Wall Street has shown remarkable resilience despite ongoing geopolitical tensions and economic challenges. On 27 March, the Dow and Nasdaq entered correction territory as oil prices surged and the war with Iran escalated, falling more than 10% below their peaks. However, by 13 May, markets had not only recovered but were thriving, with the Nasdaq up 11% since the start of the year.
Investors appear to be betting on President Donald Trump backing down from extreme policies, a pattern dubbed 'Trump Always Chickens Out' (Taco). This includes delayed tariffs and a fragile Iran ceasefire. Former IMF official Eswar Prasad notes that confidence also stems from expectations that the Federal Reserve will intervene in any financial crisis, as seen with bailouts of Silicon Valley Bank.
Yet this resilience masks a 'K-shaped' economy, where wealthy Americans—who own 87.2% of stocks—continue spending while lower-income households cut back. Inflation has risen to 3.8% in April, up from 2.4% in February, and low-income consumers have reduced fuel usage amid high prices, unlike their wealthier counterparts.
Economists warn that hidden risks may be building as financial supervision weakens. The question remains how long this bull market can last, especially if the Iran conflict escalates or tariffs are fully implemented.
