Author: Blockworks
Author: Byron Gilliam
Original Title: Friday Charts: The market understands
Translated and Compiled by: BitpushNews
The financial market always looks forward, while humans are often trapped in the present.
Investment master Bill Miller once pointed out: "100% of the information you have about companies comes from the past, but 100% of their value depends on the future." This logic seems simple yet confusing - why do stock prices remain so indifferent when Middle Eastern conflicts reignite this week?
In such situations, we instinctively believe that the "market" does not understand the severity of the news. When stock prices react flatly, we think others must be wrong, asleep, or not focused enough. This cognitive bias, combined with humans' innate action preference, makes many investors behave like traders. The "fight or flight" instinct formed in the East African Rift Valley in ancient times has evolved into a "buy or sell" impulse in the modern stock market.
But we should resist this impulse, because Maggie Simpson is right: The market understands what happened, it just doesn't care.
Deutsche Bank strategist Henry Allen wrote in a client report this week: "Geopolitical events usually do not have a significant long-term impact on market performance."
LPL Financial's data supports this view - the impact of geopolitical shocks on the market is far lower than people expected at the time. Even after the worst events, the market often fully recovers within "weeks to months".
However, we are always keen to predict the catastrophic consequences of every unfortunate event. Have you ever heard an investor say "I don't know"? Rarely. But this week, we indeed heard this phrase from the most authoritative global market observers.
On Wednesday, Federal Reserve Chairman Powell candidly explained the FOMC's decision to maintain interest rates, saying: "We have never experienced this situation and must remain humble about our predictive capabilities." Although he was discussing economic conditions, this advice is equally applicable to life - research shows that most things we worry about are actually irrelevant.
As far as the market is concerned, despite humans constantly creating chaos through war, short-sighted behavior, and economically illiterate policies, global prosperity has continued to rise for decades. Therefore, a calm market like this week's is actually reassuring. When the market is unusually calm, it is likely not due to indifference or ignorance, but insight.
Let's look at the charts:
【Chart 1: Calm Waters】
The world seems to have gone through a turbulent month, but financial markets are undisturbed: Bit, gold, stocks, and bonds are all trading sideways.
【Chart 2: Expectations Realigning with Reality】
"Soft" economic data (sentiment-based surveys) has rebounded to align with "hard" data (actual economic activity). Although hard data is declining, the economic impact of tariffs and policy uncertainties is at least short-term lower than expected.
【Chart 3: More Good News in the Long Run】
Scott Grannis points out that US household real net assets have been growing at 3.6% annually for decades. "The US economy is an amazing engine of growth and prosperity," he summarized.
【Chart 4: Current Extraordinary Prosperity】
Ed Yardeni calls the current combination of inflation and employment a rare "economic nirvana": "Since the 1950s, there have been only 8 instances, including the current one, of this extraordinary economic state with inflation stabilizing at 2% and unemployment maintained at 4%."
But 2025 graduates cannot feel this prosperity:
2025 may not be the worst year for college graduates - but it is definitely the year with the most significant contrast in economic performance and employment situation. This might be because AI is replacing entry-level positions, or as Paul Krugman says, political uncertainty is causing employers to stop hiring. It's too early to conclude, but if you're still in school, you might want to consider further education.
【Chart 5: Terrible Career Start】
The unemployment rate for recent graduates is three times that of the 35-44 age group, and the consequences are more severe than they appear. Krugman cites an NBER study indicating that early unemployment will "last a lifetime": those who enter the workforce during an economic recession have lower long-term income, higher disability rates, lower marriage rates, lower spouse achievements, and fewer children.
【Chart 6: Contradictions in Data】
The Atlanta Fed's GDPNow model predicts second-quarter growth will reach a strong 3.4%, making the FOMC's annual growth forecast of 1.4% seem overly pessimistic. Worse, the FOMC's elevated inflation expectations make them look like they're anticipating stagflation.
【Chart 7: Inflation Predictions Become a Guessing Game】
Torsten Slok notes that nearly one-third of the current CPI price data is actually guesswork. As government layoffs make economic data collection difficult, this situation may worsen. As Powell said this week, these data are "of great public significance" to ensure people have the "most accurate grasp of the current economic situation and future trends" - though this is inherently challenging.
【Chart 8: Surge in Investors Chasing Limited Stocks】
Americans' per capita wealth is second only to Switzerland. Although slightly inferior when calculated by median, the number of new millionaires is astonishing: Bloomberg data shows that the US added 379,000 millionaires last year - over 1,000 per day! No wonder the market never drops.
Wishing all clever readers a pleasant weekend.
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