The stock market has already ignored the war! From "TACO trading" to the AI investment frenzy, is a new bull market unfolding?

As of Thursday's closing of the US stock market, led by strong gains in technology stocks, the S&P 500 index and the Nasdaq Composite index surged to record highs against the backdrop of ongoing Middle East geopolitical conflicts, continued impacts on the oil supply side, and economists warning that long-term geopolitical conflicts could curb economic growth. The S&P 500 index closed at a historic high for two consecutive days on Thursday, with gains of up to 11% since the end of March. The Nasdaq 100 index and the Nasdaq index, which cover the world's top technology companies and are known as the "bellwether of technology stocks," have both risen for 12 consecutive trading days, with the former setting a record for the longest consecutive rise since July 2017. Despite the ongoing geopolitical conflict in Iran and the continued blockade of oil shipments through the Strait of Hormuz, global stock markets, including the US stock market, have maintained strong resilience in their upward trend. Despite the ongoing Middle East geopolitical storm, Wall Street's bullish sentiment towards the global stock market is becoming increasingly enthusiastic. After experiencing the initial series of intense sell-offs, Wall Street investment forces seem to be blocking out the noise related to war and no longer view war as the "core variable determining market direction," as they did in early March. They are now largely "ignoring the noise of war." Several financial giants on Wall Street attribute the current stock market's resilience to the fact that profit expectations for companies are still being revised upward, especially for technology companies closely associated with explosive demand for AI computing infrastructure that has not been disrupted by war. Many investors may wonder: Why is the stock market breaking new record highs during the Iran conflict? Economists and market analysts generally agree that this is largely because the stock market is a barometer of investors' views on what will happen in the future, rather than pricing and evaluating current conditions. They believe that investors essentially view the Middle East geopolitical conflict as a short-term episode that will be resolved relatively quickly, and are not overly concerned about it. Additionally, there is another major trend that is crucial for the rebound of global stock markets. The market increasingly believes in the "Trump Always Chickens Out" (TACO) scenario - that when major issues approach deadlines, Trump will ultimately choose to back down, leading to a significant market rebound, known as the "TACO strategy." The TACO strategy, which stands for "Trump Always Chickens Out," has been widely adopted by traders as the hottest trading strategy. Whenever Trump issues new, more aggressive tariff threats or other major threats that trigger market plunges, global stock and bond market investors bet that he will ultimately back down or his actual policy will be significantly weaker than his verbal threats, leading to a significant rebound at the right time, known as the "TACO strategy." Market strategists from BlackRock believe that the strong resilience of the current stock market is attributed to the fact that geopolitical risks from the recent Middle East conflict are likely to be very manageable in terms of real damage to global economic growth. In terms of core investment themes and market direction, BlackRock strategists are bullish on semiconductor stocks closely related to AI computing infrastructure, such as the leading AI computing industry leaders in the US stock market and the South Korean and Taiwanese stock markets. BlackRock emphasizes the upcoming US earnings season, believing that the engine of profit growth will support the ongoing bull market in US stocks. The strategists wrote, "Even during the geopolitical conflict, profit expectations for companies are constantly rising, and much of the logic and reasoning lies in the strong AI-related investment theme brought about by the surge in AI demand." Zandi explained, These stocks have their own operating logic independent of anything else, including the Iran war. I believe that if it were not for the market's very optimistic sentiment towards the AI super wave, we would have seen more decline and recovery would have been more difficult. Seydl stated, "We are in a 'AI-driven tech boom,' and investors are likely to remain optimistic until they believe this tech cycle is coming to an end." More broadly, stock investors are essentially betting on a company's future strong profit growth trajectory, and the current profit background "remains quite solid," Seydl said. For example, economists point out that consumer spending seems to be steady. Zandi stated that businesses' after-tax profits are also receiving a strong boost due to the Republican's so-called Big and Beautiful Act, which, among other things, makes it easier for companies to capitalize on investments as current expenses to reduce their tax burden. As the technology sector leads the global stock market in a strong rebound - especially with the S&P 500 index and the Nasdaq index continuing to hit record highs during the Middle East conflict, investors have sounded the trumpet for a new round of the global stock market's "bull charge." Long touted as the "Wall Street Oracle," veteran stock market strategist and co-founder of Fundstrat, Tom Lee, believes that the position of the US stock market and even global stock markets currently is stronger than when they touched their previous record high earlier this year. Lee agrees with a typical judgment from JPMorgan, a Wall Street financial giant, that the technology sector, centered around AI computing infrastructure, must lead the next super bull market phase in the stock market. Citigroup has upgraded its rating on US stocks from "neutral" to "overweight," and the firm forecasts that the S&P 500 index will reach 7,700 points by the end of the year. As of Thursday's US stock market close, the S&P 500 index closed at 7,041.28 points. The current narrative of a new bull market essentially has three main pillars supporting it: the strong resilience of corporate profits demonstrated by the latest earnings season, the return of risk appetite led by the technology sector/AI computing theme, and the market's judgment that the Middle East impact will not evolve into a long-term inflation akin to that of 2022. As long as these three pillars remain standing, Wall Street will continue to treat headlines related to war as trading noise. Citigroup's latest research report shows that the technology sector, which had been suppressed by geopolitical conflicts, valuation anxieties, and high expectations, is entering a phase of reassessment based on fundamentals as risk appetite recovers. After the marginal cooling of the situation in Iran, the market quickly shifted back from risk aversion to risk assets, with the S&P 500 and the Nasdaq strengthening simultaneously, indicating that funds are now re-trading based on the anticipated future overall profit growth trajectory driven by AI. Citigroup's strategy team emphasizes that the market is transitioning from a narrow bull market where only a few tech giants lead to a broader uptrend where more widespread sectors such as software, communications services, and cross-industry cyclicals are involved, but this transition is based on two prerequisites occurring simultaneously: tech giants continue to prove with profits and guidance that high valuations are not bubbles, and geopolitical risks continue to evolve predictably and manageably. Once these two conditions are met, the market will gradually spread from a few heavy-weight tech stocks to a wider range of sectors, leading to what may be a market breadth improvement-type bull market rally in the summer. In conclusion, as the technology sector leads the charge in the global stock market rebound - particularly with the S&P 500 and the Nasdaq hitting new record highs during the Middle East conflict, investors have already begun to signal a new round of the global stock market's "bull market charge." It is important for investors to adopt a long-term investment perspective and ignore the noise in order to navigate the market during geopolitical conflicts and turbulent times. The stock market appears to have "forgotten about war" not because it is ignoring geopolitical risks, but because the market trades on the future trajectory of earnings growth over the next 6 to 12 months, underpinned by strong earnings resilience and policy support expectations. On the other hand, the global bond market is still more directly influenced by inflation expectations and interest rate paths corresponding to oil price increases. As the stock market begins to anticipate a new round of a "super bull market" with the rise of technology stocks, investors need to remain focused on the long-term and continue to adhere to their investment plans while navigating through market noise.