Some of you may remember the Honey badger don't care craze around 2011. It became a full-blown pop-culture catchphrase in commercials, merchandise and a video that attracted over hundred million views. It resonated because the honey badger, despite being relatively small, will stand its ground against much larger animals, raid beehives despite stings and attack venomous snakes.-nothing seems to bother it.

In other words, an animal seemly completely unconcerned by things that any sensible animal would avoid- Perhaps a perfect analogy for today's stock markets which over the last few weeks have been going higher and higher, totally uncaring about events or situations that any sensible economist or investor might be concerned about.

• The US economy loses 23000 Jobs in July when economists expected 83,000 gains - stocks don't care.
• The Straits of Hormuz remain largely closed and all reports seem to indicate Iran will come out with greater financial leverage than when the conflict began - stocks don't care.
• Inflation stays stubbornly elevated - and the price of gas which impacts middle and lower classes the most, remains 30% or more higher than just a few months ago - stocks don't care.
• Borrowing costs including mortgage rates especially in the US reach multi-month highs and no signs that central banks will be cutting rates meaningfully any time soon - stocks don't care.
• The upcoming and potentially pivotal US midterm elections, which daily seem to be becoming more confrontational, - stocks don't care.

Thus it was an impressively winning week everywhere – the S&P 500 and the Dow Jones made all-time highs, and the Nasdaq, which had been in a bit of a freefall over the last few weeks, driven lower by a combination of AI concerns and the blowup of a big leveraged AI hedge fund, reversed course and was the weeks leader with a 5.2% jump. Toronto, the broad European Stoxx 600, Italy and France also joined the record high list as every major European Index rallied strongly.  Asian markets were less impressive, although the two big laggards for the year, China and India both managed gains of over 1%, joined by Taiwan. However South Korea’s Kospi fell over 7%, still digesting the rocket ship like gains of its major semiconductor and memory stocks over the last few months, nevertheless the index is still up over 68% for the year! 

The reality seems to be that despite all the concerns, one of the key factors driving markets higher is corporate profits way above analyst earlier predictions. In the US, analysts are now expecting the strongest growth rate since the second quarter of 2021. Second-quarter net income is expected to rise an average of 50.4% for companies in the S&P 500, based on reports as of Friday, for reference as recently as June, the projected earnings growth rate was  just 23.1%.  Also, no doubt helping to boost profits was the hundred billion dollars in tariff revenue refunded to major companies such as Procter & Gamble, Amazon, Black & Decker etc.. There's more refunds to come, however I see no  evidence of any of those refunds filtering down to the poor consumer and probably never will.

It's a similar story in Europe, with over 70% of Stoxx 600 companies having reported second quarter numbers, data shows net income up 19.0% year-over-year, a resilient and above-average reporting season and a clear sign that European companies have navigated higher energy costs and Middle East tensions better than feared. Spending in the industrial and specifically the defense sector has been highlighted as one of the key drivers. And while not as impressive as the US gains, expectations now are for a full year earnings growth in the 15% range on average, compared to 10 to 12% forecasts of a few months earlier.

So as long as the earnings growth continues, progress in the Middle East, even if halting, keeping oil prices relatively restrained, weakening employment numbers in the US raising expectations of central-bank interest rate cuts sooner rather than later and lastly still of healthy amount of bearish skepticism over the market resilience, which is keeping trillions of dollars sitting on the sideline money market funds-  there doesn't seem to be anything on the near term horizon that can cause a serious disruption.

Dennis