect to weigh on growth. The firm noted that numerous economies are exposed to the threat of stagflation or even recession if oil prices remain high and if actual shortages materialize.
To explain the rally, Yardeni pointed to two central factors: corporate earnings resilience and technological innovation. The note observed that industry analysts have recently lifted forward earnings expectations for the All Country World ex-U.S. MSCI to record highs. Yardeni said analysts are "either all delusional or correctly betting on the resilience of the global economy," and added that the resilience "might be partially attributable to technological innovations that are boosting profit margins worldwide."
On positioning, Yardeni reiterated its Go Global investment posture that it first put forward in early December. That approach calls for underweighting the U.S. and overweighting international markets. "Go Global has been outperforming Stay Home since early last year," the firm wrote, while also noting that valuation multiples outside the U.S. remain relatively low compared with U.S. levels.
Emerging markets have been prominent leaders in the rebound, with Yardeni pointing specifically to South Korea and Taiwan as notable performers that the firm characterizes as plays on artificial intelligence. The firm said it has favored overweighting the EMXC ETF, which excludes China, and that that positioning "worked well this month."
Contextual note: The firm emphasized that the combination of elevated oil risks and strong equity performance is unexpected to some observers, and that the market response appears tied to analysts' rising forward earnings expectations and the potential for technology-driven margin improvements to sustain corporate profits.